The pandemic dated back a few months when a two-year-old nonprofit sold municipal bonds to raise $280 million in capital private recreational sports complex on the edge of the Arizona desert.
Underperforming mutual funds clawed back tax-exempt debt. Bond payments were to come from parking and admission fees, a 670-seat sports bar, and tournaments, festivals, and after-school programs leasing the park’s stadium, grounds, and courts.
The 320-acre park opened in February in Mesa, Arizona.
After forecasting first-year revenue of $125 million, the park brought in $15 million in its first six months and is counting on an emergency cash injection to pay bondholders. Bond prices have fallen, fund relations have soured, and the Securities and Exchange Commission is asking questions.
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Douglas Moss, president of the nonprofit Legacy Cares Inc., said he was not aware of any federal investigations and that his company had been candid with bondholders about the risks.
“It’s a start-up. It’s a big startup, but it’s a startup,” Moss said. “Everyone works together, stays focused and gets through the tough times.”
The project, now called Bell Bank Park, provides a window into a little-known corner of the $4 trillion municipal market where start-ups can sell debt with minimal oversight to fund speculative developments.
Most municipal bond debt is paid off with ultra-reliable state and local tax dollars. But private companies, usually nonprofits, can borrow at tax-free rates with the help of government agencies. These so-called bridge issuers sell bonds and then lend the proceeds to the borrower, collecting fees along the way and assuming no liability for debt repayment.
Over the past five years, as the economy boomed into an era of easy money, conduit issuers funded experimental recycling projects, charter schools, convention center hotels, and a mall and a New Jersey theme park with one of the largest indoor ski slopes in the Western Hemisphere.
Mutual fund managers lined up to buy debt after tax changes left wealthy households hungry for munis. High-yield municipal bond mutual funds held $114 billion in August, double their assets in 2016, according to Refinitiv Lipper. Even the capital outflows triggered by the Covid-19 stock market crash of March 2020 were short-lived; in this month of June, the money was coming back.
Today, bond prices are crashing, construction and labor costs are skyrocketing, and risky trades are faltering. The New Jersey mall and theme park defaulted last month.
The intermediary issuer who sold the Bell Bank Park bonds, the Arizona Industrial Development Authority – which collected more than $1 million in fees – said through a spokesperson that it “rely on the lending institution to perform due diligence on the feasibility of repaying the loan.”
The park was a dream of Phoenix-area entrepreneur Randy Miller. Mr. Miller and his son Chad stepped down as directors of Legacy Cares in February 2020. That way, Legacy Sports USA, the for-profit company they run with Randy Miller’s other son, Brett, could managing the development and operation of Bell Bank Park without jeopardizing the bond’s tax-exempt status, according to records and interviews.
Legacy Cares sold a combined $280 million of unrated municipal debt in two deals in August 2020 and June 2021 underwritten by BC Ziegler and Co. upper-tax-bracket investors, Nuveen data shows. LLC.
Mutual funds bought almost all of them, according to data provider FactSet. Investment firm Vanguard Group currently holds $98 million. A video of the park’s groundbreaking ceremony shows Chad Miller thanking “Vanguard, our anchor investor, who believed in this vision.”
A small portion of the debt changed hands in the recent bond sale. Some 30-year bonds traded this week at 100 cents to the dollar, down from 114 cents in June, while others traded at 95 cents in August.
Vanguard’s head of municipal credit research, Nathan Will, said in a statement that “the company’s lineup of municipal bond funds is broadly diversified, with each portfolio comprising thousands of securities.”
For Mesa, a city of half a million people, Bell Bank Park was a significant addition, part of the southeast expansion of the Phoenix metro area. Mesa spent $1.2 million on a section of freeway that serves the park and nearby developments. Fitch Ratings cited the park’s tourism and employment projections to confirm Mesa’s triple-A rating.
Mr Moss said supply chain issues, high labor costs and Covid-19 cancellations have delayed the completion of the park and its 24 football and soccer pitches, 69 pitches volleyball courts, 24 baseball diamonds and 19 basketball courts. He noted that the United States Gymnastics Development Program held its championships at the park in May.
“We did a demand and market analysis for the project,” Chad Miller said. “There was a great need.
Budget documents now project annual revenue of $48 million, down 60% from the original projection, and rely on an $8 million cash donation to cover a January bond payment . Mr. Moss and Chad Miller said the money could come from Legacy Sports USA.
In the first half of 2022, the park collected $15 million in revenue, according to bond filings. Investors peppered management with questions during a conference call in June in which a Legacy Sports USA official said the team could not expect a manpower shortage.
“I and several other creditors were asking about [labor issues] in January,” said Sean McCarthy, head of municipal credit research at Pimco. “Can we stop with the hyperbolic comments about huge growth, huge interest? Let’s be more specific because these figures are a little disappointing.
City managers in Murfreesboro, Tennessee, and McKinney, Texas, where Legacy Sports USA has plans for other sports parks, said they are waiting to see if Mesa Park makes its next bond payments. before moving forward.
Stephen Griffin, a youth sports investor and former accountant unaffiliated with Bell Bank Park, said he contacted the SEC in July because he was concerned about youthe feasibility of the project and the completeness of the declarations of obligations.
Mr. Griffin has since fielded questions from the SEC’s Law Enforcement Division’s Public Finance Abuse Unit about park revenue forecasts, feasibility studies and facility use agreements. . He also shared documents with the SEC and registered as a whistleblower, according to interviews with him and emails he provided to The Wall Street Journal.
An SEC spokesperson said the agency was not commenting on whether or not there was a possible investigation.
Write to Heather Gillers at [email protected]
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