SBJ/September 30 - October 6, 2002/This Weeks Issue

Sources: Drop in owners' wealth changes Isles' loan

Bank of America earlier this month was forced to restructure its $100 million loan to the New York Islanders because the net worth of the team's owners, Sanjay Kumar and Charles Wang, fell below a level required by the loan, according to two well-placed sources.

Several sources confirmed the existence of the guarantee, which mandated that the Computer Associates' chief executive and chairman have a combined net worth of at least $500 million, half in stock of the business software concern. When Kumar and Wang bought the Islanders on April 26, 2000, the company shares they owned were worth $2.2 billion. Since then, the company's stock has fallen 83 percent, leaving their holdings at about $281 million.

While the remainder of their existing personal wealth could not be determined, the two sources said that during the week of Sept. 16 Bank of America agreed to waive the net-worth guarantee for 12 months. The ability of Wang and Kumar to pay off the loan was not the issue.

Bank of America wouldn't comment. The Charlotte-based financial services company and the four other banks that participated in the loan would have had to ask their internal credit committees to win approval of the change.

Islanders chief financial officer Arthur McCarthy said, "Everything is great and we are very happy with our banks and bankers." He declined further comment.

The NHL, which approved the 2000 loan, declined to comment. It is unclear if the league also had to approve the waiver of the net-worth covenant.

The waiver is the most recent sign that the stunning stock market reverse of the last couple of years is taking a bite out of sports, from owners who have fewer financial resources to subsidize club losses to the shrinking number of people able to buy sports teams. Loan restructuring can now be added as another effect of the market's decline.

"Unfortunately, it is probably happening in more cases than you or I would know," said Mitchell Ziets, chief executive and founder of MZ Sports LLC, a sports finance advisory firm.

Personal wealth guarantees have become common in loan agreements, he added. Other bankers said they are particularly common in deals in which wealthy owners buy ailing teams that might not have had the revenue to justify the acquisition loan. The Islanders, mired in a long string of losing seasons at the time of their sale and playing in an outdated building, fit that description.

But soon after Wang and Kumar agreed to buy the team, Computer Associates saw its stock begin its steep descent, victim of accounting issues, federal investigations, disaffected software customers and a sluggish economy.

The banks that bought pieces of the recent Islanders loan as part of Bank of America's syndication are Citibank, Roslyn Bank, Bank Hapoalim and Société Générale, sources said. Lenders frequently sell pieces of loans to other financial institutions to minimize risk, a process called syndication.

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