J.P. Morgan Chase will lend incoming New Jersey Nets owner Bruce Ratner up to $150 million to finance his $300 million deal to buy the NBA team, finance sources said.
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The club's owner, YankeeNets, chose Ratner on Jan. 21 over two rival bidders. The real estate developer hopes to move the team to Brooklyn, where it would anchor a commercial and residential development.
Ratner's next step is to nail down his acquisition financing. Through a commitment between J.P. Morgan and the developer, the bank is to lend $100 million that will be secured by the value of the franchise, sources said. That's the maximum the NBA allows to be placed against a club.
Ratner also would borrow up to $50 million, which Morgan would lend either to a team holding company or directly to the team, the sources said. These types of transactions are not secured by the franchise but commonly by arena cash flow, with personal financial guarantees from the owner a common ingredient.
The remainder of the purchase price is coming from equity contributions from Ratner and his partners, who include Vincent Viola, the chairman of the New York Mercantile Exchange, and rapper Jay-Z. These individuals also could borrow against their own assets to secure their contributions, a frequent practice of non-controlling investors in team purchases.
Ratner's deal still must be approved by the NBA. When that occurs, the J.P. Morgan loan will close.
The financing structure is in marked contrast to one that was reviewed and set to be approved by MLB last week. Frank McCourt's $430 million deal to buy the Los Angeles Dodgers is essentially funded entirely with debt.
He would borrow $150 million from Bank of America and $75 million from the MLB credit facility. He then would borrow $205 million from seller News Corp., though sources said the media company agreed to convert $40 million of that into equity to appease worries about McCourt's debt load. However, he would be required to find a buyer for that ownership stake within the next 18 months.
Ratner's Chase loan is not yet complete, though the sources said it is a fairly straightforward transaction given that most of the collateral is an NBA franchise.
J.P. Morgan, which declined to comment, was chosen from among a group of banks that bid for the business. J.P. Morgan also manages the NBA's $1 billion credit facility, which makes low-interest-rate loans to clubs. However, the Ratner loan is from Morgan's private bank and not from the credit facility.
A Ratner spokeswoman, Michelle Demilly, declined to comment.
The Nets now have about $100 million of debt, one of the sources said. That means that, assuming the transaction is completed, YankeeNets would pay off the debt, netting the company $200 million.
