The group buying the St. Louis Blues will borrow $120 million to fi nance the acquisition and create a cash reserve, presumably to cover operating losses, fi nancial sources said.
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Citigroup’s willingness to lend to the Blues’
new ownership is seen as good for the NHL. |
That a bank is willing to lend this amount of money to an NHL team, and to one of the league’s fi nancially woebegone franchises to boot, speaks volumes to the changing economic dynamics wrought by the new collective-bargaining agreement, which instituted a salary cap for the fi rst time.
Last month, former Madison Square Garden President David Checketts led a syndicate that agreed to buy the team and the lease on the Savvis Center for $150 million. The deal is awaiting NHL approval, at which time the Citigroup loans would close.
“I don’t know how aggressive Citigroup was before the CBA, but I think they have come to understand [the NHL] from a fi - nancial perspective,” said Bob Caporale, chairman of Game Plan, which advised Blues owners Bill and Nancy Laurie on the pending sale. “It bodes well for the future as more fi nancial institutions start to understand the new economics.”
Citigroup, like most banks, was not terribly active in hockey, even before the lockout, which ended last year. The poor fi nancials of the sport made most lending risky, leaving the fi eld to a smattering of fi rms.
But with a new CBA restraining costs, that apparently is changing, with the established Citigroup committing so much money. In another recent example, the Pittsburgh Penguins hired Allen & Co. to fi nd a buyer for the franchise.
The case of the Blues, though, is extreme. The team, fi nance sources said, lost $40 million in the season before the lockout, beset by low attendance and a high payroll. Attendance has continued to lag, with the team ranked 26th out of the NHL’s 30 clubs.
Checketts’ reputation as a skilled team manager clearly is a benefi t, though, as are the deep pockets of his partner, TowerBrook Capital Partners, a $2.5 billion fund.
How much money they are putting in is not entirely clear. The lease and the team will transfer to Checketts without any debt. The roughly $60 million of red ink on the arena and the $40 million on the team will have been paid off by the Lauries.
The $120 million Citigroup loan is split in two pieces, or tranches. One will be secured by the team and the other by the arena.
The ultimate split is being hashed out by the bank, though sources expect about $60 million to be secured by the arena.
Citigroup declined to comment. Checketts did not return calls seeking comment.
The NHL’s informal debt rule limits team borrowing to 50 percent of franchise value. The pending Blues owners are borrowing well more than that but are able to skirt the issue by placing a lot of the loan on the arena.
