CHICAGO -- Major League Baseball is in the process of refinancing $1.5 billion of credit-line debt held by its 30 clubs, baseball's No. 2 official said on Thursday.
Each club has access to a $75 million credit line and MLB's three-year term of its current banking deal with FleetBoston and Bank of America was set to expire at the end of this year. At least 20 of the 30 clubs have maxed out on their individual $75 million of credit, meaning that the $75 million principle for each of those clubs would've come due at the end of the year.
"We're going back to the same banks for the same amount of money for the same teams," Bob DuPuy, MLB's president and chief operating officer, said before Thursday's joint meeting of owners at a Chicago airport hotel. "The credit line was about to expire at the end of the year anyway so we had to refinance it. But under today's interest-market climate the clubs will do very well."
The refinancing plan is part of an effort by MLB to contain and begin paying down the $1.5 billion in debt accrued by individual clubs in the industry over the past few years.
"I'm satisfied that we're doing what we said we would do," Commissioner Bud Selig said on Thursday. "Every club is different and has to deal with the problems that they have. Bankers will also play a role in that, too."
Under the new deal, the $1.5 billion in debt will be split among fixed and variable interest notes, said Jonathan Mariner, MLB's chief financial officer. A $1 billion segment of the debt is payable over a 5 1/2 year period based on a variable interest rate, while the other $500 million is being refinanced at a fixed rate of under five percent. The interest payments are amortized for 15 years with a balloon principle payment at the end of 10 years.
In practical terms, any team owing $75 million under the new deal, would service $50 million under the variable terms and $25 million at the fixed rate. That means by making regular payments, each club could bring down the $50 million segment to $46 million after 5 1/2 years and bring down the $25 million segment to $6 million after 10 years, Mariner said.
Teams won't be able to do any new borrowing above the $75 million individual credit limit under the terms of the new deal.
"We (MLB) don't have to regulate that," Mariner said. "The banks aren't going to offer any new loans. They'll take care of it themselves."
Under the four-year Basic Agreement negotiated by MLB and the players association last year, terms have also been spelled out in an attempt to regulate any new debt.
A new "debt service rule," forbids teams to borrow any additional money to repay non-player payroll related debt. New debt must be substantiated by cash flow and revenue. If not, equity in the ballclub must be sold to service it or expenses must be cut. Teams have three seasons to come into compliance with the new rule or face penalties handed out by the Commissioner.
Selig said he would reserve his opinion regarding how MLB's finances are taking shape under terms of the year-old Basic Agreement and how those finances might affect this year's free-agent market.
"We've dealt with it, but it's early yet," Selig said. "Remember, we're in the first full year yet. Obviously, I want to see new information, but overall things are starting to work.
"Every club has to do what it thinks is right and what it can afford to do. The market will determine what player goes where. Time will tell."
http://mlb.mlb.com
Each club has access to a $75 million credit line and MLB's three-year term of its current banking deal with FleetBoston and Bank of America was set to expire at the end of this year. At least 20 of the 30 clubs have maxed out on their individual $75 million of credit, meaning that the $75 million principle for each of those clubs would've come due at the end of the year.
"We're going back to the same banks for the same amount of money for the same teams," Bob DuPuy, MLB's president and chief operating officer, said before Thursday's joint meeting of owners at a Chicago airport hotel. "The credit line was about to expire at the end of the year anyway so we had to refinance it. But under today's interest-market climate the clubs will do very well."
The refinancing plan is part of an effort by MLB to contain and begin paying down the $1.5 billion in debt accrued by individual clubs in the industry over the past few years.
"I'm satisfied that we're doing what we said we would do," Commissioner Bud Selig said on Thursday. "Every club is different and has to deal with the problems that they have. Bankers will also play a role in that, too."
Under the new deal, the $1.5 billion in debt will be split among fixed and variable interest notes, said Jonathan Mariner, MLB's chief financial officer. A $1 billion segment of the debt is payable over a 5 1/2 year period based on a variable interest rate, while the other $500 million is being refinanced at a fixed rate of under five percent. The interest payments are amortized for 15 years with a balloon principle payment at the end of 10 years.
In practical terms, any team owing $75 million under the new deal, would service $50 million under the variable terms and $25 million at the fixed rate. That means by making regular payments, each club could bring down the $50 million segment to $46 million after 5 1/2 years and bring down the $25 million segment to $6 million after 10 years, Mariner said.
Teams won't be able to do any new borrowing above the $75 million individual credit limit under the terms of the new deal.
"We (MLB) don't have to regulate that," Mariner said. "The banks aren't going to offer any new loans. They'll take care of it themselves."
Under the four-year Basic Agreement negotiated by MLB and the players association last year, terms have also been spelled out in an attempt to regulate any new debt.
A new "debt service rule," forbids teams to borrow any additional money to repay non-player payroll related debt. New debt must be substantiated by cash flow and revenue. If not, equity in the ballclub must be sold to service it or expenses must be cut. Teams have three seasons to come into compliance with the new rule or face penalties handed out by the Commissioner.
Selig said he would reserve his opinion regarding how MLB's finances are taking shape under terms of the year-old Basic Agreement and how those finances might affect this year's free-agent market.
"We've dealt with it, but it's early yet," Selig said. "Remember, we're in the first full year yet. Obviously, I want to see new information, but overall things are starting to work.
"Every club has to do what it thinks is right and what it can afford to do. The market will determine what player goes where. Time will tell."
http://mlb.mlb.com
