SBJ/20090518/This Week's News

Three banks set to finance Cubs purchase

Chicago Cubs buyer Tom Ricketts is close to lining up three banks to arrange the $450 million financing necessary to complete his acquisition of the team, financial sources said, positioning him to clear a substantial hurdle in the long-running sale of the club.

JPMorgan Chase, Citigroup and Bank of America are set to commit to the deal as soon as the end of this week, the sources said. That commitment would allow Ricketts to submit his $900 million bid to the court that’s overseeing the bankruptcy filing of current Cubs owner Tribune Co. The court likely then would take 30 to 45 days to process the offer, one source said, leaving a potential closing ready by July.

MLB at that point could wait until its August owners meeting to approve the deal or could call a special owners meeting to address the sale earlier.

“There is a basic financing set up that is preliminarily agreed to,” a banking source said.

The Cubs have been on the market
since Sam Zell’s purchase of
Tribune Co. in 2007.

Galatioto Sports Partners, which is advising Ricketts, declined to comment. Citigroup and Bank of America also declined to comment. A JPMorgan Chase spokesman did not return requests for comment.

The deal comes at a steep cost for Ricketts, a scion of the Ameritrade fortune who is putting up $450 million of equity to buy the team, Wrigley Field and the club’s 25 percent interest in Comcast SportsNet Chicago. Sources said the banking fees are substantial, and the banks are still negotiating a minimum for what the interest rate would be.

Rates are commonly pegged to the London Interbank Offered Rate, which last week was trading at 1 percent. One source said the lowest LIBOR could be in the Ricketts deal would be 3 percent. So, normally, if a loan were to charge 300 interest points over LIBOR trading at 1 percent, the loan would charge a 4 percent rate. In the case of LIBOR being artificially set at 3 percent, the loan rate would be 6 percent.

According to one finance source, the $450 million financing is split between a loan and a fixed-rate private placement, which represents loans from institutional investors like pension funds. The bank loan portion is roughly $350 million, the source said, and the private placement, which the three banks are arranging, is about $100 million.

The three banks are committed to keeping the entire loan on their balance sheets if they are unable to find other financial institutions to buy pieces of it, a process called syndication. Before the credit crisis last September, banks would have agreed to a deal like this contingent on syndication, but syndications have become much more unreliable since the fall, so a recent trend in finance is for banks to hold onto larger chunks of loans.

Ricketts has been trying to sell preferred notes in the team to raise another $50 million. These so-called “perk notes” would give the individual lenders special access to games, team executives and spring training. The notes would be repaid after 15 years. Sources differed on whether Ricketts would succeed in selling the notes, with some saying there was interest and others describing it as a hopeless cause.

The Cubs were put on the market in April 2007 as part of Sam Zell’s $8.2 billion purchase of Tribune Co. Zell promised to execute the sale quickly, but he took his time and tried to sell the team separate from the building and media assets. That plan proved ineffective, and then the credit crisis hit last fall. Complicating the sale was Tribune Co.’s December bankruptcy filing.

Tribune Co. chose Ricketts from a final group of three prospective buyers in January, but securing the financing has proved challenging. Since January, the frozen credit markets have thawed somewhat, but borrowers face steeper fees and more onerous terms in any deals.

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