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Goldman Sachs : State pays $71M to escape risky Lucas Oil Stadium debt

05/23/2015 | 06:17am US/Eastern

May 23--The state is paying $71 million to investment bank Goldman Sachs to allow refinancing of risky debt on Lucas Oil Stadium -- a move than one economics expert said might be prudent, but also underscores the risk of the original deal.

Dan Huge, chief financial officer of the Indiana Finance Authority, said the $71 million will be offset by more favorable, fixed terms for $296 million in debt on the stadium. The payment to Goldman is included in the new financing.

Lucas Oil Stadium opened in 2008 at a cost of $720 million, including at least $620 million from taxpayers.

Huge said the cost of the debt -- principal and interest -- on the refinanced bonds is "at almost the same level as it was prior to doing this refinancing and making the termination payment."

The previous debt involved "interest rate swaps," a type of financial derivative that has been widely criticized as an inappropriate gamble with public money.

Princeton economics professor Uwe Reinhardt said the situation "wasn't a big disaster, but it could have been."

"It means I got my (butt) in a sling and now I have to get out of it," he said. "Sometimes you have to pay the arsonist to prevent a worse fire."

A separate bond issue will be used in part to pay Goldman Sachs $34.7 million to exit an interest rate swap deal for the Indiana Convention Center.

Goldman Sachs spokesman Michael DuVally declined comment.

In 2012, a top Goldman Sachs executive who worked in derivatives resigned and wrote in The New York Times that the company had become "toxic and destructive" in its pursuit of making money.

Interest rate swaps have led to municipal bankruptcies and, in the case of Denver's public schools, $215 million in payments to investment banks to exit deals that were supposed to lower pension costs.

The interest rate swaps, however, allowed the state of Indiana and hundreds of other government agencies in the country to borrow for less interest than they could have with a fixed rate.

Huge said the decision to refinance "was not taken lightly. We had outside accounting firms, financial advisory firms and law firms work with us closely over the last year to review this deal and make important decisions on how to move forward."

The cost of issuing the new bonds for the stadium is $2.3 million. For the Convention Center, it's $466,000.

Reinhardt said it's a familiar story since the recession turned interest rate swaps into bad deals for governments.

"What they're telling you is, we just want to get rid of the risk in case of another crisis," he said. "You could say that advice could have been given originally."

Call Star reporter Mark Alesia at (317) 444-6311. Follow him on Twitter: @markalesia.


(c)2015 The Indianapolis Star

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