Dodgers and Major League Baseball Enter into Financing Agreement


The fact that the Los Angeles Dodgers have filed for bankruptcy protection is widely known after a month of headlines and sparring with Major League Baseball and Commissioner Bud Selig.  In most Chapter 11 bankruptcy cases the entity that files for bankruptcy protection seeks financing to continue to operate while it restructures its finances in bankruptcy.  The Dodgers are no different.  After all the legal wrangling and accusations, the Dodgers and MLB entered into a $150 million financing agreement on August 5, 2011.

The Dodgers wanted to enter into a financing agreement with Highbridge, a hedge fund.  Major League Baseball submitted its own offer to provide financing to the Dodgers with better terms.  The problem is the Dodgers believe MLB is conspiring to take the Dodgers over.  It also appears Frank McCourt is infusing his poor decision making into the bankruptcy case.

The MLB financing provides significantly better terms than Highbridge, such as the elimination of $9,750,000 in fees, reduced the percentage rate by 3 percentage points, did not require the Dodgers to encumber assets, contained fewer ways to default on the financing.  Even though the MLB financing is superior the Dodgers still did not entertain MLB offer.  One reason appears that McCourt personally guaranteed millions of dollars in closing fees if the Highbridge financing proposal was not entered into by the Dodgers.  So even though the MLB financing is superior and in the best interests of the Dodgers, it is not in the best interests of Mr. McCourt personally.

For the Dodgers to obtain financing the Bankruptcy Code requires the Dodgers to establish they are not able to obtain unsecured credit, the credit transaction is necessary to preserve the assets of the Dodgers and the terms of the transaction are fair, reasonable  and adequate given the circumstances of the Dodgers and the proposed lender; and that no better offers are on the table for consideration.  MLB has a vested interest and an obligation to preserve its brand and making sure that each franchise is successful.

The Dodgers then argued that MLB did not have the ability to provide financing for the Dodgers.  According to court documents MLB has a credit line of $250 million to draw from and approximately $400 million in the Major League Central Fund.  Even in the face of superior financing terms and the ability to provide the financing, the Dodgers and Mr. McCourt still refused to allow MLB to help them.  The Dodgers and Mr. McCourt believed that any financing accepted from MLB would come with control and the ability to harm the Dodgers.  The Dodgers even unsuccessfully tried to require the deposition of Commission Bud Selig.  Traditionally courts have shielded high level executives from such depositions when other witnesses can provide the same testimony.  On July 14, 2011, the Honorable Kevin Gross denied the Dodgers request to depose Commission Selig and denied almost all of the Dodgers document requests.

Today the Dodgers filed documents with the bankruptcy court detailing agreed upon terms of the financing deal with MLB totaling $150 million.  The maturity date of the financing is November 30, 2012.  For more information about bankruptcy contact one of our Redwood City bankruptcy lawyers or Chapter 13 bankruptcy lawyers in Redwood City.