Yesterday, the Los Angeles Dodgers, and four related companies, filed for bankruptcy in Delaware. Because bankruptcy very often, as here, requires immediate judicial intervention into a foundering company's operations, representatives of the Dodgers and Major League Baseball will be in court this morning (if you are on Pacific Time). The purpose of this preliminary hearing is for the debtor--here, the Dodgers--to present its first day's motions.
Ordinarily, the requests made at these hearings are granted, almost as a matter of course. However, baseball has likely been preparing for this day for some time, and does not intend to let Frank McCourt have full operational control of the team during the bankruptcy. The primary issue today is debtor-in-possession (DIP) financing.
McCourt has secured a $150 million commitment from a JP Morgan-owned hedge fund, Highbridge Capital Management, to finance the team until a TV deal can be approved. The Dodgers would have access to $60 million immediately, and the remaining $90 million would be available at specific times moving forward. The DIP financing is not cheap: there is a $4.5 million fee off the top, and the Dodgers will pay 10% interest.
Baseball will likely try to exert its influence on the bankruptcy immediately, offering to fund Dodgers' operations at a cheaper rate and lower overall commitment. While it is nearly unfathomable that either the Dodgers or baseball will take an insurmountable lead today, Judge Kevin Gross' decision will be at least instructive on the deference he will give to baseball's own policies and rules.
Also at issue today will be certain motions from the Dodgers seeking approval of how it spends money during the bankruptcy. In bankruptcy, debtors are often asked to rework their banking practices after the case has been filed. The Dodgers argue that the best way to preserve continuity going forward is for the court to allow them to handle cash, pay players, and address other obligations just as they have in the past.
Unless something dramatic happens and this gets out of bankruptcy very abruptly, we'll do something of a bankruptcy primer later on.
As today's events unfold, a couple misconceptions you should be aware of. First, Manny Ramirez is not the Dodgers' largest creditor. He is the club's largest unsecured creditor. This distinction, while not very important now, will loom large as it comes time for Frank to formulate a plan.
Second, it is very unlikely Jamie McCourt can stop this process from moving forward. Jamie is, today, in no position of power with any of the five filing entities. The Dodgers have not been ruled to be community property. To halt the bankruptcy, she would either need to convince the state court to issue an emergency declaration that she has decision-making power, or the bankruptcy court to dismiss the filing as made in bad faith or so prejudicial to her potential rights as to be inequitable. Those are tall orders.
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