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SBJ/April 8-14, 2013/Finance
MLB will expand loan pool
Published April 8, 2013, Page 1
The league expects to complete the financing by the summer, sources said.
The move underscores how MLB financially is enjoying a plush period, with a new collective-bargaining agreement and new TV contracts, along with healthy attendance, all of which allows the league to relax somewhat the conservative debt limitations that were imposed in the years after the 2008 financial crisis.
The league notified financial institutions of its intent last month, at a meeting in Arizona during spring training.
“We are generally comfortable with MLB’s [debt] profile,” said Chad Lewis, a ratings analyst at Fitch. Lewis confirmed the league’s plan to increase the amount teams could borrow from the league’s loan pool, or credit facility, to $100 million each, up from $75 million.
MLB’s move follows a similar action by the NFL last year, when that league increased the amount of money teams could borrow to $200 million from $150 million. As lending markets improve from the dark days of late 2008, when the financial markets crashed, sports leagues now appear more willing to loosen the reins on tight debt rules.
“There had generally been an ongoing movement toward reducing team debt,” said Bradley Rangell, managing director with Citi Private Bank’s Sports Advisory Group. “What has happened more recently is that as teams became more valuable, as new media contracts kick in, and more diversified businesses became part of sports assets, many team values have appreciated to the point where they exhibit very low senior secured advance rates.”
A senior secured advance rate is the percent of debt to asset value.
Fitch’s Lewis said it is not the asset value of teams like the Los Angeles Dodgers, who sold for more than $2 billion, that convinces him that MLB can smoothly borrow more in the markets, but rather MLB’s rising tide of revenue. MLB revenue rose from $7 billion in 2010 to $7.5 billion last year.
The change does not mean that MLB is allowing clubs to borrow more money overall. As prescribed in the CBA, teams can borrow only the equivalent of eight times their cash flow, or 12 times the amount if it is for a stadium project. What the change does do is make it easier for clubs to borrow specifically through the credit facility, which pools shared collateral such as TV contracts to ensure lower rates than individual clubs typically could get on their own.
Last year, when Fitch rated the MLB loans, the ratings agency report said that 21 of MLB’s 30 teams were using the credit facility and that the facility contained $1.34 billion. (Each team did not borrow the maximum amount allowed.) Now, MLB will have to expand the loan pool to accommodate the fact that teams can borrow not just $75 million but $100 million. With 21 teams in the credit facility, another $25 million each would mean an additional $525 million.
Not every team chooses to borrow from the credit facility, with some relying instead on other sources of debt. MLB, which declined to comment, works with Bank of America on its league financing.