In the wake of the financial industry’s biggest trading scandal, Société Générale has shut down its U.S. sports lending business, with the head of the practice, Randy Campbell, resigning after 6 1/2 years with the bank.
SG was on the verge of lending between $100 million and $110 million to a group led by Oren Koules to buy the Tampa Bay Lightning, a loan the consortium is now trying to replace, sources said. SG is also lending $47 million to the financially strapped New Orleans Hornets, who were notified of the sports sector news after already agreeing to terms with the French bank.
To the surprise of some in the sports financial world, SG agreed to stand by that loan, which has not closed, and hosted a syndication meeting with lenders last Tuesday in New Orleans and by phone. Lead, or agent, banks frequently sell off pieces of loans to minimize risk exposure, a process called syndication.
Most of the $47 million, sources said, is to supply the franchise with a vital cash infusion. The team declined to comment.
“I would be shocked if that deal got done, given, notwithstanding any credit issues, how can you expect banks to commit to a credit facility led by an agent that is no longer in the business,” said one banker who participated in the syndication meeting but who requested anonymity. “If you need to come up with an amendment or a waiver [to the loan agreement], how do you trust Société Générale has the expertise to make a recommendation when frankly they have abandoned the sector?”
An SG spokesman, Jim Galvin, said in a written statement, “We are still committed to supporting the client and the transaction.” Of the sports practice, he added, “Randy Campbell is no longer with SG as we’ve decided to no longer cover the sports sector. Our sports finance franchise was not core to our leveraged and non-investment-grade finance strategy and only provided limited synergies with SG’s global strategy.”
Campbell declined to comment.
SG has often been a lender to financially ailing franchises. In addition to the Hornets, it has done deals with the Pittsburgh Penguins and the Memphis Grizzlies. SG also orchestrated last year’s 25 percent equity sale in the Hornets to Gary Chouest.
The bank’s departure from the sports lending business is not a healthy sign for sports, which has counted on lenders such as SG to capitalize clubs whose credit might not be the best.
One market source estimated existing SG loans outstanding in sports total $300 million. While those loans are not affected by last month’s development, if the borrowers needed to change the terms, SG’s expertise in navigating the often intricate nuances of sports lending could now be an issue.
When SG launched its group in 1998, the bank used it to introduce the foreign outfit to high-net-worth individuals in the United States. The founder of the group, Sal Galatioto, left the bank in 2001 with a team of around 10, and Campbell replaced him. Campbell initially worked with a few dedicated professionals, but by the time of his departure last month, he was largely the only executive left dedicated solely to sports at SG.
With leaguewide credit facilities taking much of the team lending business, it has become more difficult for a wide range of the lending groups to survive. In previous years, JPMorgan Chase shut down its specialty practice, as did Prudential and Legg Mason.
It’s unclear whether SG was heading down that same path before a trader in its Paris office executed unauthorized trades resulting in a $7.2 billion loss. But that scandal clearly dried up the cash the bank had available for what it considered noncore sectors, like sports.
The loan is one of the financial story lines
for the Hornets after their return to
New Orleans.
The Hornets deal offered by SG has a key provision that other banks might be unwilling to assume: If the team cannot make payments, the partners in the team are not required to cover the obligations of their fellow partners, a source said. In other words, if one of owner George Shinn’s limited partners decides against covering his share of the loan payment in the event of a default by the team, Shinn is not obligated to make up the difference. Those kind of terms were more common before the credit markets went south over the summer.
For the Hornets, the loan is one of several ongoing financial story lines. The team last month reached agreement with the state on a renegotiated lease deal that gives Shinn an opt-out provision. The new lease allows the team to leave New Orleans Arena at the end of next season if average attendance falls below 14,735 fans per game for the final months of this season and next season.
This is the Hornets’ first full season back in Louisiana after the effects of Hurricane Katrina sent them to Oklahoma City for the majority of their games the past two years. Despite an on-court record that’s among the league’s best and attendance gains over the past month, through Jan. 28, the team was averaging just 12,369 fans per game, ahead of only Indiana’s league low 12,068 fans per game.
The Hornets are also stung by their deal with Cox Sports Television that does not include carriage to 250,000 residents of the market’s affluent north shore area.
Galatioto, who is representing Palace Sports and Entertainment in the sale of the Lightning, declined to comment on SG’s removal from the process. When an investment banker such as Galatioto, who runs Galatioto Sports Partners, arranges a franchise sale, however, a second or even third bank is tapped as a potential agent in the event something happens to the first one.
Staff writer John Lombardo contributed to this report.
