SBJ/May 26 - June 1, 2003/This Weeks Issue

NBA credit facility draws a mix

The 12 teams borrowing from the NBA's new $1 billion loan pool are all over the map in terms of creditworthiness, belying the concern of some bankers that borrowers would comprise the league's worst credits.

Instead, teams on solid financial footing like the Chicago Bulls and San Antonio Spurs are among the borrowers, and so are several hard-luck franchises on less sure credit ground, including the Memphis Grizzlies and New Orleans Hornets.

In the pool: Team borrowers from NBA credit facility

Chicago Bulls

Golden State Warriors

Houston Rockets
Memphis Grizzlies
Milwaukee Bucks
New Orleans Hornets
Philadelphia 76ers
Phoenix Suns
Sacramento Kings
San Antonio Spurs
Seattle SuperSonics
Washington Wizards

Source: SportsBusiness Journal research

The list was supplied by several financial sources. The NBA declined to comment.

When the league's banker, J.P. Morgan Chase, was struggling to put the credit facility together between October and earlier this month, some bankers opined that the pool would suffer from "adverse selection," or that only the most desperate teams would be allowed to borrow from the pot. Because part of the collateral is the teams themselves, this would have been a worry for lenders being asked to participate in the syndication.

"The issue of adverse selection is certainly a credit issue, but we view these transactions as league supported," said Dan Champeau, head of sports for FitchRatings, which graded the credit facility BBB+, a critical step in getting the loan pool completed. By league supported, Champeau was referring to the league's media contract also being pledged as collateral.

In any event, even if there had been a strong weight toward poor credits in the facility, Champeau said, he would expect more teams to be added.

The benefits for teams is best seen in the case of the Grizzlies. Under their old $90 million loan with SG Cowen, the Memphis franchise was paying 337.5 interest points over the London Interbank Offered Rate, a floating rate index that last week was trading around 1.3 percent. That would set the Grizzlies' rate at 4.675 percent, which on their loan would mean annual interest costs of $4.2 million.

The rate of the NBA facility is still in flux, but the bulk of it will be based on a rate of 65 interest points over LIBOR. The overall rate is expected to rise somewhat when Morgan completes the overall transaction, but even assuming the final rate is 80 points over LIBOR, that would translate into a rate of 2.1 percent. On the Grizzlies' $90 million, that would mean interest payments of $1.9 million, or a $2.3 million annual saving.

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