Lending support: Banks line up as Oak View Group, Seattle NHL team borrow record debt amount
Debt to finance the Seattle NHL expansion team and the renovations of the former KeyArena has totaled $825 million after a pair of loans led by SunTrust Bank recently closed. It is believed to be the most amount of debt ever connected to an NHL franchise.
Developer Oak View Group is borrowing $500 million to finance its renovation of the arena, while the yet-to-be-named expansion team is borrowing $325 million to help finance a $650 million expansion fee.
That isn’t the only major NHL-related debt in the market. OVG also is looking to borrow another healthy nine-figure sum to finance the New York Islanders’ proposed arena in Belmont, N.Y. That facility is not expected to open until the 2021-22 season.
The Seattle loan, in addition to SunTrust, has Citizens Bank, MUFG and City National in the syndicate. Some finance sources questioned the amount of debt for a single NHL team and arena but conceded that at a time when lenders are hungry to extend credit in sports, it’s not a surprise the Seattle deal closed.
Oak View Group CEO Tim Leiweke said that the company is “extremely comfortable with our debt service,” noting that the project required “a debt package to overcome the fact that we don’t have subsidies — this is a complicated and expensive project.”
Leiweke said the entire redevelopment is expected to cost between $850 million and $900 million, which not only will include refurbishing the arena but a more than $75 million investment in an underground parking garage below the arena. Oak View also will have control of a piece of land next to the arena that it could develop, as well as sponsorship and advertising rights to the overall arena campus, things that Leiweke said, “when you take all of that together, the leverage on this project from a percentage standpoint is less than any other project that I’ve done.”
There was a strong appetite in the loan markets for the debt, and no questions about the amount of leverage, or borrowing for an arena with an NHL team, said Peter Dorfman, managing director in the SunTrust Sports and Entertainment Group.
“Everyone felt having the NHL expansion team committed to the arena project was a key component,” Dorfman said. “But also, confidence in the strategic partnership with Oak View.”
Leiweke said projections for contractually obligated income for the arena, as well as its early success on that front, also made it attractive for lenders.
Oak View Group has already secured four of the eight founding partners and sold two presenting partner deals for the arena; has sold the majority of the suites in the building; and is currently in negotiations with four different companies regarding naming rights, Leiweke said, though he declined to offer specifics. He said he expects all of that inventory will be sold by the end of the calendar year, nearly two years in advance of the arena’s opening.
“We believe that when you put all of this together, the revenue that we’re going to generate will make this arena a top-five-grossing arena in the world,” Leiweke said.
Oak View Group, founded in 2015 by Leiweke and Irving Azoff, will own the arena, with Live Nation having a smaller equity stake. Last year, private equity firm Silver Lake invested more than $100 million in Oak View Group in exchange for an equity stake in OVG, which recently struck a deal to develop a new arena for the University of Texas in Austin.
Mitchell Ziets, who advises on stadium and arena finance, agreed that the debt levels for Seattle and under consideration for the OVG-Islanders project are not out of line.
“Based on the NHL arena projects that I have been involved in recently and what I know about the NHL, it is clear that franchise values and team and arena revenues are growing rapidly,” he said. “And when you combine a new arena with a vibrant real estate development, which as we have all seen is the current trend, this turbocharges the overall economics and value. Thus, while I have not seen the operating projections for either the Seattle or Islanders projects, I can certainly understand how the teams and lenders are both comfortable at the levels of arena financing you have described.”
NHL rules allow teams to borrow up to half of their value, according to sources, hence Seattle being able to borrow $325 million after an ownership group led by David Bonderman and Jerry Bruckheimer agreed to pay a $650 million expansion fee to enter the league. The team has more than 33,000 season-ticket-holder deposits and will launch in the 2021-22 season.
NHL Deputy Commissioner Bill Daly declined to comment.
“What is important to note is how Oak View views these projects,” said Keegan McDonald, OVG’s director of business development and finance, when asked if buildings with only NHL teams as tenants could support the amount of debt in question. “This is a bet on live, this is a bet on content outside of professional sports.”
By live, McDonald primarily means concerts, a sector he referred to as a “tenant” in and of itself. “It’s not only the NHL,” he said. “Music is our other tenant.”
Editor’s note: This story is revised from the print edition.