Goldman Sachs: ‘Our KFC Yum! Center financing strategy saved Louisville’

(Photo by Terry Boyd for Insider Louisville)

Goldman Sachs, the ubiquitous New York-based financial services giant, is taking credit for saving Louisville – and getting called out by a Denver radio host/author/columnist writing for SFGate.com.

In his post, David Sirota takes Goldman Sachs executives to task for their advertisement on page 123 in this month’s Vanity Fair magazine.

Sirota takes issue with the company’s claim, which he describes as not just gloating about its role in financing the $240 million KFC Yum! Center, but presenting itself as “savior of one of those middle American cities whose averageness (and baseball bats) makes it synonymous with Americana: Louisville, Ky.”

Sirota’s version of reality: Goldman Sachs is the enabler for Louisville, setting us up for a default if neither Wall Street financing magic nor basketball arenas are enough to see our economy through to post-Recession prosperity.

The ad and a slick video campaign (featuring the crumbling Whiskey Row buildings and high-profile boosters Alice Houston and Jim Host, chairman of the Louisville Arena Authority) are part of Goldman Sachs’s effort to rehabilitate its image as the bailed-out symbol of the worst of buccaneering Wall Street deal making – greed hogs who will do, as they used to say, anything for a buck. If you believe Sirota.

(Or as Matt Taibbi so eloquently phrased it last year in Rolling Stone magazine, Goldman Sachs is “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”)

Here’s Sirota’s key paragraph:

As the Lexington Herald-Leader reported in a September 2010 editorial, “Arena Cautionary Tale,” the stadium means that Louisville’s already strapped city government “may be on the hook for an extra $3.3 million beginning in 2012.” That’s because, as Goldman admits on its website, the deal was funded by an enormous commitment of taxpayer resources. If the arena isn’t generating enough tax receipts to meet the commitment, then taxpayers have to find the money from somewhere else – most likely, from cuts to social services or from tax increases.

The truth is even weirder: Goldman Sachs fell short of being able to place all the arena bonds.

It was in fact Louisville-based brokerage Hilliard Lyons that saved the day, placing the highest-risk, lowest rated piece of the arena debt.

How do I know? I wrote the story for Business First last year.

In my story, Hilliard-Lyons’ brilliant Ronald Dieckman, director of municipals and public finance, and Host explained what it took to place the least desirable bonds.

Here’s Host’s take:

“Based on how they handled (the bond issue for the KFC Yum! Center), I don’t see any reason why (Hilliard Lyons) can’t become the dominant firm in this part of the country,” Host said. Though Hilliard Lyons doesn’t have the same access to capital as a New York investment bank, the brokerage firm does have comparable expertise in analyzing and structuring public debt issues, then placing debt through its retail network, he said. Hilliard Lyons was able to place “the tail” — $9 million in unrated, callable bonds — from the $238 million project, he said. “That was non-rated, not insured and taxable … and they got it placed. That was the toughest part of the deal, and it really helped us with the issue,” Host said.

Is Louisville on the hook for the financing? Oh, yeah. But as the economy expands, so does the demand for Lady Gaga and Elton John tickets. And demand for the corporate suites at basketball games.

Was there any other merchant banking house that could have done the arena deal? Probably not.

Will the arena remake Louisville in Goldman Sach’s image, to steal a Marxism? We sure as hell hope so.

Did taxpayers get a good deal from Goldman Sachs?

Well, we’ll find out pretty soon if the arena’s revenue will match our collective debt obligation. But one thing is for sure – you can bet Goldman Sachs makes money no matter what happens to taxpayers.