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Monday, July 25, 2011

N.Y. Post: JPMorgan Chase holding up Mets-Einhorn deal

Dimon notes…

Einhorn’s $200 million purchase of a 33 percent stake in the money-losing Mets franchise is structured as a loan—with the hedge-fund investor getting paid back in three years and having his stake reduced to about 16 percent.

JPMorgan Chase, which is owed about $500 million by the team, won’t approve such a deal unless its loans get serviced—repaid or restructured—prior to Einhorn.

In addition to objecting to the Einhorn deal, in the last few months the bank wrote a “tough” letter to Sterling telling it that the Mets had breached their loan in 13 different ways, said the source, who has seen the letter.

The bank did not put the team in default, but the letter puts it on notice so the bank could more easily pursue that course in the future, the source said. ...

“JPMorgan has been very difficult on several sports loans,” another source said. “They are being supremely cautious.”

bobm Posted: July 25, 2011 at 05:55 AM | 16 comment(s) Login to Bookmark
  Tags: business, mets

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   1. Sam M. Posted: July 25, 2011 at 12:50 PM (#3884625)
This is potentially interesting -- but also maybe just a bank making a standard play. As a big-time Sterling creditor, JPMorgan has every incentive not to allow the Wilpons to take on more debt, and especially not debt to a creditor who would get paid back ahead of them. So why in the heck wouldn't the bank step in and object?

The key, I think, is whether the bank's bottom line is to prevent Wilpon from doing anything, and thus force a sale, or simply to ensure that there is an overall restructuring of the debt so that its position is not worsened by the addition of $200M in Einhorn debt and eventually a potential dilution of Sterling's equity in the Mets. I imagine they also want to know the impact on their position if (in my view, when) Einhorn buys Wilpon out. The last thing a Sterling creditor should permit now is a deal for Einhorn that leaves him with the team not because it gives fair value (and thus gives Wilpon $$$ to pay his creditors), but because it gives Wilpon his only slim chance at holding on to the team.
   2. snapper (history's 42nd greatest monster) Posted: July 25, 2011 at 12:57 PM (#3884628)
or simply to ensure that there is an overall restructuring of the debt so that its position is not worsened by the addition of $200M in Einhorn debt

How is this possible, unless Einhorn is subordinated to them, or the Einhorn money is used to pay them back?
   3. Sam M. Posted: July 25, 2011 at 01:14 PM (#3884641)
It's possible if they get Einhorn on the hook for some portion of the $500M. To the extent they are worried that the Wilpons are not a good risk, and perhaps that this deal is setting up to eventually sell out to Einhorn for a price that will leave Sterling well short of cash to repay, I imagine JPMorgan would want Einhorn to pay them off. Not full price, obviously, but the bottom line is that buying the Mets is going to involve satisfying Wilpon's creditors. JPMorgan seems to be sending that message now.
   4. snapper (history's 42nd greatest monster) Posted: July 25, 2011 at 01:34 PM (#3884656)
It's possible if they get Einhorn on the hook for some portion of the $500M. To the extent they are worried that the Wilpons are not a good risk, and perhaps that this deal is setting up to eventually sell out to Einhorn for a price that will leave Sterling well short of cash to repay, I imagine JPMorgan would want Einhorn to pay them off. Not full price, obviously, but the bottom line is that buying the Mets is going to involve satisfying Wilpon's creditors. JPMorgan seems to be sending that message now.

Oh sure, but if they are senior, they have full recourse to all the assets of the Mets right now. Einhorn's not going to personally guarantee the debt, so anything that puts his $200M in line to get paid before them, hurts their position, unless the $200M pays them down. If the $200M is used to simply pay expenses, it makes their position worse, by letting the value potentially detiorate more before a sale.

If I'm JPM, I block the deal completely, and force a sale now, before the Wilpons do further damage.
   5. snapper (history's 42nd greatest monster) Posted: July 25, 2011 at 01:35 PM (#3884657)
double post
   6. Sam M. Posted: July 25, 2011 at 01:47 PM (#3884662)
But blocking the deal completely and forcing a sale might not be in their best interest. Who knows how much of their $500M they get with Picard looming, and who knows how many other creditors lurking as well? Their best chance may be blowing smoke and threatening, but getting some dollars right now -- probably on top of the $200M -- from Einhorn, as their price for NOT blocking the deal. I have to believe that hardball is in their interest, but goin nuclear isn't.
   7. snapper (history's 42nd greatest monster) Posted: July 25, 2011 at 01:54 PM (#3884670)
But blocking the deal completely and forcing a sale might not be in their best interest. Who knows how much of their $500M they get with Picard looming, and who knows how many other creditors lurking as well? Their best chance may be blowing smoke and threatening, but getting some dollars right now -- probably on top of the $200M -- from Einhorn, as their price for NOT blocking the deal. I have to believe that hardball is in their interest, but goin nuclear isn't.

What makes Picard senior to JPM with respect to the Mets assets?

Picard is going after the Wilpons. I don't think he can bypass the senior creditors of the Mets. He should only be able to take the Wilpons equity in the team, which may very well be zero.

