Doing deals with clowns...

The People's Champ, Jaime Mitchell, put out a post where she shows an email obtained from an open records request which documents that MSB requested a !$400,000,000! Public Improvement District (PID) bond issuance from the City. Cough. Gag. Wheeze. Breathe into the bag.

While I'm familiar with non-recourse bonds, I admittedly didn't know all that much about PIDs, but hey, I can read. So, I did, and I think Jaime's post does a good job of going through the issues presented with this. She also asks the right questions as to what it all means. I'm just adding my thoughts here rather than hijacking her post.

The basics first: PID financing involves bonds that are issued by the City but are paid from the tax revenue from inside the PID - they are not guaranteed or paid by the City. The developer is on the hook for all of that. The City's role is essentially just to create the PID structure and issue the bonds.

When I read this, the ex-banker in me laughed out loud - or at least giggled. Chuckled if I'm being manly about it.

Y'all...this is like a person with no income asking to borrow against a mansion they haven't started building yet on land their mama gave them. They have no real equity in this deal so far.

This is not a serious request made by serious people. It would be funnier if it weren't also tragic that the City Manager and City Council got us in bed with these fools to begin with (it seems the City Attorney took the "getting in bed with" part too seriously though).

This request was probably dead-on-arrival. Here's why:

1. There's no tax revenue coming in that could possibly pay for this. And it wouldn't for a long time, even if MSB manages to actually build and operate a data center.

2. MSB owns nothing and has no collateral to offer other than the two parcels of land the City gave them for $100 each (yes, that's not a typo).

3. The bonds are non-recourse, meaning the bondholders can't get the money from the City if the developer defaults. As Jaime mentions, they'd have to foreclose the land to recoup some of their loss, but no one is going to buy industrial wasteland out of foreclosure that's totally lien'd out by a prior judgment, at least not for anything more than pennies on the dollar. This leads to the next point which is...

4. No one's going to buy bonds backed by MSB Global. I'm sure Samco (the company the city uses to issue the bonds) told the City as much. I wouldn't take an IOU for a bag of Cheetos from MSB, let alone 400 mil. But even if this were true...

5. MSB could never afford the payments on risk-adjusted interest rates. Even if Samco were willing to issue the bonds, the risk of default is so high, the interest rates on those borrowings would be so astronomical that the payments wouldn't come close to affordable. Hence, no one would touch that kind of bond issuance for a no-name developer with no real pledgeable assets inside the PID.

It's also important to note that any default on the PID bonds could indirectly hurt the City's market rating, which is currently A+. This would make the cost of any future borrowings more expensive for the City.

Overall, though, this is just another example of how MSB continues to underwhelm. Until proven otherwise, these are unserious con-artists that City leaders took too seriously. If you've spent any time looking into MSB, this attempt to borrow on the City's good name is no surprise. They seem like parasitic leeches that only ever existed on paper.

You're starting to see problems show up when they have to prove themselves in the real world where the grown-ups are.