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SBJ/20100621/This Week's News
Rangers repercussions already being felt
Published June 21, 2010
With the acrimonious bankruptcy battle over the Texas Rangers continuing, issues at the heart of the team’s travails have begun to ripple outward.
The New York Mets completed a refinancing earlier this month that, according to sources within the deal, required the owners to put up more personal collateral than they wanted.
“They did not [reduce] the price. Thanks, Rangers,” said one banking source in the deal who requested anonymity because of the confidential nature of the Mets loan. “And they restructured it to decrease the holding company portion and put significant [Fred] Wilpon and [Saul] Katz guarantees on the holding company.”
Wilpon and Katz are the principal Mets owners.
Another lender said getting banks to sign off on the consent MLB requires of teams to recognize the league’s powers was an issue.
A source close to the Mets, however, said the extra guarantees were not tied to the Rangers, but this person did not disagree that the issues raised by the Rangers were significant going forward for sports lending.
The Mets declined to comment.
One of the fundamental concerns in the Rangers’ bankruptcy case, in which the team and MLB are seeking to override creditors’ objections to the sale of the club, is the role of the league in pushing aside the creditors. As of last Thursday, the parties were awaiting a federal bankruptcy court judge’s decision in the matter, though a related lawsuit is still pending and an appeal would likely be in the cards for the loser.
The judge, Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas, is expected by tomorrow to decide whether to allow the sale to proceed, if he had not already done so after press time late last week.
Lenders have warned that by trying to push the sale through over their objections MLB will harm lending to baseball teams in general.
Bob DuPuy, MLB’s president and chief operating officer who has attended the Rangers’ bankruptcy hearings in Texas, said of the Mets deal, “[I] do not agree [the] Rangers [are] having an impact on guarantees. Club and MLB lending relationships [are] constantly evolving based on experiential factors. Lenders and borrowers tailor their documents accordingly.”
Neil Begley, a Moody’s Investors Service entertainment analyst, disagreed.
“This is going to tarnish the image of being a lender to MLB,” Begley said of the Rangers’ bankruptcy case and MLB’s position on it.
MLB Commissioner Bud Selig wrote to the Rangers’ lenders, who are owed $525 million plus another $51 million in interest, on May 1, “I expect the Lenders to honor their contractual obligations — which require them to respect any action taken by the commissioner in the best interest of baseball — and in doing so, consent to the transaction.”
That letter sent shock waves through the sports finance world because it implied the commissioner could supersede lending contracts.
At the bankruptcy hearing last week, Lynn declined to issue a final decision on team ownership, but he did say that the club was likely not to be required to seek the highest price. That could be a key finding because the lenders contend that a higher offer from Houston businessman Jim Crane was and is still on the table.
But Lynn’s decision may come down to whether the lenders are actually under water on their loans. On the face of it, they are: They are owed $576 million, and the proceeds promised to them from the Rangers’ sale are about $230 million. (Proceeds from the sale of the Dallas Stars, owned by the Rangers’ owner, Hicks Sports Group, will also go toward paying back the lenders.) In the loan agreement, however, the lien against the team is $75 million, so the team is arguing that once that’s paid, the creditors lose their right to object.
“They are entitled to $75 million and then they go away,” said Martin Sosland, a Weil, Gotschal attorney, speaking to the court on behalf of the Rangers.
The lead creditors attorney, Andrew Leblanc of Milbank Tweed, described that comment as “just incredible” and argued the team was clearly party to the whole loan.
“There is nothing in this credit agreement that approaches what Mr. Sosland says, that ‘We pay you $75 million and then you go away,’” Leblanc said.