Crains New York - January 14, 2013 - (Page 4)

Cantor Fitzgerald hedges on 9/11 Memorial pledge Investment bank vows Sandy relief, yet earlier promise of $10M goes unfulfilled BY ANNIE KARNI Cantor Fitzgerald last week announced it would donate $10 million to New Yorkers who live in neighborhoods that were decimated by Hurricane Sandy. But the financial firm—which suffered the biggest death toll of any employer when it lost 658 of its own workers during the World Trade Center attacks on Sept. 11, 2001— still hasn’t made good on a previous $10 million pledge to the National September 11 Memorial & Museum, according to two people with knowledge of the foundation’s fundraising.Five years after Cantor’s monetary promise to the 9/11 Memorial, the company has delivered less than 10% of the money promised to the site, according to a source. A spokesman for Cantor said the company fully intends to pay the $10 million to the 9/11 Memorial over time. He did not specify when and noted that there was never a deadline for the payment. Each year Cantor evaluates how much it can donate to charitable groups, he said. A spokesman for the 9/11 Memorial declined to comment. The major donation to the nonprofit memorial was announced with great fanfare in April 2008.Cantor’s pledge was key to the memorial’s meeting its $350 million fundraising goal for con- CEO HOWARD LUTNICK’s firm suffered a huge toll on Sept. 11, 2001. struction of the eight-acre plaza. Mayor Michael Bloomberg himself singled out Cantor Fitzgerald for thanks in his remarks at the time. The chairman and chief executive of Cantor Fitzgerald, Howard Lutnick, sits on the board of the 9/11 Memorial. Mr. Lutnick’s brother Gary died in the attacks. “To honor our colleagues and all those who lost their lives on that tragic day, we are privileged to provide this gift to help realize the dream of building our country’s national 9/11 Memorial,” Mr. Lutnick said in 2008 when announcing the generous donation. But the foundation, where Mr. Bloomberg serves as chairman, has yet to see the bulk of the money. IN THE MARKETS by Aaron Elstein At Con Ed, a bright idea suddenly isn’t A We congratulate our client in its joint venture with fter Sandy struck, Consolidated Edison Inc. disclosed it would have to pay hundreds of millions of dollars to fix its grid and upgrade systems to better withstand future storms.Last week,Con Ed got stuck with another financial disaster that will cost almost as much as the Sandy cleanup.And the most painful thing is that this mess is entirely of Con Ed’s own making. What happened? Well, years ago Con Ed entered into a tax shelter that helped lower its bills to the Internal Revenue Service.The feds didn’t think the complex financial transaction had any legitimate economic purpose, and last week an appeals court agreed. More on the case’s details later, in the restructuring and recapitalization of PJ Finance Company and its 9,500 units of multi-family housing located in AZ, GA, TX, FL and TN but, bottom line: Con Ed quietly disclosed that it’s on the hook for as much as $370 million in taxes and interest.For some context, the utility has estimated that the cost of repairing the Sandy damage ranges from $350 million to $450 million. A spokesman said Con Ed “is reviewing the [appeals court] decision and weighing its options.” Importantly,this tax bill won’t result in higher rates for Con Ed customers. That’s because the liability stems from an unregulated part of the company, so Con Ed can’t raise electricity or gas rates to recover its loss.Still,Con Ed’s liability equals six months’worth of dividend payments to shareholders, and if the utility were forced to cut its payout even temporarily, its stock price—about $56 last week—would surely suffer. So how did Con Ed get here? It begins back in 1997, when it leased a gas-fired power plant from a Dutch utility called—brace yourself—Electriciteitsbedrijf Zuid-Holland, or EZH. The transaction was Want more info on our donedeals? Scan the QR Code with your smart phone. 4 | Crain’s New York Business | January 14, 2013 known as a lease-in lease-out deal,or LILO, because Con Ed leased the property back to EZH immediately after signing the rental contract. The transaction helped Con Ed raise its earnings by lowering its tax bills in two ways: First, lease payments are deductible and the con- tract was front-loaded, so Con Ed made large initial rent payments to EZH. Second, interest was deductible on a loan that Con Ed took to pay the Dutch. Here’s where the deal got prob- lematic:Under the agreement terms, EZH had the right to repurchase the lease from Con Ed.So the key question is whether EZH was reasonably likely to exercise that right over the life of the 44-year-long lease. The government thought so—after all, what does Con Ed want with a Dutch power plant?—and court evidence showed Con Ed officials thought so, too.(Con Ed’s accountants at Deloittetestified that they were not asked to opine on the matter.) Yet Con Ed officials were evi- dently so confident of prevailing in court that they didn’t set aside any reserves in case they lost. Because Con Ed was likely to sell back the lease, the government argued the utility wasn’t taking any of the financial risk that a leaseholder bears,and the transaction was essentially a sham.(More politely,the feds argued the LILO lacked “sub- stance.”) The U.S. Court of Federal Claims initially ruled for Con Ed, but last week the U.S. Court of Appeals decided in favor of the government. If Con Ed were to appeal the appeal, presumably the next stop would be the Supreme Court. bloomberg news istockphoto http://www.goulstonstorrs.com

Table of Contents for the Digital Edition of Crains New York - January 14, 2013

Crains New York - January 14, 2013
In the Boroughs
In the Markets
The Insider
Business People
Opinion
Greg David
Small Business
Report: Real Estate
The List
Classifieds
New York, New York
Source Breakfast
Out and About
Snaps

Crains New York - January 14, 2013