"We love our Saints," said Tricia Miller, a lawyer in New Orleans. "The Saints are what keeps our city together, before, during and after Katrina."
Before the hurricane, Benson had sought a new home for the team. The Superdome lacked the revenue-boosting amenities of stadiums in larger, wealthier markets. In 2001, after he complained it failed to meet league standards, Louisiana agreed to pay the Saints $180.5 million over 10 years, a subsidy meant to put it in the middle of NFL franchises in terms of revenue.
The state had to borrow, from Merrill Lynch and others, to make some of those payments. When the stadium agency in early 2005 started planning to restructure its debt, one goal was to free up money to help fund the subsidies, Whit Kling, director of the bond commission, said at the meeting where the Merrill Lynch auction-rate deal was approved. The bank had been hired after the agency issued a request for proposals through the bond commission in April 2005, according to court documents.
Katrina changed the equation. Louisiana was, as Kennedy, the state treasurer and commission chairman, put it at the meeting, "between a rock and a hard place."
Revenue from the hotel tax dedicated to paying off Superdome debt had plummeted to about $24 million in 2006 from about $41 million before the hurricane, which killed an estimated 1,400 in New Orleans. The stadium, where more than 25,000 people had taken shelter after much of the city was flooded, needed repairs as well as enhancements.
The Saints were playing "home" games elsewhere, including San Antonio, where Benson owns car dealerships. Not only was he noncommittal about the team's future, the mayor of San Antonio said they were talking about a relocation to Texas.
Before they voted, Kennedy told commissioners: "I'm not enamored with this proposal." According to a transcript, he said he thought paying FGIC $13 million for insurance was "unconscionable" and that he was uncomfortable with the swap.
"I just want everybody to understand what we are doing," Kennedy said. "This is a derivative. It can work in our favor. It can also work not in our favor."
Best Course
For his part, Coulon called the deal "the best of a bad situation," according to the transcript. The Superdome had been an economic force in the city, attracting conventions, concerts and events such as the Essence Music Festival. "It's not all about the sports franchises," Coulon said. "It's about the economic viability of the city, the symbolism of the Dome."
The plan was approved on a voice vote. And most everything about the deal that could go wrong did.
Credit markets began to melt down as the contagion from the sub-prime-mortgage market spread in 2007. FGIC lost its AAA rating in January 2008, and buyers became less interested in the securities because the lower grade meant there was more risk that they wouldn't get paid in the event of a default. The auction-rate market fell apart the next month.
The state decided it couldn't afford the $45 million fee to unwind the swaps associated with the bonds, nor the cost of issuing a new set to pay off the existing securities. It bought the debt back after the Legislature in March 2008 approved the move. Kling said the plan is to hold it until it matures.
$8 Million Fee
While federal law doesn't allow such purchases, the Internal Revenue Service made exceptions after the auction-rate debacle. The state will have to pay a fee of about $8 million for the privilege, according to Kling.
The bonds earn 1.25 percent now, data compiled by Bloomberg show. "We're paying ourselves," Kling said.
In April 2009, the state committed to spending more than $400 million to secure Benson's promise the team would stay in New Orleans through 2025.
The stadium agency made several improvements to the Superdome, including adding 15 boxes and 3,400 seats close to the team benches, at a cost of $85 million. A company Benson owns, Zelia LLC, bought a mostly empty 26-story building next to the stadium and Benson pledged to renovate it, and the state signed a $153 million, 20-year lease for 320,000 square feet of office space for more than 30 agencies. Benson and the stadium agency signed a contract to redevelop the nearby New Orleans Centre mall. The state promised the Saints as much as $6 million a year if stadium revenue doesn't meet undisclosed targets.
In October, Superdome naming rights were sold to Daimler AG's Mercedes-Benz unit for about $60 million. Republican Governor Bobby Jindal said that may produce enough to "significantly reduce or eliminate taxpayer funding currently spent to support the Saints."