SBJ/20100913/This Weeks Issue

Tigers’ $130M refinancing called a good sign

The Detroit Tigers have refinanced $130 million, signaling that sports finance continues to rebound from the depths of the national recession.

The Tigers’ refinancing is also the first such deal since the resolution of the Texas Rangers’ contentious bankruptcy and franchise sale process, though the Tigers’ refinancing had been in the works for some time. There have been worries that MLB’s adversarial position against the lenders in the Rangers’ saga could prove problematic for future baseball financings.

Indeed, there was a great deal of negotiation between MLB and the Tigers’ main lender, Sumitomo Mitsui, over the rights the league has in the event of a default by the team. These rights, outlined in what is known as a consent letter, took up 13 more pages than they did in the original loan 12 years ago.

It could not be determined what is in those 13 extra pages, but MLB in the Rangers’ process asserted its rights to push through the sale of the club to its preferred buyer over the objections of lenders. Ultimately, a bankruptcy court ordered an auction, which resulted in a sale last month to the MLB-preferred ownership group led by Chuck Greenberg and Nolan Ryan.

“It is a particularly good sign that a deal in MLB is getting done following on the heels of the Texas Rangers situation,” said Rob Tilliss, a former sports lender and founder of boutique Inner Circle Sports.

Sumitomo’s top sports financier, Jim Weinstein, said the deal, which closed Aug. 13, was oversubscribed. That means that when Sumitomo cut up the loan into smaller pieces and syndicated them to other banks, the demand for the loan pieces exceeded the supply.

“This speaks to the confidence in ownership and management of the team and how they are viewed as hands-on and engaged by those who follow the business,” Weinstein said. “It is also clearly a reflection of the stability of the organization, their strong management track record of success over the long term and positive projections into the future.”

The Tigers are owned by the Ilitch family, which also owns the NHL Red Wings and is considering buying the NBA Pistons. The family historically has been guarded about saying anything about its teams’ financials, so it is somewhat noteworthy the team approved public comments from its banker.

Despite the hope that the successful Tigers deal may mean the acrimony of the Rangers situation is behind baseball, there are some important distinctions in the transactions.

The Tigers’ deal is what is known as an operating company loan, meaning all of it is lent directly to the club. In the Rangers’ deal, most of the debt was lent above the team, and MLB and the team were arguing that the lenders were entitled only to the amount directly lent to the club. In the Tigers’ case, if the team were to go into bankruptcy, the matter would be more straightforward because the lien held against the team is the same amount as the loan.

A truer test of the baseball lending market, sources said, will emerge when a deal arrives with money lent to the team and a holding company that is not secured by a lien.

The Tigers’ deal is priced at 325 interest points over the London Interbank Offered Rate, market sources said. That rate last week was trading at 0.29 percent, making the loan 3.54 percent.

The other banks in the deal are Charter One, Wells Fargo, Comerica, Fifth Third Bank, PNC Bank and US Bank.

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