It's been nearly a month since the City of Glendale ripped out the hearts of Winnipeg hockey fans by passing a sweetheart of a deal to the prospective owner of the Phoenix Coyotes -- but it's still not signed, sealed and delivered nearly two weeks after the National Hockey League's Dec. 31 deadline.
A big part of the agreement that convinced Matthew Hulsizer to agree to buy the former Winnipeg Jets and keep them in the desert is a US$197-million payment he'd receive for parking revenue rights and a management fee to run the Jobing.com arena where the team plays. This payment will reportedly be funded by a municipal bond offering of US$125 million.
While it's likely to sell out, there's no guarantee that it will because the U.S. municipal bond market has recently hit lows not seen in nearly two decades.
"The municipal bond market suffered massive outflows towards the end of the year. The worry is there's credit contagion going on and that a replay of the mortgage market (meltdown) is now hitting the municipal bond market," said Jack Ablin, chief investment officer of Chicago-based Harris Private Bank, a division of BMO.
Ablin isn't predicting the sky will fall in Glendale but he said many American cities and towns are financially stretched with rising debts and falling tax revenues. They're also bearing the brunt of the pullback from the private sector over the last two to three years.
He described the municipal bond market as a "patchwork quilt" of offerings with an average size of $30 million. The money raised is typically used to fund upgrades to sewer systems, hospitals, schools and sports facilities.
The City of Glendale hasn't released the terms of the bond offering but based on its previous ventures, Ablin predicted a pre-tax yield of about 7.75 per cent, a level he considers to be "pretty high" for such an issuer, with an approximately 25-year term to maturity. A similar U.S. government bond, meanwhile, has a yield of about 4.5 per cent.
The City of Glendale's financial team is working on the bond issue and spokeswoman Julie Frisoni said she expects it will be issued "shortly." She said no yield or term to maturity has been released yet.
"They're going to (issue the bond) at the most advantageous time for the City of Glendale. They're monitoring the market and they'll determine when the most advantageous time is for us," said Frisoni. "It is our financial folks' expectation that these bonds will be sold this month. I don't expect this to be a long, drawn-out process."
Ablin said the offering definitely comes with some risk but he believes it will sell out because of its attractive rate of return.
"There may be investors who feel if there is a problem (with the Hulsizer deal), it won't be for five years and they'll sell the bond before then," he said.
A pair of local experts aren't so sure.
Guy Bieber, head of National Bank Financial's Winnipeg operations, said he'd consider buying the Glendale bond but he'd be a lot more interested if the yield were a little lower and the bond's rating was a little higher.
"They'll have to price it aggressively to attract investors. I would argue there's more risk in long-term bonds than there is in the stock market in general," he said.
Charlie Spiring, CEO of Wellington West Capital, said because the Glendale region is facing a number of financial challenges right now, it's going to be a "difficult" issue to sell.
"It's not a lay down, (an issue) that's so easy (to sell) that any fool could do it. It's got a big premium. The market will be saying, 'you're a poorly-run business,'" he said.
Spiring said he doesn't want to raise the hopes of local hockey fans starved for the return of the NHL, but the fact remains that the Coyotes deal is still far from a slam dunk.
"There are reasons why Winnipeggers should be patient here. There are clearly problems in Glendale. They clearly don't want to give the team back to Winnipeg and they're going to fight tooth and nail to keep it," he said.