SBJ/Sept. 20-26, 2010/Finance

Yankee group carries nearly $2B in debt

Yankee Stadium viewJim McIsaac
The Yankees are responsible for $1.2B in tax-exempt stadium bonds sold through a public entity.

The New York Yankees and their affiliates carry nearly $2 billion of debt, according to sources who have reviewed loan documents in the market for Yankee Global Enterprises, the team’s parent company, and Legends Hospitality Management, the club’s concessionaire.

In addition, the team is responsible for $1.2 billion of tax-exempt stadium bonds that are sold through a public entity. Together, it means there is about $3.2 billion of debt obligations that flow through YGE, though about one-third of that total burden falls on the equity partners in YES Network and Legends.
The Yankees declined to comment.

To put $3.2 billion in context: Two years ago, the NFL disclosed that its 32 teams owed $9 billion, a number the league found alarming and is reducing. That said, the enterprise value of the companies composing YGE is roughly $5 billion, and cash flow at YES alone is expected to hit $208 million this year, sources said. YGE has been using the bulk of YES’s cash flow to reduce the regional sports channel’s debt, which is $1.448 billion, the sources said.

“It’s very manageable,” said a baseball source of the overall debt.

Neil Begley, a media and entertainment analyst at Moody’s Investors Service, which rates the stadium bonds, said ratio of debt to value for YGE was in line with other companies of its kind.

“It is a significant amount of debt for a sports enterprise, probably among the biggest there is,” he said. “But if they cleared 2009, I would be hard pressed to think they would have economic pressure more significant than that.”

What also stands out about the debt is how little of it, $97 million, actually resides at the team. MLB’s debt regulations are applicable to the league’s clubs, but not to the clubs’ affiliates. It also underscores how the Yankees have shifted revenue to affiliates like YES and Legends, limiting the already steep revenue-sharing and luxury-fee payments, about $100 million, the club pays to MLB.

The team also deducts about one-third of its $64 million annual stadium interest payment from its revenue-sharing commitment.

The Yankees and Dallas Cowboys formed Legends in 2008, with the clubs’ two stadiums still the principal assets. Nonetheless, that has been enough to generate more than $20 million of annual cash flow and support a $250 million valuation, the sources said.

The $125 million refinancing that Legends now has in the market is directed at expanding the business. It tacks on 25 percent to an initial $100 million loan.

Meanwhile, the $275 million that YGE is refinancing, which is for general corporate purposes, does not include new debt.

The interest rate on both deals is 350 to 375 interest points over the London Interbank Offered Rate, or LIBOR, a floating rate index that last week hovered at 0.29 percent.

The loans, which have not closed, are being led by Goldman Sachs, Wells Fargo and Galatioto Sports Partners.

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