Judge Rules Dodgers' Highbridge Loan Foul

Jul 25 2011 | 1:42pm ET

The Los Angeles Dodgers cannot borrow $150 million from Highbridge Capital Management, a federal bankruptcy judge has ruled.

U.S. Bankruptcy Judge Kevin Gross rejected the team's argument that to accept the needed financing from Major League Baseball would be to "accept a deal with the devil." The Dodgers "not only failed to attempt to obtain unsecured financing, they refused to engage Baseball in negotiations," Gross wrote. "Baseball is ready, anxious and able to provide unsecured financing and has committed to do whatever it takes to do just that."

Gross found that the terms offered by MLB were superior to those offered by Highbridge, which included a $5.25 million fee and could have encumbered team assets. The judge took aim at the fee, in particular, calling it evidence that Dodgers owner Frank McCourt's judgment was "clearly compromised" by the "acrimonious relationship" between himself and Baseball Commissioner Bud Selig, who rejected a proposed 17-year television rights deal for the Dodgers for fear that the proceeds would be used to settle McCourt's divorce from former Dodgers CEO Jamie McCourt.

Highbridge, which has already lent the Dodgers $60 million, will receive a $250,000 termination fee. The Dodgers will have to repay the $60 million after it reaches a deal with MLB.

The Dodgers sought to put a brave face on their defeat, calling Gross's ruling "both economically favorable and consistent with the Dodgers' objective of maximizing the value of the estate in the Chapter 11 process." Team lawyer Bruce Bennett also pledged that the team will continue to seek the sale of its broadcasting rights.

For its part, MLB executive Rob Manfred pronounced the league "pleased that the court has agreed with our position." But while Gross found that the MLB loan must be "independent of and uncoupled from" the league's oversight and governance of the Dodgers, Baseball lawyer Tom Lauria insisted that Gross "didn't say we have to waive our rights."

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