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Rangers' debt holder warns Selig not to seize the team

May 14, 2010, 11:05 AM EDT

Monarch Alternative Capital is the fly in the ointment, the monkey in the wrench, the pain in the assets of the Texas Rangers sale.  They’re the lead debt holder, and the ones who appear to be calling the creditors’ shots in the seemingly interminable brinkmanship that has characterized the team’s sale.

Today Richard Sandomir of the New York Times reports that they’re not taking Bud Selig’s threats to seize the Rangers, cancel the debt and do the deal lightly, sending an email to him in which consequences most dire are predicted, including the team’s bankruptcy or “costly, distracting and messy”
litigation.

Which is really the only response that one can expect given Bud’s threats. There are disagreements about whether Monarch actually has the stones to go through with it all, but if you’re in the business of buying debt and a major debtor is basically saying he’s going to ignore your claims, you pretty much have to litigate if you want to be taken seriously with your other customers, don’t you? It’s like the unwritten rules for banks. If one high-profile debtor is allowed to walk all over you, you’re toast. Ask Tony La Russa. I’m sure he can tell you all about it.

That aside, I think the most interesting thing about it is the last line of Monarch’s letter Sandomir quotes, in which they warn of a negative impact to team values if Selig carries out his threat, “as funding will become more costly and difficult to obtain as lenders
lose faith in the contractual security of their loans.”

This is what I was talking about the other day: the lenders may not have all the leverage in the world in the context of this deal, but if they do end up getting burned, you have to figure that the terms of loans to baseball teams will be much more arduous going forward, and not just from entities like Monarch. Lenders are in the business of valuing risk. If the Rangers are able to simply walk away from current obligations like this, banks will consider baseball teams to be bigger risks going forward. And not just because they’re worried that the team will default, but because they’re worried that the debt they hold will be harder to sell on the open market to secondary holders . . . like Monarch Alternative Captial.

In other words, there are greater stakes at issue here than the simple selling of the Texas Rangers, and I’d be surprised if Selig and his able business associates are not well aware of them privately, even if their public rhetoric is errs on the side of the cavalier.

  1. Doug - May 14, 2010 at 11:32 AM

    Baseball should lose face if they do not meet their debt obligations and pay the bills. While it is only one franchise that just happens to be owned by a billionaire (or former billionaire) it does not make it alright to not live up the obligations they agreed to.
    If baseball decides to leave creditors hanging and act like they don’t care then I will continue to only watch them on free television while I watch their attendance continue to drop and get what is deserved.

  2. APBA Guy - May 14, 2010 at 12:00 PM

    How much is posturing by both sides, and how much is substantive? For us fans, the problems for Texas are obvious: they are one injury to a starting pitcher away from missing a chance to win the division title, and their bullpen needs help. No help will be forthcoming while the team ownership is unresolved.
    Craig, I asked before: what is the impact of baseball’s anti-trust exemption in all this? I realize it’s partial, but is it still broad enough to enable the commissioner to seize the team and impose a settlement on the creditors?
    My own opinion is that right now their is so much investment money sloshing around looking for a home that the seizure of one team will not substantially impact the cost of debt in sports financing. The Texas situation will be viewed as a one-off and the current creditors as sloppy. Sure they’ll sue. But does the anti-trust exemption limit their ability to win in this case?

  3. Rachael - May 14, 2010 at 12:06 PM

    Since Monarch are getting no interest payments either since early 2009, seems Monarch is losing money every day. I think the greedy Monarch letter is actually one of desperation. They know they can’t win and it was a last appeal/threat to hope for a better deal. The $30 million gap is going away daily with the interest (now close to $600 million is the price tag on the debt) and you add legal fees and the such to this tab and Monarch can’t win, not matter who comes to the table with a better offer and MLB knows it. I suspect they settle before walking up the courthouse steps….they can’t be THAT arrogant and stupid……can they? And why are they not talking about their take from the Stars. The beef is with HSG and they knew that when they bought the debt.

  4. Bankruptcy Clerk - May 14, 2010 at 12:07 PM

    Love it.

  5. BC - May 14, 2010 at 12:18 PM

    Maybe the Feds can pull a Fannie Mae and just take them over, or throw some TARP money at them?
    Captcha: schizoid states. Darn that thing has ESP.

  6. Maury Brown - May 14, 2010 at 12:20 PM

    The original lenders screwed up by making bad loans to HSG. I talked to two separate creditor sources, and both said that deals would be granted current or prospective owners, as long as the deals were sound.
    If Monarch was willing to push into involuntary bankruptcy, why haven’t they done so? They’ve had the paperwork ready. Fear… and it’s on both sides of the table on this deal.

  7. Jon - May 14, 2010 at 12:35 PM

    I don’t understand what Selig means when he says “he’ll seize the team and cancel the debt.”
    Is that code for simply not paying anything ever?
    Because if that’s the case, couldn’t Monarch just seize the assets of the team as recompense? That is, couldn’t Monarch SEIZE THE TEXAS RANGERS? Isn’t that what creditors do when people don’t pay their bills?
    I don’t understand, but just as a matter of propriety, I would hope that Monarch isn’t left with nothing. As Craig writes, such a situation would be a specific problem for baseball teams, but it’s also just a crummy message to send to the public at large: the rich can “cancel” their debt, while the rest of us can’t.

  8. rachael - May 14, 2010 at 1:59 PM

    Is Herenstein and Monarch so arrogant to believe that they can try and dictate to MLB to reopen the bidding, thus telling MLB how to do their business……..Is Herenstein do blindly arrogant and pompous to think that how Monarch thinks they are being treated is going to cause “the banks” to not do the same business with MLB when MLB is the only MLB in town and have been good to “the banks” for a very long time? I think this is just one big bluff by Monarch and Herensteins ass is in the process of being called!

  9. RichardInDallas - May 14, 2010 at 3:11 PM

    @Jon – It’s my understanding that a baseball franchise can NEVER be used as collateral for a debt. If thr Rangers are not used in this way, they can’t be forclosed. How am I doing here, Craig? And MLB alwayys retains the right to take over the team “in the best interest of baseball”, as part of the franchise agreement with the league…

  10. ThatGuy - May 14, 2010 at 4:13 PM

    I don’t see how MLB could just cancel a debt. I am assuming some sort of contract was signed in this loan. How would that not be binding? Sure Monarch has the option to cancel or modify it but how can they be forced?

  11. Maury Brown - May 14, 2010 at 4:26 PM

    To assist some here… There’s $70 million in liens on the Rangers. The league would pay those liens, and hand over what they deem to be the acceptable value for the Rangers assets for the creditors to fight over splitting up. Post-sale, this value is believed to be approx. $270 million.
    There is 154 acres of land in the deal with Greenberg/Ryan, but that land does not have a lien against it, which, of course, maddens to the creditors as they do not have access to those proceeds through the sale to HSG.

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