The Dallas Cowboys are seeking to borrow $350 million by Dec. 1, according to numerous finance sources, in one of the worst credit environments in the nationís history.
The clubís proposed deal would refinance $126 million the team borrowed last year through the now-imploded auction-rate securities market, as well as add new debt to cover cost overruns at the teamís $1.2 billion stadium that is set to open next year, sources told Street & Smithís SportsBusiness Journal, a sister publication.
ďEveryone is looking at the Cowboysí deal. It is a huge bellwether,Ē said one finance source. ďThis is one of the only deals, period, in the market (sports or otherwise).Ē
Sports debt deals have been nearly nonexistent since the credit markets seized up in September. The Cowboys and New York Yankees borrowed $100 million jointly to fund their concessions startup Legends Hospitality, but no other deals are thought to have closed during this time.
Cowboys owner Jerry Jones and the teamís lead lender, Bank of America, hosted more than a dozen banks at the suite sales center adjacent to the stadium under construction in Arlington on Oct. 27, offering a deal priced 2.5 percentage points more than the London Interbank Offered Rate, a floating-rate index, sources said.
That rate recently stood at 2.39 percent, translating for the deal into a rate of just under 5 percent, which is low in this market. However, LIBOR has been wildly fluctuating, falling from 4.82 percent on Oct. 10.
The Cowboys and Bank of America want the other banks to buy pieces of the loan, a process called syndication. The Cowboys and Bank of America declined to comment.
The Cowboys are relying on a few factors to get the deal done. One is the allure of the Cowboys brand. Second, the team has pledged in the proposed deal nearly all revenue lines from the new stadium, sources said. Thatís a feature that was common in stadium financing six years ago but disappeared during the go-go years of easy credit, when pledged revenues were lighter.
A third factor is the growth of the Dallas market. During the bank meeting, according to a banking source, Jones pitched Dallas as being second only to Chicago in terms of market size among NFL cities with just one team. He referred to the Dallas Metroplex, which includes a population base of more than 6.1 million.
For the Cowboys, getting out from underneath the auction-rate debt is a pressing concern. They are one of four NFL teams to have borrowed from the auction-rate securities market, which allowed companies to borrow cheaply and continue to reset the interest rate with auctions of the debt weekly and monthly.
In February, the ARS market seized up, and debt auctions failed, which automatically triggered significant interest rate hikes.
The New England Patriots were faced with paying $15 million to $44 million more per year because of the increase, the team alleged in a lawsuit filed in July against bond insurer Ambac. The Patriots in May refinanced their ARS notes.
The New York Giants largely had been shielded because of an interest rate swap it bought from Lehman Brothers, but itís uncertain what that firmís demise means to the teamís finances. Sources said the team, through Goldman Sachs, is studying refinancing its $650 million of stadium debt purchased through the ARS market. John Mara, the Giants co-owner, did not return calls for comment.
The New York Jets, who also did not return calls, had ARS exposure, as well, though itís unclear if the club still does.
The Cowboys estimated the stadium would cost $650 million when they announced the project in 2004. With $350 million of public funding and $76 million from the NFL, it looked like a choice deal for the team.
The club arranged to borrow at least $450 million through Banc of America Securities for its portion, with the first $126 million through the ARS market. But Jones agreed to cover cost overruns as part of the teamís share, and like many stadiums in this period, the price has spiraled.
The team has not yet secured a naming-rights deal for the stadium, which would bring in additional revenue. The club also could raise as much as $735 million from the sale of personal seat licenses, according to a Fort Worth Star-Telegram report. There are 55,000, 30-year PSLs available at prices ranging from $2,000 to $150,000.
The stadium will seat 80,000 but will be able to expand to 100,000 for special events like the Super Bowl, which Dallas is scheduled to host in 2011.
Daniel Kaplan is a staff writer for Street & Smithís SportsBusiness Journal, a sister publication of the Dallas Business Journal. He can be reached at [email protected]