Rise In Auction-Rate Bonds Puts Squeeze On Sports Stadiums

Superdome Sees Debt Payments Triple In February Due To Rising Auction-Rate Bond Prices

The auction-rate bond crisis is "forcing some states to pay three times higher interest'' on stadiums, according to Kuriloff & McDonald of BLOOMBERG NEWS. Louisiana Bond Commission Dir Whit Kling said that debt payments for the Superdome cost the state "about $1.8 million last month -- up from roughly $500,000 in January -- after interest rates tripled to 12[%]." A person familiar with the debt estimated that "some private borrowers are paying even more, with rates on bonds sold'' by Giants owners reaching 22% this week. Louisiana State Treasurer John Kennedy: "I don't think anyone ever anticipated this. We're paying the price.'' Univ. of Maryland public finance professor Dennis Coates said that states and cities "that subsidize sports venues to stimulate the economy have often failed, and this year's credit meltdown will make it even harder to avoid raising taxes or reducing services to cover bills."

BACKFIRING: At least five states and cities, including Louisiana, Indiana, New Jersey, DC and Cleveland, since '05 "used tax-exempt auction-rate bonds'' to host teams in the NFL, NBA and MLB. The debt was "billed by bankers as a cheap alternative to conventional fixed-rate bonds." Kuriloff & McDonald note the auction-rate market now is "backfiring on hundreds of borrowers as fallout from the collapse of the subprime mortgage market threatens the credit ratings of the world's largest bond insurers, deterring investors from even the safest debt." Rates on bonds that reset weekly climbed to 6.56% on March 19 from an average of 3.68% for the 12 months through January (BLOOMBERG NEWS, 3/27).