Olympia Development of Michigan will privately refinance and pay off $200 million in public bonds for Little Caesars Arena, under a deal approved Wednesday.
Little Caesars Arena’s original funding model included $200 million in non-tax-exempt Series B bonds that were issued by the Michigan Strategic Fund. That arrangement called for Olympia, owned by the Illitches, to pay off the bonds over a period of 30 years.
However, the Series B bonds are now being transferred to Olympia, which plans to privately refinance the debt. The agreement, approved by the Downtown Development Authority on Wednesday, effectively gives the DDA more bonding capcitity to pursue other projects. In addition, the savings from Olympia’s refinancing is expected to be invested into development in the area surrounding Little Caesars Arena. More from Crain’s Detroit Business:
“Detroit’s well-documented comeback is being recognized by third-party financial entities, which will drive even more investment in the city, region and state,” Christopher Ilitch, president and CEO of Ilitch Holdings Inc., said in a statement. “For our organization, savings realized from the retirement and private refinancing of these bonds at a lower rate will contribute to our expanding vision for The District Detroit.”
Another $250 million in bonds (called Series A) are purely a DDA obligation and remain on the economic agency’s books. They will be retired through 2045 by a special downtown property tax.
Arena capital costs beyond the two bond series are paid by Olympia. Under the original deal between the DDA and the Ilitches, the $200 million non-tax-exempt Series B bonds were to be retired by Olympia via payments that averaged out to $11.5 million annually over 30 years. Olympia keeps all arena revenue — generated primarily by Detroit Red Wings and Pistons games along with concerts and other events — under its venue management deal with the DDA.
Now, the Series B debt will be entirely a private Olympia obligation and will be refinanced at a to-be-determined lower rate. The company didn’t disclose its repayment source for the bonds once they’re entirely private, but the assumption is that the money will be from arena events. The Series B bonds, which were bought entirely by longtime Ilitch financier Comerica Inc., were originally forecast to have $132.5 million in interest over 30 years
Officials estimated that the bonds will be off the DDA’s books by the end of this month. Earlier this year, the DDA issued $34.5 million in bonds for changes to Little Caesars Arena to accommodate the NBA’s Pistons. Those bonds are not affected by this transaction. The arena opened in September.
Image courtesy Little Caesars Arena.