Baseball Bars Banks From Selling Team Debt To Hedge Funds

Mar 15 2011 | 2:51am ET

Major League Baseball has moved to keep hedge funds' hands off of team debt in the wake of last year's sale of the Texas Rangers.

The new restrictions—instituted last year for all new loans to baseball's 30 teams—are in force for $375 million in loans taken by the New York Mets last year, and they bar the banks that hold such loans from reselling the debt to hedge funds without league approval. The restrictions will make it all but impossible for hedge funds to play a similar role to the one they played with the Rangers, complicating and for a time imperiling the team's sale by private equity honcho Tom Hicks, whose sports team holding company defaulted on more than $500 million in debt in 2009.

The restrictions put into place for the Mets loans came in the wake of the Rangers' bankruptcy filing. But while they'll keep hedge funds from meddling, the rules could make it even harder for the Mets' owners, facing a $1 billion lawsuit from the trustee in the Bernard Madoff case, from selling a stake in the team.

The new rule "potentially impairs the value of the debt, and probably makes banks more reluctant to participate in future baseball financings," Andrew Herenstein of Monarch Alternative Capital, the hedge fund that led the battle against the Rangers, told The Wall Street Journal.

Fred and Jeff Wilpon hope to sell a passive, minority share of the team in an effort to stabilize its finances. The Wilpons deny trustee Irving Picard's allegations that they knew or should have known about the massive Ponzi scheme perpetrated by Madoff, a longtime friend and former neighbor of the family.


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