A report appeared this afternoon on US-based website FINalternatives claiming that Hicks Sports Group, the company that owns Tom Hicks’s US sports interests including the Dallas Stars and Texas Rangers, had defaulted on loans amounting to $525m (£362m).
The report referred to an unnamed source and said that Hicks Sports Group (HSG) had “failed to make its interest payment on $525 million in syndicated bank loans on Monday.” It also said that HSG was in “in talks with its lenders about a forbearance”.
FINalternatives is a website styling itself as “the premier, independent source for news on the alternative investment industry” – and has a tagline of “hedge fund and private equity news”.
FINalternatives claim their source has seen documents relating to the loans and that “Hicks defaulted on a $350 million bank term loan, $100 million second-lien loan and a $75 million revolving credit facility.”
FINalternatives say their source told them that “the loans are partially secured by the (Texas) Rangers and (Dallas) Stars, but not by Hicks’ stake in Liverpool or his personal assets”.
FINalternatives said they hadn’t been able to get a comment from anyone at Hicks Sports Group.
Shortly after that report went online came a report at 10:10am local time (4:10pm UK time) on the blog site of “D Magazine”. Headlined “We Want The Banks To Be Reasonable” the report started out by referring to Liverpool fans.
Evan Grant wrote: “Before we go any further, we should probably explain to our British friends that Liverpool Football Club is not among the HSG holdings and neither are any of Hicks’ other business interests.” Liverpool FC does appear as one of the assets of HSG on their website portfolio page.
D Magazine said that the loans were not yet in default, but they could be placed into default early next week. It said that an interest payment had been due on Tuesday (31st March) but that HSG had “elected” not to make the payment. It said that HSG was currently “trying to negotiate with the 40 lenders to allow it to make the interest payment out of the interest reserve provision”.
Before that can happen, according to D Magazine, “the banks that hold 51 percent of the loans” would have to give their approval. If not then those banks could “place the loans in default early next week if a re-negotiation in terms is not reached”.
D Magazine then quoted Tom Hicks. “We’re optimistic that a satisfactory resolution will come together in the next couple of weeks with our lenders’ cooperation. The important thing is that none of this impacts either team (Stars or Rangers) or the fan experience at either venue.”
Hicks tried to play down concerns: “We’re prepared to fund the operations of both clubs for the next 12 months while we continue to seek additional investors.”
Hicks called for the banks to be “reasonable”, saying: “We just would like the banks to be reasonable and hope they will go along with our proposal.”
Hicks went on: “We’ve built two great teams, one with a great future and one that has been the most profitable and successful NHL franchise in the southern United States. We’ve built a great arena that is Dallas’ version of Carnegie Hall and Madison Square Garden all rolled into one. This is a short-term issue about a lot of long-term value.”
The D Magazine blog also referred to the recent announcements from Hicks that he was looking to sell some of his share in the Rangers and the Stars, and said that selling up to 49% of the two teams “could add between $400-500 million in cash to the HSG reserves”.
The news has clearly come as a surprise to the press in Dallas, who are continuously updating their websites with any information they can get. In The Star Telegram’s report of the story they say Hicks has been in touch by email, denying that the two teams could be repossessed: “There is no possibility of banks owning the teams.”
Hicks said that both the NHL and MLB (the two leagues his Hockey and Baseball teams play in) are helping him to find alternative investment but that he will pay their bills himself in the meantime: “I am working closely with both leagues to find quality partners that share my long term vision of building these two great franchises. I will continue to fund the teams’ operations. I am the largest creditor to HSG and need 51 percent of the banks to agree with my plan.”
The Stars are almost at the end of their season now, with only very much an outside chance of reaching the play-offs. The Rangers’ season gets underway on Monday.
The report has come out on a day when Liverpool FC announced extended contracts for captain Steven Gerrard and Dirk Kuyt, agreeing to stay until 2013 and 2012 respectively.
It remains to be announced, as yet, what Hicks has got planned in terms of financing Liverpool FC beyond the end of the RBS/Wachovia facility’s current end-date in July. Quite what the big loan departments of the two banks will make of this news also remains to be seen.
16 thoughts on “Report: Hicks’ US Sports Group defaults on loans”
great article mate
Jim, I’m wondering about a few things here that maybe you can clarify…
***“Before we go any further, we should probably explain to our British friends that Liverpool Football Club is not among the HSG holdings and neither are any of Hicks’ other business interests.”***
– But what about the other way around? Is there any way to determine whether HSG was used for collateral in securing the loans with RBS and Wachovia to buy Liverpool? If Hicks fails in his need to get 51% of the 40 lenders onside, and thus these HSG loans go into default, will it compromise the security he’s put up for his Liverpool-related loans?
***Hicks said that both the NHL and MLB (the two leagues his Hockey and Baseball teams play in) are helping him to find alternative investment but that he will pay their bills himself in the meantime: “I am working closely with both leagues to find quality partners that share my long term vision of building these two great franchises. I will continue to fund the teams’ operations. I am the largest creditor to HSG and need 51 percent of the banks to agree with my plan.”***
– Is this serious enough to impact on his credibility as a viable business partner? I know we as fans already know the answer, but how much of a hit will his corporate reputation take as a result of this? He’s stated he’s looking for minority investors for the Stars, the Rangers and even Liverpool, but could this current maneuver (defaulting on interest payments) undermine his legitimacy as a sports business owner who can deliver profits to lesser shareholders? And if that’s the case, would it in turn clarify RBS’s position in July when he and Mickey Rooney go hats in hand looking for renewal of that £350m millstone?
