Major League Baseball is playing hardball with the hedge fund creditors of the Texas Rangers, but the move seems to have backfired in a big way.
Baseball is keen to see the team sold to a group led by Pittsburgh lawyer Chuck Greenberg and Nolan Ryan, the legendary Hall of Fame pitcher who serves as president of the team. The sale became necessary after current owner Tom Hicks, the private equity veteran, defaulted on $525 million in loans last April, as first reported by FINalternatives. But those creditors, led by hedge fund Monarch Alternative Capital, believe they are getting shortchanged on the Greenberg deal, which they call the cheapest of three bids for the team.
The creditors have further dug in their heels last week after Baseball Commissioner Bud Selig sought to force their hand. Selig sent a letter on April 30 warning that if the creditors do not approve the deal, he will unilaterally revoke their liens against the team, Sports Business Journal reports.
Selig, who could also seize the Rangers from Hicks Sports Group, would invoke the “best interests of baseball” clause that gives him wide authority over all of the sport’s teams. He set a deadline of last Tuesday for the creditors to approve the Greenberg sale.
But they did just the opposite, with creditors holding 95% of the debt voting that day to reject the deal. And they issued a warning of their own to Selig and baseball’s other owners, who are meeting this week in New York: Mess with us, and you’ll never see another dime in financing.
Baseball teams rely heavily on financing, in particular when they change hands.
“Bud can forget any lender, which includes any hedge fund or anyone, [lending] a single nickel or dime into baseball again” if he cancels the liens or seizes the team, Dornoch Capital Advisors’ Joe Kosich told SBJ. Kosich is the former head of sports lending at Wachovia.
Of course, the creditors aren’t relying merely on threats. They have prepared an involuntary bankruptcy petition for the Rangers that is ready to be filed if needed.