SBJ/20090504/This Week's News

NBA gets loan pool renewal

In the first sign of a thaw in the eight-month-old credit freeze in sports, the NBA this week is set to renew its $1.96 billion leaguewide loan pool, from which 17 of its teams borrow.

Last fall, the NFL and MLB “termed out” of similar loan pools after their lenders would not renew the financings on terms acceptable to the leagues. By terming out, the leagues were then confronted with accelerated principal payments.

The NBA, whose old loan pool expires today, now has no such worry.

“The glacier is melting a little bit,” said a banker familiar with the deal. “The market is beginning to open up again. Clearly, prices are going up, but still, this is a very good sign.”

The NBA, which launched the league-backed loan pool in 2003, declined to comment.

Meanwhile, the NHL has been in the market since March trying to expand its line of credit from $135 million to $227 million. Whether the league will have the NBA’s success is unclear.

The league is in the first year of an eight-year,
$7.5 billion deal with ESPN/ABC and Turner.

The NBA’s deal is underpinned by the league’s media contracts, which serve as the principal collateral for the loan pool and therein represent a luxury the NHL does not enjoy. The NBA is in the first year of an eight-year, $7.5 billion deal with its national television partners, ESPN/ABC and Turner.

Only the 17 teams that now borrow from the NBA pool can tap the new one-year deal, which does carry a higher rate than the old one. The previous facility charged teams 75 points over the London Interbank Offered Rate, a floating-rate index. The new rate will be about 100 points (or, 1 percent) higher, a source said.

Credit once flowed cheap and easy in sports, just as it did through much of corporate America. The credit crisis that began in September has spared no sector. When the NFL, the sports institution deemed the most credit-worthy, could not renew its credit facility last October, insiders saw that as an ominous sign. Six weeks later, MLB found itself in a similar state.

The NBA’s success, while notable, certainly does not mean good times are back in full. The bank leading the NBA’s deal, JP-Morgan Chase, is on better financial footing than Bank of America, the company that leads the MLB and NFL loans. In addition, because the NBA loans are largely backed by national media money, as was the case for the MLB and NFL loans, the basketball deal is a reflection of the credit-worthiness of the league’s media partners.

“League-wide facility participants and noteholders are also somewhat insulated [from the effects of the poor economy] given the pledge of national television contracts to service debt prior to distributions to teams for operations,” said Fitch Ratings in grading the NBA debt BBB+.

Still problematic in sports is acquisition financing and the dearth of lenders specializing in the area.

Nonetheless, the NBA secured a huge win, with all 15 of the lenders that participated in the expiring facility returning for the new deal. Terming out would have meant that by 2011, teams would have had to start paying back some of the loans. The new one-year deal is an interest-only transaction, and should the league fail to extend the facility next year, teams would not have to begin making principal payments until 2013.

The extension covers $1.1 billion of the credit facility that is structured to come up for renewal every 364 days. The remaining $860 million is longer-term, fixed-rate debt.

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