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NBA increases league loan pool to $2.3B
Published January 17, 2011, Page 27
The league also restructured the credit facility to insulate it from the type of financial turmoil that afflicted sports leagues’ lending instruments in the wake of the 2008 credit crisis. As a result, instead of having to refinance in May, the NBA does not need to do so until 2014.
The added money in the loan pool allowed the Atlanta Hawks to borrow $125 million. The Golden State Warriors also have used the pool, adding to their existing debt. Teams can use the money from the loan pool however they choose.
Both Atlanta and Golden State had ownership deals close late last year. In the case of the Hawks, team ownership agreed in December to a buyout of former owner Steve Belkin, who owned a 30 percent stake in Atlanta Spirit, which owns the Hawks along with the NHL Thrashers and operates their Philips Arena home. For Golden State, a group led by Joe Lacob and Peter Guber paid a record $450 million to acquire the franchise in a deal approved by the league in November.
NBA officials would not disclose the specific amounts loaned to the teams in the credit facility, but with the addition of the Hawks as a new borrower, 19 of the NBA’s 30 teams now participate in the loan pool, with most securing the maximum $125 million allowed by the league.
Leagues create loan pools by using collateral like national media contracts to secure credit at better terms than most teams could obtain on their own. Until 2008, the annual renewal features were common for the leagues’ loan pools, but they caused significant headaches for the NFL and Major League Baseball that year and only missed the NBA because of the fortuitous timing of its renewal, which missed the crest of the financial troubles.
“Like all of these credit facilities, it was subject to annual renewals, and there was always a concern economic circumstances could change,” said Harvey Benjamin, NBA executive counsel for business and finance.
That is what happened to MLB and the NFL, which could not renew their deals when banks became skittish in late 2008. The leagues had to convert the facilities into term loans.
MLB has taken a different tack from the NBA, deciding to pay down a lot of its debt, with the total size of its facility under $1 billion. By contrast, the NBA facility, since its inception in 2003, has grown by nearly 2 1/2 times.
“This is great for the teams and [is] a vote of confidence that the banking community has given to the NBA,” Benjamin said. “We have had a bang-up year in every statistical category.”
JPMorgan Chase is the NBA’s banker.
The NFL, like the NBA, chose to drop the annual feature of its credit facility and lock in longer-term debt.
The Hawks were able to join the NBA credit facility after the Spirit ownership group refinanced $125 million in municipal related bonds for Philips Arena. Under terms of the old municipal debt, the team could not borrow from the facility, but the refinancing in late 2010 cleared the way for the group to tap into the league’s credit facility.
Hawks officials did not return calls for comment. The Warriors declined comment.