The Los Angeles Dodgers, which asked at least seven lenders for money before filing for bankruptcy today, will pay 10 percent interest on a loan from JPMorgan Chase & Co. (JPM)’s Highbridge Capital Management LLC, plus fees.
The one-year $150 million loan from Highbridge, a New York- based hedge fund, sets interest at the London interbank offered rate, or Libor, plus 7 percent, providing that Libor is no lower than 3 percent, according to a court filing today.
The team can draw $60 million initially and $90 million later. Highbridge, which will have first claim on the Dodgers’ assets, gets a $4.5 million deferred commitment fee, plus 0.5 percent of the unused part of the loan, payable monthly.
“This is a very expensive loan” for an entity like the Dodgers, said Lynn LoPucki, a bankruptcy-law professor at the University of California at Los Angeles. “If the assets are worth the $500 million the debtor claims, repayment is virtually certain.”
The team listed assets of $500 million to $1 billion in its Chapter 11 petition.
Darin Oduyoye, a JPMorgan spokesman, declined to comment. Dodgers assistant treasurer Jeffrey Ingram said in a court filing that the team had “no adequate alternative,” as only Highbridge “was willing to provide a commitment for financing of a sufficient amount and within the debtors’ time constraints.”
The Phoenix Coyotes paid 7 percent for a bankruptcy loan in 2009 with no fees to the lenders, said Chip Bowles, a bankruptcy lawyer at Greenebaum Doll & McDonald PLLC in Louisville, Kentucky.
Companies in some industries paid more than the Dodgers for bankruptcy loans. Borders Group Inc. this year paid as much as 13.5 percent for some loans, and Trico Marine Services Inc. last year paid 14 percent, according to data compiled by Bloomberg.
Sbarro Inc. and Great Atlantic & Pacific Tea Co. paid 8.75 percent for some loans in the past two years, according to Bloomberg data.
Highbridge may be charging a higher interest rate because of “the special nature of a sports team,” said Stephen Lubben, a bankruptcy professor at Seton Hall University School of Law in Newark, New Jersey.
“The assets are not worth as much to a lender, because the league can veto sales,” he said.
The Texas Rangers, sold last year to a group including Hall of Fame pitcher Nolan Ryan, needed approval of its bankruptcy auction from owners of at least 23 of the 30 Major League Baseball teams, as well as Commissioner Bud Selig.
The Coyotes had to delay the team’s 2009 auction after the National Hockey League said Chicago Bulls owner Jerry Reinsdorf and another bidder needed more time to improve their offers. The NHL was the buyer in the end, paying $140 million.
“The Coyotes’ owner wanted to sell against the will of the league,” Bowles said. Similarly, the Dodgers, in discussions in court filings of a television-rights deal with News Corp. (NWS)’s Fox Sports that was rejected by the league, were “clearly saying between the lines the Fox contract was a good deal,” he said.
The Dodgers, which lost money last year as attendance dropped and the team failed to reach the playoffs, have $40 million in payroll obligations on June 30 and July 1, according to Ingram. At least four potential lenders of the seven approached reviewed the team’s finances, and only Highbridge agreed to provide all it needed, he said in the filing.
After the TV rights deal with Fox Sports fell through on June 20, the team stepped up its effort to find other sources of money, Ingram said.
Selig last week said the 17-year deal with Fox, which Dodgers owner Frank McCourt said would have assured financial stability for the team, would harm the franchise in the long term. Baseball took over the team’s business operations about two months ago.
The Dodgers have five bank accounts with Bank of America Corp. (BAC), according to filings. Manny Ramirez, a former Dodgers player, is the largest unsecured creditor with about $21 million owing on a contract, according to court papers.
Andruw Jones is owed $11.1 million and Hiroki Kuroda $4.5 million. Rafael Furcal has a claim of $3.7 million. The Chicago White Sox team is owed $3.5 million.
McCourt, a Boston real-estate developer who unsuccessfully bid for the Boston Red Sox, bought the Dodgers from Rupert Murdoch’s News Corp. (NWSA) in 2004 for $430 million. He is fighting with his ex-wife, Jamie, over ownership of the team. A judge last year invalidated an agreement that Frank McCourt claimed made him the sole owner of the Dodgers, leaving the team’s ownership in limbo.
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