It was an interesting twist in the midst of the third day of hearings over the voluntary bankruptcy of the Texas Rangers on Wednesday.
The Rangers have already tapped $18.45 million in loans from MLB’s credit line, but as part of the voluntary bankruptcy, the “pre-packaged” plan called for $11.5 million in a new line of credit to allow the Rangers to function through the Chapter 11 bankruptcy proceedings.
During Weds. hearing, the lenders began counter-offers to MLB’s Baseball Finance, LLC credit line. At one point, the lenders offered up $40 million before both sides settled at $21.5 million. The move shocked U.S. Bankruptcy Judge Michael Lynn who said that he had never seen a case where the lenders in a bankruptcy case were competing for the right to finance the debtor in a bankruptcy proceeding.
“I’m very grateful to both sides for their effort to arrive at something that is most satisfactory for the Rangers, but I really don’t want the evidence changing during the course of the hearing,” Lynn said.
But, the question is, why did the creditors look to get into a bidding war over the interim funds? The answer is centered on a savvy bit of legal maneuvering designed to inflict a bit of financial pain on MLB.
What happened within the bidding process was MLB had to lower their interest rate on the interim funds. What was originally 5.75 percent, moved to 1.6 percent. For the lenders, no matter how much they said they would loan, or now low an interest rate, it would all wind up coming back to them through the bankruptcy process as part of primary lenders being paid off first. The net consequence of the action is that MLB is, in effect, paying the lenders an amount equal to the savings in interest.
Judge Lynn sided with keeping MLB the lenders, which means that due to this being a debtor-in-possession loan (DIP) they will receive payment before the creditors, but the lenders saw the maneuver as a victory.
“It was obvious they wanted baseball, but it was with our terms,” said Andrew Herenstein, the managing principal of the lead creditor, Monarch Alternative Capital, to The New York Times. “Our goal, even if we lost, was to reduce the cost of lending, which ultimately comes out of our pockets.”
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to Forbes SportsMoney blog. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
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