Rangers creditors offered the team $40 million in financing today, a surprise move in bankruptcy court intended to in part remove Major League Baseball from the process.
The team needed financing in place by the end of the day Wednesday to meet payroll of $3.8 million, the team’s attorney, Martin Sosland of Weil Gotshal & Manges, told the court in Fort Worth, Texas.
The Rangers filed for bankruptcy Monday after reaching a stalemate with creditors that refused to allow the team’s sale to proceed because they think there is a higher offer. The Rangers’ parent company — Tom Hicks’ Hicks Sports Group — defaulted on its debt on March 31, 2009.
On Day 2 of the hearings in Fort Worth, which have lasted far longer than insiders expected, lawyers for the Rangers said they preferred debtor in possession financing offered from MLB, but the creditors, represented by Andy LeBlanc of Milbank Tweed, contested it by offering $40 million.
In response, MLB increased its financing from $11.5 million, which would have taken the club only through to August, to $21.5 million. And MLB agreed to lower its interest rate from 5.75 percent to around 1.5 percent, matching the creditors’ loan proposal.
The reason the creditors wish to lend the money is they believe MLB’s debtor in possession terms would facilitate the sale to Nolan Ryan and Chuck Greenberg, the buyers who have been trying to close on the team since January. Both men were in the courtroom. But the creditors told the court on Monday that they believe there are higher offers for the club, and want the auction re-opened.
In order to do that, they need time. The creditors’ financing would match the $21.5 million and the rate, plus buy out what MLB is owed for funding payroll last year, thus removing the league as a creditor, though not necessarily as a party to the proceedings.
"We upped the ante," LeBlanc told the court.
Rangers CFO Kellie Fischer testified that the team preferred MLB’s financing because the team was comfortable with the league. She also testified that commissioner Bud Selig has been intricately involved in the sales process. Selig’s No. 2 executive, COO Bob Dupuy, was in the courtroom.
The key difference between MLB’s and the creditors’ debtor in possession financing, once MLB matched, is that MLB would not consider it a default if the Rangers were unable to meet the commercial terms set out in the bankruptcy plan. That is a big issue for the lenders, who believe it would allow the Rangers to spurn higher offers.
The hearing dragged on through the day today before Judge D. Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas, who was to make a decision on which debtor in possession financing is acceptable.
The next major hearing is scheduled for June 15.
This story first appeared in SportsBusiness Journal, a sister publication of Sporting News.