Arizona Sports-Complex Bondholders Are Nearly Wiped Out in Sale

Martin Z. Braun
·3 min read
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(Bloomberg) -- A bankrupt Arizona youth-sports complex was sold in a transaction that will virtually wipe out bondholders, capping a collapse that marks one of the biggest municipal-debt defaults since the pandemic.

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The project was financed with $280 million of bonds issued through the Arizona Industrial Development Authority in 2020 and 2021, when still rock-bottom interest rates were fueling demand for high-yield debt.

But the sprawling sports-field venue outside of Phoenix, known as Legacy Park, faltered as the pandemic upended the sports industry and interest in the facility proved lackluster. It subsequently defaulted on the debt and filed for bankruptcy in May.

The saga highlighted the risk carried by bonds that are issued by government agencies on behalf of speculative businesses. Because the agencies aren’t on the hook if the ventures fail, they’re far more default-prone than typical municipal bonds backed by state and local tax revenues.

As part of the bankruptcy, an affiliate of Rocky Mountain Resources on Thursday closed on the approximately $26 million purchase of the facility, a set of fields and courts for soccer, football, baseball, basketball and other sports. Most of the proceeds are going to building contractors for unpaid work. Bondholders will get $2.4 million in cash and an 11% equity stake in the new ownership entity.

RMR was founded by Los Angeles investor Chad Brownstein, a former vice chairman of Banc of California. Its portfolio includes a cold-storage facility at the Anchorage, Alaska airport and a Nebraska fertilizer-maker, according to its website.

RMR also has a partnership with National Basketball Association star Russell Westbrook and has invested with Crescent Capital co-founder Mark Attanasio in Norwich City FC, a professional soccer club in England.

“Our long-term partnership and alliance with Russell gave us a lot of insights into the court sports at the grounds,” Brownstein said in a telephone interview. “We will bring a whole host of partnerships to the park that wasn’t contemplated previously.”

RMR and Miami-based Burke Operating Partners are taking over the 320-acre complex, which is still losing more than $1 million per month. When it went bankrupt, it cited construction setbacks, supply-chain snags and labor shortages. The facility was also plagued by poor execution of restaurant and concession operations.

In addition, some organizations that the prior operator said were lined up to use Legacy Park never showed. At least seven, including Manchester United, told Bloomberg News they never signed the “pre-contracts” or “letters of intent” cited in the bond prospectus circulated among investors who purchased the bonds.

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RMR and Burke Operating Partners were the only bidders for the complex, which will be renamed the Arizona Athletic Grounds at Mesa Campus. The new owners will seek to form alliances with national youth-sports organizations like Amateur Athletic Union that hold tournaments throughout the US, Brownstein said. The complex’s current management will be replaced.

The equity stake in the project may eventually ease some of the losses for firms like the Vanguard Group Inc. and AllianceBernstein Holding LP, which were among the biggest buyers of the securities.

Freddy Martino, a Vanguard spokesman, said the firm’s municipal-bond funds are broadly diversified and no single borrower has an outsized impact on returns. An AllianceBernstein spokeswoman didn’t respond to a request for comment.

The new owners, who provided $19.7 million of the purchase price, are also exploring adding hotels, restaurants and retail shops to the complex. The remaining $6 million came from landlord Pacific Proving LLC, co-owned by William Levine and Arte Moreno, the owner of Major League Baseball’s Los Angeles Angels.

Brownstein said RMR is a minority investor with Attanasio, who owns about 40% of the Norwich City Canaries and is also the owner of Major League Baseball’s Milwaukee Brewers. Brownstein’s father, Norm, is the founder and chairman of Denver-based Brownstein Hyatt Farber Schrek, LLP, one of the top lobbying firms in Washington.

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