I'm pretty sure the Mets would fetch >$500M in a sale. If Einhorn would pay $200M for 33%, surely he'd pay $600M for 100%, to be rid of the Wilpons. That's all JPM cares about.
   8. OsunaSakata Posted: July 25, 2011 at 02:54 PM (#3884727)
Maybe part of the Mets mistake was borrowing from a bank who already has their name on another stadium. Would Citibank have been friendlier?
   9. billyshears Posted: July 25, 2011 at 03:00 PM (#3884729)
I would guess that JPM doesn't want any part of a NY Mets bankruptcy. Too high profile. Probably don't want to piss off MLB. They could force the bankruptcy right now if they wanted to. That they're not tells you at least a little something.

Einhorn's loan is almost definitely unsecured and subordinate to JPM's position. If that was the end of it, JPM would likely have little power to stand in the way. The problem (obviously) is the part about Einhorn getting paid back before JPM. There's no way that's a permitted use of cash in the JPM facility, so they would need to get JPM's consent (and likely an intercreditor agreement as well). I just can't seen JPM letting that $200 million out the door before they get paid in full.

No way Einhorn is stepping into the Mets' or Wilpon's debt to make this happen. The extent of his capital risk at this point is going to be the $200 mil "loan". If he gets full control, he will have to pay of the debt, but doing that then will increase the value of his equity in a way it doesn't at the moment.

Honestly, I think the JPM thing could be a real problem. I would have to know a lot more about how the debt is structured (where the debt is at, what is pledged, what guarantees there are) before I could figure out if there was a way to structure this thing that gets everybody what they need, but I imagine there are a lot of very high priced lawyers working on this at the moment.
   10. Sam M. Posted: July 25, 2011 at 06:32 PM (#3884823)
The problem (obviously) is the part about Einhorn getting paid back before JPM. There's no way that's a permitted use of cash in the JPM facility, so they would need to get JPM's consent (and likely an intercreditor agreement as well). I just can't seen JPM letting that $200 million out the door before they get paid in full.

Again, I think that depends. I can certainly see them letting that $200M (or some significant portion thereof) go for some consideration now if it is valuable enough, and certainly before they get "paid in full." That would depend on their best estimate of their current chances of ultimately getting paid in full -- which depends on a lot of things, including who is actually on the hook for the debt, if there are other creditors, where they stand vis-a-vis JPMorgan (including Picard), where SNY stands in relation to this whole picture.

I'm pretty sure the Mets would fetch >$500M in a sale. If Einhorn would pay $200M for 33%, surely he'd pay $600M for 100%, to be rid of the Wilpons. That's all JPM cares about.

But he's paying $200 to give them a loan that would potentially net him a percentage of the team for nothing if/when they pay him back, and for a potential path to ownership of the team if they don't. That's different than paying $600M for the team. And even if he did pay $600M for the team, there is no way for us to know that JPMorgan would net $500M out of that. In fact, I'd bet a lot that they wouldn't. Given the perilous financial condition of the Wilpons, if JPMorgan thought they could get 100% of their money by means of a sale of the Mets, I think they would have already forced Wilpon's hand. They haven't -- which suggests (not positively, I grant you) that they think that is not an optimal strategy.
   11. valuearbitrageur Posted: July 26, 2011 at 02:51 AM (#3885294)
Its not optimal because it hurts JPM with other future borrowers, who might shy away if JPM is viewed as a bad lender.

If the Einhorn money goes into the team, and the only thing that comes out is a different division of the equity, JPM has little to say. My memory is that Einhorn only gets repaid by the Wilpons, i.e. never.
   12. valuearbitrageur Posted: July 26, 2011 at 02:57 AM (#3885304)
Doublo posto
   13. Joe Kehoskie Posted: July 26, 2011 at 03:22 AM (#3885329)
It's interesting how the Mets and Astros deals have been delayed far beyond initial estimates. MLB apparently hates it when ownership-related deals are announced before they've been formally approved, but both the Mets and Astros made announcements that proved to be untrue. Einhorn's Mets deal was supposed to close in June, and Drayton McLane made it sound like the Astros sale would be approved by mid-June. Now, neither deal is likely to be approved before mid-to-late August.
   14. Kyle S at work Posted: July 26, 2011 at 05:52 PM (#3885782)
snapper and billy are right on. JPM's position makes complete sense - what, so you are in covenant default of our loan, you have to borrow from MLB to make payroll... and yet you have some huge slug of cash from an entity outside the pledged group that can be used to pay down debt junior to us? I don't think so, homes.

The only way I could see this working is if a large portion of Einhorn's $200mm is used to paydown JPM... but they can't do that, because they need it to finance operating losses.
   15. The Yankee Clapper Posted: July 26, 2011 at 07:32 PM (#3885854)
I think this reinforces the idea that any transition to Einhorn could take some time and be rather messy. The Mets cash-poor status doesn't seem likely to change until that transition ends, which could take serveral years. I don't see how the Mets get any better during this time, assuming Picard doesn't just drop the Madoff claims.
   16. Sam M. Posted: July 28, 2011 at 02:45 AM (#3887328)
I guess we know now what it took to buy down JPMorgan: according to the Times tonight, the Einhorn deal is nearly done, and $75M of the $200M is going to pay "bank debt" (with another $25M to pay back the loan extended by MLB last year). JPMorgan isn't specifically named, but you can bet it's the "bank." It's unknown -- or at least unreported -- if any of the other terms were modified (especially the one allowing Sterling to repay Einhorm before JPMorgan's remaining debt is paid), but it simply says the banks are "now satisfied with the transaction’s terms."

Very interesting.

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