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Major League Baseball offers a better bankruptcy financing deal

Jun 28, 2011, 11:34 AM EDT

Combination of file photos of MLB commissioner Bud Selig and Los Angeles Dodgers owner Frank McCourt

As mentioned this morning, the first issue the bankruptcy court is going to have to decide is whether or not to allow Frank McCourt to finance Dodgers’ operations with that $150 million loan he obtained.

Also as mentioned, Major League Baseball has come up with an alternative financing arrangement, which Bill Shaikin of the Los Angeles Times just reported:  Financing at 7% interest as opposed to the 10% McCourt obtained, plus no $4.5 million fee or any other fees on top of it, like the fees wit which McCourt would saddle the team.

Bankruptcy experts, help us out: are these financing arrangements usually judged purely on the dollars (i.e. what costs the debtor the least), or is there a broader analysis in play, encompassing the source of the financing as well?  Because if it’s purely dollars, MLB would have to have it beat, one would assume.  If McCourt gets a thumb on the scale in his favor as the current owner, however, it may not matter.

The point to all of this, of course, is that if the court decides that MLB’s financing is going to rule the day, it will likely mean that McCourt’s days of calling the shots are over or soon will be.

Updates as warranted.

  1. yankeesfanlen - Jun 28, 2011 at 11:38 AM

    “Bitter”, sounds like “better”

    • Utley's Hair - Jun 28, 2011 at 11:58 AM

      Okay…so I DIDN’T misread that…right? Freudian(ish) slip?

  2. yankeesgameday - Jun 28, 2011 at 11:47 AM

    Preface: I have no idea what I am talking about here, just posing a question…

    How different is the Dodger bankruptcy from the Rangers? I don’t recall that the Ranger ownership fleeced the team for their own personal gain in ways that McCourt has done, so are we looking at this from a moral vs purely legal perspective?

    And were the Rangers already up for sale, whe

    • yankeesgameday - Jun 28, 2011 at 11:49 AM

      When they went into bankruptcy? Just curious if there us a frame of reference for the process?

      • dlevalley - Jun 28, 2011 at 12:20 PM

        Maury Brown has a good assessment of the similarities and differences between the Cubs, Rangers and Dodgers’ respective bankruptcy filings.

        The Rangers’ situation was similar in substance, if not procedure. Tom Hicks borrowed heavily against the Rangers just like McCourt, but in a different way (that I think made it easier in the bankruptcy hearing).

        http://bizofbaseball.com/index.php?option=com_content&view=article&id=5301:sizing-up-the-dodgers-bankruptcy-to-the-cubs-rangers-and-coyotes&catid=26:editorials&Itemid=39

      • yankeesgameday - Jun 28, 2011 at 12:55 PM

        dlvalley, that link is great reading. highly recommended. thanks!

  3. trevorb06 - Jun 28, 2011 at 11:51 AM

    I hope the courts have to look at this from a dollars perspective and look at it from the creditors perspective not the McCourt’s perspective. If they do chances are bye bye McCourt. :-)

  4. yankeesfanlen - Jun 28, 2011 at 11:53 AM

    I would have to think that it would draw more favor from a judge to have the Dodgers take a cheaper loan, especially since it would come from an “industry” group rather than from a loan shark. Maybe McCourt finally fell into a much-deserved trap.
    Actually, wouldn’t the money supplied by MLB be much the same as the Metropolitans took out to meet operating expenses without a question, handled internally?

  5. theBlainetruth - Jun 28, 2011 at 12:31 PM

    Do we have any idea how much money that MLB is willing to loan? I would assume that it would not be much different than $150 million that McCourt has secured outside of baseball. If that is the case, than it’s a no brainer, the MLB financing is hands down better. You have to think that the bankruptcy court is going to do what is best for the CREDITORS. Looks like this could lead to an MLB takeover.

    Prepare for yet another lawsuit from McCourt once MLB does takeover. I still do not understand how he can file bankruptcy for an organization that is arguably only half his, when the other co-owner did not agree to the filing.

  6. headbeeguy - Jun 28, 2011 at 12:49 PM

    Re: Craig’s question:

    If you’re trying to prime the liens of existing creditors (i.e., jump ahead of them in terms of priorty), you have to prove that the creditors are being adequately protected. In practice, this usually means that you either have to continue to pay the secured creditors interest or argue that they’re protected on a valuation basis. The ultimate effect is that there’s some preference to DIP loans coming from existing creditors.

    In this case, however, it isn’t clear if Highbridge (McCourt’s preferred lender) is an existing creditor – the WSJ story you linked yesterday said that they didn’t mention it in the DIP motion. In that case the adequate protection issue wouldn’t apply, as neither of the potential DIP lenders would be existing lenders.

    However, I’m sure McCourt will object to the MLB proposal with an argument like “MLB harmed the team and forced them into bankruptcy by rejecting the Fox deal, and now they’re trying to become the DIP lender to get a seat at the table and further harm the team”. Ultimately it’ll be the judge’s call.

    • dparker713 - Jun 28, 2011 at 1:23 PM

      Though I haven’t seen the secured creditors list, I’d guess that MLB is on that list.

      • headbeeguy - Jun 28, 2011 at 2:16 PM

        Possible, though I’d think that most of their financial dealings with MLB would be unsecured. For example, in the Cubs filing MLB was on the unsecured creditors list (for revenue sharing obligations, I believe).

        Unless MLB made a direct loan to the team it would seem unlikely that they have a secured claim, but it’s possible that something was put in place before the MLB-Dodgers relationship went to hell.

  7. bloodysock - Jun 28, 2011 at 12:55 PM

    MLB’s loan would seemingly make them the debtor in possession lender and give them priority positioning for the team and assets that are pledged, removing a potential obstacle in bankruptcy court.

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