League bails out Ravens with loan

After owners approve, NFL arranges for club to get $65 million

July 09, 1999|By Jon Morgan | Jon Morgan,SUN STAFF

The National Football League has come to the rescue of the Ravens, arranging a $65 million, short-term loan backed by the eventual sale of a portion of the franchise to a new investor.

Team owners voted overwhelmingly to approve the bailout for Ravens controlling partner Art Modell, one of the league's longest-tenured owners. His financial travails have become NFL matters several times in recent years, beginning with the 1996 vote permitting him to relocate his debt-laden franchise from Cleveland.

In electronic voting that concluded last week, the owners voted 29 in favor, one opposed and one abstaining to approve the bridge loan, which will be funded by an NFL lender and be repaid with interest by the Ravens.

"We appreciate what they have done for us," said Ravens president David Modell. "We think it's in the best interest of this franchise to have less debt."

The "no" vote came from the Cincinnati Bengals. The Oakland Raiders, as is their practice in many league votes, abstained.

"It's a very solid loan, and everybody is comfortable with it," said Bob Tisch, a co-owner of the New York Giants. "Everybody wishes Art the best. He's a wonderful man, but needs to focus a little bit more on his finances."

Tisch said the league's bylaws permit it to arrange loans to teams, and it does so from time to time. "This is not a precedent," he said.

Such financial assistance is unusual, however, especially for franchises playing in new, publicly financed stadiums. The New England Patriots, based at aging Foxboro Stadium, received league assistance in the early 1990s.

Art Modell, who declined to comment on the vote, has said the team has never missed a payment on any of its loans, but had lapsed into technical default this year.

He did not specify the nature of the default, but sources familiar with the situation said it involves a requirement by lenders that the team maintain a certain ratio of debt to operating profit. The team, although profitable, failed to maintain the ratio, which resulted in pressure on the lenders from federal regulators.

Some investors, faced with the possibility of having regulators force them to increase the reserves they keep on hand for bad loans, opted to drop out of the lenders' consortium and demand their money.

Of the $65 million in new financing, $10 million will cover transaction costs and $55 million will be used to buy out the skittish lenders -- several insurance companies that had purchased notes as part of a restructuring two years ago. That deal left the team with a then-record $185 million in various forms of debt.

The franchise enjoys some of the highest revenues in sports because of the state-owned PSINet Stadium. Experts say a debt the size of the Ravens' could cost more than $20 million a year in interest and principal payments.

The Ravens remain profitable and financially viable, Tisch said. "They had some technical defaults of no consequence," he said.

The team's 1997 restructuring was so large it required league approval. The NFL included a requirement, as is customary, giving it the right to "cure" any defaults, or pay off loans, to prevent lenders from forcing a sale of the team.

That is what the league did last week, essentially purchasing the debt from some of the lenders and paying it off with a new loan guaranteed by the NFL. The arrangement will not cost the league or its other teams anything.

"The NFL has agreed to assist the Ravens in its voluntary debt reduction," said NFL spokesman Greg Aiello. "The Ravens continue to operate normally."

The Ravens have also asked the league to change the terms of a $29 million relocation fee the NFL imposed when it approved the move to Baltimore. The first installment came due this year. The team is offering to pay more money in exchange for stretching out the payments. The proposal will be taken up at a league meeting this month.

Meanwhile, the Modells are seeking an investment banker who can advise them on the latest restructuring of the team's debt and help procure a partner.

The buyer would not acquire a controlling share of the Ravens, but might receive a right of first refusal in the event the team is sold, the elder Modell has said. Cash raised by the sale of a stake in the team would go to pay off the league-backed loan.

Art Modell, 74, has said that debt reduction is also part of his estate planning. He hopes his son, David, 37, will inherit the team.

As a private company, the team does not make public its finances. But sources familiar with its books say the team had run up $64 million in debt in Cleveland, where it was making repairs to a pre-World War II era stadium on behalf of the city, and had run out of credit.

Moving to Baltimore brought additional costs, but also the promise of a new stadium with the capacity to generate millions of dollars. The team had to spend $70 million buying out former investors and $12 million to settle Cleveland's lawsuit alleging the team broke its lease.

Pub Date: 7/09/99

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