As the age-old adage goes, haste makes waste. News organizations (this one included), looking to get the report of U.S. Bankruptcy Judge Michael Lynn’s opinion in the Texas Rangers bankruptcy case out timely, skimmed over the 28 page ruling, focused mostly on the “Conclusion” at the end of the document, and said, “The prospective owners of the Rangers have been dealt a major blow. The creditors can block the sale to Chuck Greenberg and Nolan Ryan.”
The document, complex, deft, and heavily focused on nuance, needed an extensive going over. Here’s expanded analysis that shows, if the Greenberg/Ryan group’s legal team can weave its way through the technicalities, and the independent restructuring officer clears Tom Hicks’ approval process of the group, the creditors of the Rangers will have virtually no leg to stand on via appeal, should Lynn approve the prepackaged plan.
How the $75 Million Lien Allowed for Impairment
The interests for the Rangers have argued that due to the $75 million lien against the club, the creditors are due that amount, “and then they go away.” If the case had not been in bankruptcy, this would have been so. But, as Judge Lynn said in his opinion:
“The Lenders, however, have rights vis-à-vis Debtor other than just payment of the $75,000,000 for which Debtor is obligated to them. Debtor is part of the HSG family of entities, and, as such, it has assumed obligations to the Lenders in addition to the guaranty. In order for the Lenders to be unimpaired, their treatment under a plan must recognize and preserve those rights.”
Questions have mounted as to what is involved in this. How did the impairment come about? In this case, because the Rangers are in bankruptcy, as opposed to satisfying the lien outside of the courts, the lenders should be entitled to interest on the $75 million, and thusly, Lynn ruled that the lenders are impaired.
So, the Greenberg/Ryan group will have to agree to this amendment, but here’s the twist (and it’s a delicate one): In terms of total outlay, the amount in the deal does not change, but rather it's possible that instead of the all the money going to principle, a portion will now be allocated toward the interest.
With the impairments lifted, Lynn would then have the right to consummate the “prepackaged plan” and MLB’s owners could approve the sale.
So, if the impairments are lifted, do the creditors have no recourse to gain more money in the deal? Lynn gave them a route outside of the Rangers sale to do so.
Lynn Gives Creditors Avenue to Sue for Damages
If the Greenberg/Ryan group were so fortunate as to get the impairments lifted, the creditors can sue for damages. As Lynn wrote in his opinion:
“As the sale of the Rangers will have been consummated at that point, however, the Lenders’ rights under the Pledge Agreement will not affect the sale. As would be the case with a breach outside of bankruptcy, except to the extent the Code excuses such a breach as a matter of law, if the Lenders are damaged by the actions of Debtor or the Rangers Equity Owners or their parents through a pre-effective date failure to honor the Lenders’ rights… they may assert in this court a claim against Debtor for their damages or pursue its affiliates in an appropriate forum.”
What is unknown is whether the holding companies above the Rangers have any monetary value. Certainly, Hicks Sports Group does, but Texas Rangers Baseball Partners have said repeatedly that there is no asset value to Rangers Equity Holdings, L.P., and Rangers Equity Holdings GP, LLC, both of which are under HSG.
How William Snyder Becomes a Key Player
A new name in the Rangers sale saga is William Snyder who has been assigned to give an independent review of the prepackaged plan as the Chief Restructuring Officer. One aspect that Snyder will be examining is whether the selection process of the Greenberg/Ryan group was on the level – whether the best bidder was selected. Lynn said repeatedly that the highest bidder was not required, and it’s likely that Snyder will see it likewise. Outside of that, Snyder’s role becomes massive and allows Lynn to say independent oversight is in place.
The Brilliance of the Lynn Ruling
It has been said that the creditors are “laughing” after yesterday’s ruling. By the same token, a source close to the Greenberg/Ryan group said that upon initial read, Lynn’s ruling was like getting news from the doctor that you have a terminal illness only to find out later that it was misdiagnosed. How the deal lands is still up in the air, but here’s what a broader look at Lynn’s opinion shows.
At its core, it is brilliant. In not letting the debtors run the table (saying there was no impairment), and setting a path for Greenberg/Ryan by addressing certain aspects, if the impairments are lifted it makes it exceptionally difficult for any appeal to get going. “You wanted veto power? You got it… for the moment. Not getting what you feel is enough out of HSG? Fine. You have the recourse to sue for damages.”
When you add in independent oversight, it provides further checks and balances to the court appointed process.
Using a basketball analogy, the ball is clearly in the Greenberg/Ryan court. The creditors victory needs to be tempered with the knowledge that they won the battle on Tuesday, but between now and the July 9 confirmation hearing matters could change. The laughing, by any party in this process, needs to happen when the bow is finally placed on the court proceedings around the Texas Rangers, and not a minute before. Judge Lynn has set a path for the Greenberg/Ryan group to follow. It will be incumbent upon them to hit those marks. From that point, it’s hasty to say that any one side in this twisting road called the bankruptcy of the Texas Rangers has a clear advantage.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to Forbes SportsMoney blog. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
Follow Maury Brown on Twitter
Follow The Biz of Baseball on Twitter
Follow the Business of Sports Network on Facebook