Court denies Dodgers DIP loan; team ordered to negotiate with league

By Caroline Salls

Pittsburgh, July 22 - Los Angeles Dodgers LLC's motion for approval of a $150 million debtor-in-possession facility was denied Friday by the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Major League Baseball filed an objection to the Dodgers' proposed facility, saying it would provide the team with a DIP loan on "substantially better terms."

"Having siphoned off well over $100 million of club revenues and obviously unable to properly distinguish between his personal interests and those of the club, [Dodgers owner] Frank McCourt has driven the Los Angeles Dodgers to a liquidity crisis so severe that, absent extraordinary measures, the club would be unable to make its payroll," the league said in the objection.

"Threatening the immediate demise of one of baseball's great teams, [McCourt] seeks emergency approval of a DIP financing that compels the club to do exactly what Mr. McCourt improperly sought to do outside of bankruptcy - selling the club's valuable future broadcast rights to pay current expenses and make significant proceeds available for personal use.

As previously reported, the team's proposed loan from HPS-Senior Loan Fund II, LP, Highbridge Senior Loan Holdings, LP and/or other affiliated entities in the Highbridge Senior Loan Fund family of funds would have carried an interest rate of either Libor plus 600 basis points with a 3% Libor floor or Base rate plus 600 bps and would have matured on June 27, 2012, which the court said was before the expiration of Fox Sport's first right of negotiation for the broadcast rights.

According to Friday's ruling, the league's proposed loan would include none of the fees payable under the Highbridge facility, including a 0.50% delayed-draw fee, a $4.5 million deferred fee, a $5.25 million closing fee and a $50,000 annual agent fee.

The league's facility would bear interest at Libor plus 550 bps with a 1.5% Libor floor or Base rate plus 450 bps and would mature on Nov. 30, 2012, after Fox Sports' right of first negotiation.

In addition, the Highbridge facility was a secured loan, and the league's proposed loan is unsecured.

Failure to negotiate

Judge Kevin Gross said in Friday's opinion that the Dodgers could not claim that the team was unable to obtain unsecured credit.

"The opposite holds true," Gross said in his opinion.

"Baseball is ready, anxious and able to provide unsecured financing and has committed to do whatever it takes to do just that.

"The court will insure that baseball honors its commitment."

The judge said the Dodgers refused to negotiate the league's unsecured funding proposal "because, they explained, baseball has been hostile to [the debtors]."

Gross also ordered the Dodgers to negotiate with the league in good faith to finalize an unsecured facility.

"It is unclear to the court how debtors think they can successfully operate a team within the framework of baseball if they are unwilling to sit with baseball to consider and negotiate even more favorable loan terms while under the court's protection," Gross said in his ruling.

Team reaction

According to a release filed by Dodgers attorney Bruce Bennett, from the team's perspective "a short-form unsecured credit agreement with MLB, when combined with other sources of revenues, should provide the Dodgers with ample liquidity to meet team payroll and other expenses as the Dodgers proceed forward with their business plan."

Bennett said the Dodgers hope to emerge from Chapter 11 bankruptcy by the end of the year.

In addition, Bennett said the Dodgers will propose procedures designed to promote a competitive sale process of exclusive cable television rights, "while at the same time, giving due consideration to the Fox telecast agreement."

"The Dodgers expect that a sale or license of exclusive cable television rights will fully resolve all of the Dodgers' financial challenges as well as generate value for holders of the equity interests in the debtors," Bennett said in the release.

The Los Angeles Dodgers filed bankruptcy on June 27. The Chapter 11 case number is 11-12010.

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