Divvying up the city and county’s bond business is normally about as boring to the average person as an auditor’s fine print. A few public officials get wined and dined, the same old financial firms get the business, some salesmen make a nice commission, and another road or power plant or municipal sewer gets built.
But when a bond guy with 23 years experience in Memphis says the bond financing of the biggest public project in city and county history is also the most political deal he has ever seen, that’s news.
Rob Baird, head of public finance at Morgan Keegan, told the Sports Authority Thursday “the most perplexing set of events” he has seen in his career was the decision to give the Memphis-based firm a 7 percent share of the $250 million deal while New York-based Goldman Sachs, which closed its small Memphis office last October, got 26 percent and headliner status. Even after Morgan Keegan’s share was upped to 19 percent, Baird still called the allocation “the most political deal I have ever seen.”
The Sports Authority is issuing the bonds for the new NBA arena. The city and county finance directors, along with consulting firm Public Financial Management (PFM), decide who gets the business. As recently as a week ago, Morgan Keegan was in with the small fry in the seven-company deal. In financing etiquette, this is like putting one of your blue-chip corporate citizens in the upper deck at The Pyramid instead of at courtside.
The issue isn’t money. The underwriters will split about $2 million.
“It’s prestige,” said Baird.
Marlin Mosby, head of PFM, said he agreed “absolutely” with that assessment.
“Want to trade jobs?” he asked a reporter after getting off the hot seat.
By Baird’s lights, Mosby, city finance director Joe Lee, and county finance director John Trusty only added insult to injury when they explained their thinking.
“This is the biggest financing transaction we have ever had in Shelby County,” Trusty told authority members who wondered about a “slap in the face” to Morgan Keegan.
He and Mosby said a national firm like Goldman Sachs had more clout, more experience in supposedly exotic financial instruments, and would get a lower interest rate by as much as half a percentage point, which they said is worth $2.5 million in interest savings over 30 years. Baird bristled, insisting Morgan Keegan has plenty of expertise and could get just as good a rate.
The suggestion that thriftiness drove a deal with a $250 million price tag is questionable. Over 30 years, $2.5 million in interest works out to a whopping $83,333 a year, or about what hot dog vendors will probably be making at the new arena in 2035.
So where did the shots come from, who fired them, and why was the bond deal reworked at least 12 times, according to Lee?
Baird noted that Morgan Keegan has done lots of big bond issues for the city and county and MLG&W over the years. But politics is about people and relationships. On that score, Morgan Keegan is not everyone’s darling.
A few years ago, Morgan Keegan and Mayor Willie Herenton floated an ill-fated proposal to sell MLG&W. About the same time, Rodney Herenton, son of the mayor, went to work for Morgan Keegan.
The MLG&W idea bombed but left some politicians feeling that Morgan Keegan was greedy and out of touch. With a majority-black population in Memphis, diversity or minority contracts or black participation or whatever you want to call it is a lot bigger issue to elected officials than whether or not a silk-stocking brokerage firm gets its feelings hurt.
Coincidentally or not, Rodney Herenton and Mark Yates left Morgan Keegan last year, where they were among only a handful of black professionals, for
rival First Tennessee.
Neither the Herentons nor Yates has ever publicly indicated any dissatisfaction with Morgan Keegan. But minority participation is clearly the name of the game in all aspects of the new arena. Minority firms got 46 percent of the bond business, and at least one Sports Authority member, Pat Carter, wondered why it wasn’t more. The selection of law firms, architects, PR firms and general contractors has been similarly balanced.
The former head of the Sports Authority, Reggie Barnes of Morgan Keegan, resigned to avoid any conflict of interest in the bond deal. Barnes hosted an NBA-related meeting at all-white Memphis Country Club last year that ticked off Shelby County Commissioner Walter Bailey. Then Barnes cavalierly dismissed Bailey’s objections. A little payback may have been a factor in the initial allocation of only 7 percent of the bond deal to Morgan Keegan, which even Mosby conceded was so low “it never would have passed” at the Sports Authority.
So what’s the upshot of all this? Whatever illusions anyone may have had about the Sports Authority and the New Memphis Arena Public Building Authority being able to inoculate the biggest financing deal in local history from politics have been shattered. Every single important decision so far, from board membership to contractors, has been dictated by backroom politics, with only the final act being played out in public.
And the financing itself remains vague, including the $20 million private investment, the private ticket guarantees after the first ten years, the impact of 9/11 and the recession on revenue streams, and the role of business bell cow Dean Jernigan, who resigned from the Sports Authority last week. A prospectus, the booklet given to prospective investors when the bonds are ready to sell, is all about details. So far, the arena deal is short on such detail. And long on politics.
