Posted on Tue, Apr. 07, 2009
Schnurman: Hicks is pressing, but banks may not want to play ball
By MITCHELL SCHNURMAN
mschnurman@star-telegram.com
It must be tough to be Mr. Leverage in a deleveraging world.
Last week, local sports mogul Tom Hicks made headlines by skipping interest payments on $525 million in debt, calling it a negotiating tactic. For most people, defaulting on a giant loan is the first step toward foreclosure or bankruptcy, not a way to play hardball with your lender.
But these are unusual times, and Hicks isn’t your average Joe. Don’t bet against him forcing an agreement in coming months, albeit with more cash and equity from his side. Banks have no interest in taking over the Texas Rangers or Dallas Stars, even if the leagues would allow it, and Hicks is already seeking minority investors to shore up his balance sheet.
Make no mistake, though: Hicks is fishing for a bailout, and he’s already tried the usual suspects.
Hicks insists the dispute won’t affect operations for the Rangers or the Stars, but it’s more bad news for development around the Rangers Ballpark in Arlington. Hicks has talked about building a grand, mixed-used project there since he bought the team in 1998, only to see each plan fade away.
The strongest effort yet, Glorypark, was put on the shelf a year ago after retailers got cold feet and lenders pulled their backing. (The banks called that one right; otherwise the prime Arlington site would be plagued with unfinished, unleased buildings, which is a lot worse than parking lots.)
If Hicks has to fight this hard to get banks to work with him on existing loans, there’s little chance of lining up new funds for another ambitious project — even one between the ballpark and the new Dallas Cowboys stadium.
That will have to wait for more prosperous days.
Hicks has spent his career around banks and well-heeled investors, using borrowed money to buy and combine companies, then reaping millions by selling the final product or taking it public. In 16 years as chairman of Hicks Muse in Dallas, he raised $12 billion in private equity and made $50 billion in leveraged acquisitions of companies like AMFM, A&W Brands and Dr Pepper.
It must be in his nature to borrow. Hicks paid a combined $334 million for the Texas Rangers and Dallas Stars more than a decade ago, and in December 2006, he borrowed $525 million against those assets.
One note is due at the end of 2010, and four others mature in December 2011, so Hicks isn’t under pressure to refinance to avoid a balloon note. What he wants, according to a statement released by Hicks Sports Group, is "full access to the interest reserve account and revolving credit line, as well as some amendments in the debt covenants."
Sounds innocuous, especially when Hicks said, "There is minimal risk to the banks."
Unfortunately, you can’t check that out with the other side because privacy laws prevent banks from discussing their customers’ accounts. So it’s hard to know whether banks are balking because of the credit crisis or because Hicks’ sports businesses are in trouble.
What is clear is that Hicks needs money — from minority investors, from a reserve account, from a credit line.
In his statement, Hicks said, "The company is not asking for additional money," which sounds a lot like pro athletes in contract talks saying, "It’s not about the money."
Hicks may not be seeking a new loan, but he wants more credit, which means more money, and that’s hardly automatic.
"Banks are right to be more cautious, even if there wasn’t a credit crisis," said Scott MacDonald, president and CEO of the Southwestern Graduate School of Banking Foundation at Southern Methodist University. "The economy has become the bigger issue, and more companies are having trouble servicing their debt. If demand falls, cash flow falls, and only a fool would extend more credit under those conditions."
If lenders expect revenue from the Rangers and Stars to decline during the recession, they may be refusing to loosen underwriting standards and open up Hicks’ credit line. And who’s to argue? The global economic meltdown is largely a problem of extending too much credit to too many people who couldn’t pay it off.
That has to frustrate Hicks, who turned leverage and debt management into an art form. But regular folks can relate. Many who consistently make monthly payments on their credit cards are getting hit with higher interest rates simply because banks perceive a heightened credit risk.
Consumers can’t understand, because they’re doing things as they always have. What changed is the rest of the world as the pendulum shifted from loose credit to tight.
Thousands of homeowners who could benefit from refinancing their mortgage are locked out of the market because the rules are tougher now. Their income may no longer qualify for the same level of debt, or the house doesn’t appraise high enough.
In late 2006, when Hicks got his loans, everybody else could borrow, too. In his statement, Hicks points out that his sports group’s "financials are completely separate" from his other holdings. That includes a soccer team in Liverpool, two private-equity firms and separate interests for himself and his family.
That separation must be vital to others, who fret that their investments may get caught up with the Rangers and Stars. In effect, Hicks is saying, "Not to worry."
Why doesn’t he put up some of those assets to satisfy the banks?
Maybe they’re leveraged to the hilt, too.
http://www.star-telegram.com/arlington_new...ry/1305375.html 