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SBJ/May 4 - 10, 1998/No Topic Name
MLB, Fleet sign $405M credit deal
Published May 4, 1998
Major League Baseball reached an accord with Fleet Financial Group last week on an innovative $405 million credit facility.
The facility is larger than the old $250 million deal, and it runs through 2005, rather than 2000. In addition, the interest rates that teams pay to tap the facility will be as much as a full percentage point lower than those charged by the previous facility. Most importantly, the bullish terms are guaranteed by what is expected to be surging leaguewide revenue.
"The new deal reflects the recovery of baseball from the strike years," said Patrick McAuliffe, head of Fleet’s sports lending group.
The old facility essentially made bank loans to the teams, but the new one is far more complex. First, it will take $405 million of future national media, licensing and sponsorship revenue and create a security, a financial mechanism called a securitization.
This technique has been used just once before in sports. Ascent Entertainment is in the process of securitizing contractually obligated income from naming rights, sponsorships and concessions to fund the construction of the Pepsi Center, which will be the home for the NBA’s Denver Nuggets and the NHL’s Colorado Avalanche.
MLB’s securitization will then be sold into the commercial paper market, where companies sell low interest rate securities. Investors buy these securities, which essentially have the stability and yield of a government bond, providing the seller with quick, cheap funding.
Major League Baseball would not say how many teams will participate in the credit facility – it may be about half of the 30 clubs – but each one that does can take out up to $45 million.
At the end of December 1997, the old credit facility charged a rate of 6.78 percent, according to the Cleveland Indians’ initial public offering statement. That puts the new rate around 5.78 percent. So a team borrowing $45 million would save roughly $500,000 a year in borrowing costs.
Other banks involved in underwriting the deal include JP Morgan & Co Chase Manhattan Corp, and BankAmerica Corp.