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NFL seeks to double loan pool by borrowing $600M
Published June 25, 2012, Page 3
The league hosted banks June 13 at NFL headquarters in New York for a session led by Bank of America to gauge the interest in lending the league more money, the sources said.
The NFL recently raised the amount of cash teams can borrow by 33 percent, to $200 million each. The league’s action in looking to increase the size of its own loan pool suggests that the NFL expects clubs will take advantage of their increased debt limits by borrowing through a league credit facility and not individual banks.
The NFL declined to comment. Bank of America did not reply for comment.
“Based on the new [collective-bargaining agreement], strength of the NFL’s media contracts and recent franchise values, it is understandable that the league would increase the debt cap and go to market to raise additional funds,” said Rob Tilliss, a sports financial adviser with Inner Circle Sports. “By having a conservative debt policy in place, the NFL has been able to handle down periods such as 2008-09 and is still on sound financial footing.”
Sources familiar with the meeting said teams would have to pay an interest rate of only 100 points over the London Interbank Offered Rate, a floating-rate index that currently stands at 0.47 percent. That means teams today would pay less than a 1.5 percent interest rate.
Historically, most league-backed borrowing has been floating-rated debt, but leagues got squeezed during the financial crisis and moved many of their borrowings into fixed-rate vehicles. One source familiar with the meeting pegged the NFL loan pool, or credit facility, that is fixed rated at $2 billion.
The NFL has a variety of credit facilities for fixed and short-term debt, as well as a separate one for stadium financing. Many teams prefer to borrow through these mechanisms rather than on their own because the NFL-run credit facilities pool collateral, thereby lowering rates.
After the 2008 financial crisis and in the buildup to the 2011 lockout, the NFL studiously avoided taking on more debt and aggressively pushed teams to pay down their own. Other leagues have taken similar measures.
But the NFL CBA, which over its 10 years will shift billions of dollars to the owners from what players would have received under the old labor deal, is cited by financial experts as a big reason why the NFL can relax somewhat on the debt front. The only question is whether the low rate could dissuade some banks from lending, said one financial source familiar with the meeting. However, any such hesitations could be allayed by the overall strength of the NFL’s balance sheet and the allure of doing business with the league.