The U.S. buyside is abuzz with news generated by a flurry of ambitious construction projects in need of fixed-income financing.

While the municipal bond market learned the IRS signed off on deals tied to new baseball stadiums proposed for both the New York Mets and New York Yankees, the corporate credit market was digesting the disappointing news that a private $900 million note offering tied to the construction of a new multi-billion dollar city in the Sultanate of Oman was placed on hold.

The offering, called Blue City Investments I Limited, is a hybrid securitization that has garnered considerable buzz among traditional U.S. private placement buysiders. The deal is being arranged by Bear Stearns with Standard Chartered Bank also on board. Bear Stearns declined offers to comment. Standard Chartered did not return calls by press time.

One source familiar with the transaction noted Oman's location (it is on the southern quadrant of the Saudi peninsula on the Indian Ocean) puts it far away from fighting in the Israel/Lebanon region and, of course, Iraq. However, given the overall level of tensions, particularly concern that fighting could spread to other countries like Syria, it simply made sense to place the transaction on hold.

"Why take the chance that the conflict would affect this project?" says the deal source. Once the conflict cools, Blue City Limited 1 is slated for imminent pricing. Sources declined to make note of price talk.

Nonetheless, buysiders say they are taking the time to continue to probe the offering.

The $900 million deal won't be registered in the U.S. as it's a Regulation D offering, otherwise known as a plain vanilla private placement.

Blue City Investments I Limited includes four tranches of commercial loan-backed floating and fixed-rate notes with a final maturity of 2016. The $720 million in floating class A notes were rated BBB-' by Fitch Ratings, with an average expected life of six years, and includes a call option on interest payments. The $180 million class B fixed rate notes were rated BB' by Fitch with a call option of 2013 and prepayment penalties.

Financial insurer AXIS is supplying the deal with $300 million in credit insurance on the class A notes.

Called Al-Madina al-Zarga or Blue City, the massive project, first announced last year, essentially aims to construct an entire modern city from scratch; the estimated cost is $15 billion and the project is broken into multiple phases expected to take 15 years to complete. The intent is to diversify Oman away from an economy that is overdependent on oil and gas by introducing tourism and entertainment.

In essence, the $900 million deal is an emerging market real estate securitization tied to the construction of commercial real estate assets, like hotels, golf courses, even an amphitheater, as well as the sale of residential housing in the form of villas and apartments.

Cash flows will stem from the sale of residential assets as well as income from five new hotels and retail properties included in phase one, said Saavan Gatfield, a Fitch CMBS analyst involved in rating Blue City Investments 1. Operating net income from the hotels is available to meet debt service but by far the lion's portion is comprised of the sale of residential units.

Getting a portion of the note offering to bear an investment grade rating was no small feat for the arranger.

Gatfield noted that investment grade rating was aided by the credit insurance as well as large amount of cash collateral available. Some $550 million in cash escrowed by various accounts at closing is meant to support notes from Blue City Limited 1 and to meet shortfalls in payments to senior costs, should any breeches occur.

Also helping the transaction is that some 70% of the equity shares of the borrower are held by an entity registered in the Cayman Islands where, sources explain, enforcement is more investor friendly than in the Omani court system. (Oman is a nation that utilizes a forced auction managed by the courts.)

Risks to Blue City are tied more to construction delays once the project is up and running. Terrorism risk is considered diminished in the eyes of analysts due to the stability of the government and its location far from the north of the peninsula. Oman became a British protectorate in 1891, but that designation expired in 1971.

"Fitch feels that the ratings of the securities are commensurate with the relevant risk," says Gatfield. "Oman is a pretty stable country."

In all, Blue City aims to attract two million tourists each year and developers estimated some 250,000 persons will eventually reside in Blue City. But one entertaining feature about the entire project stands out already.

Bahrain-based AAJ Holdings, founded by in 1988 by architect Ahmed Abubaker Janahi, and a primary equity holder in the project, announced in early July it was in discussions to hire pop star Michael Jackson as a consultant to the firm on entertainment experiences, ranging from theme parks to music academics.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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