(Sorry, that was more than just a few questions…)
Good to see you back Jim. Good stuff.
@ Julie: I don’t think we can determine what was used as collateral in the RBS / Wachovia facilities, I presume it’s a confidential matter between the lenders and the borrowers. But would you be able to use the same asset as security on two separate loans? I think you probably could but only if the value of the assets was more than the value of all the loans secured against them. That said, nothing surprises me any more!
The Hicks camp are very keen to point out that HSG and LFC are two unrelated entities.
As for how much of a viable business partner he would be seen to be, it’s an interesting point. Reading the later statement, they’ve not paid the interest this week because they wanted to get the attention of the various lenders, and they want those lenders to consider an alternative way of dealing with that debt. The suggestion is not that they (HSG) can’t afford to pay the bill, but that HSG wants to get terms more suitable for how the current worldwide economic situation is. If HSG get what they want that might be seen as quite a clever move by other potential partners, it might show them that Hicks has more about him than they thought he had. It might even open the door to more investors, because it changes the various financial projections relating to HSG. Of course it might also scare some potential partners away.
As with anything related to the financial side of LFC and its related companies (technically speaking or otherwise) you can predict scenarios that have outcomes miles apart from each other, but it’s always time that tells what really happens. Considering how bad the global economy has got, they’ve not done as badly as some. But certainly in LFC terms they’ve not had any new finance since those very very early days of the “credit crunch”. If RBS/Wachovia lending again to H&G is dependent on a number of ticks in a number of boxes, I can’t see this really helping. Then again, to other financial people, it could be seen as a masterstroke!
It’s a different world to most of us I think it’s safe to say!
Good article Jim.
On first reading, yesterday, I thought this was a devastating account of how difficult the world-wide credit-crunch/recession remains and how difficult it will be for Hicks to re-finance in July.
On further reading, I thought it was wishful thinking on my part and that they’ve got every chance of getting it in July – as Hicks (and Gillett) is trying to sort out his finances before then.
My current thinking is, I really don’t know. Great!!!!
As someone who’s recently secured finances from a large bank, I know that uppermost in their mind is attitude to risk ie do they think I can meet the re-payments (against my current in-comings and out-goings).
Hicks situation is more complex but there’s little doubt in my mind that he plans to stay at Liverpool and is doing everything possible to reduce his out-goings elsewhere to be ready for July re-financing.
If Hicks isn’t the right owner for our club, the hope is that RBS et al will reflect on his current dealings and question whether he is a man worthy of sustaining such an outstanding debt……..and whether he will try to exert the same pressure on them to accept his financial terms as he appears to be trying with the US Banks. The UK tax-payer is watching with interest. Our club deserves better ownership.
Tom Hicks has been nothing but trouble for Liverpool FC.
He likes to give the impression he’s in full control but he’s not. He will push this financial crisis to the wire, looking for addtional funding. Don’t believe anything until it happens and that especially applies to the new stadium.
For me, two sentences stand out from the last two comments:
“My current thinking is, I really don’t know. Great!!!!”
“Don’t believe anything until it happens and that especially applies to the new stadium.”
We can spend all day and night working out the most logical and likely outcomes – but it’s almost certainly a waste of time trying to do that!
I decided to try and guess a grand national winner instead.
For anyone interested, there’s a copy of the statement that was put out on behalf of HSG here:
(In PDF format).
Jim, Thanks for your reply. As you point out, it is a different world than the one most of us know, though we’ve become obliged to at least understand the basics to navigate through the current maelstrom.
Your theory that this latest maneuver on Hicks’s part may actually enhance his reputation as a wily businessman in the eyes of potential partners is an interesting one. Personally, I’d be wary of it, but this could be my naivete talking. Nonetheless, wouldn’t this cause a collective squeezing of bums on RBS’s and Wachovia’s part with the prospect of a huge loan renewal coming up so soon? If Hicks does it to 40 lenders in the US, who’s to say he wouldn’t do the same on his portion of the Liverpool loan somewhere down the line?
Perhaps none of these details are relevant except for, after all the dust has settled in July, what happens to the realistic prospect of a stadium being built any time in the next five years and how much more debt will the club be obliged to carry as a result of this.
ps – BBC’s Panorama tonight is about the dark side of life in Dubai. I wonder after watching it how many LFC supporters will still be pining for the Sheikh to come riding in on a white charger?
If anyone is in any doubt about the difficult task ahead for Hicks and Gillett this July, then today’s news that RBS will be cutting a further 9,000 jobs is an indication of that.
I’m with Julie, as I said before, on which Bank(s) would want to be held hostage to Hicks fortune should he be able to flex his muscle and win his financing battle with the 40 or so banks??
Our great form is so-far (and rightly) keeping our mind elsewhere. But there is no doubt that in America and Canada and whereever their financial advisors are digging for cash, these issues are at the fore.
PS I think our CL game against Chelsea is the first time I’ve not been so nervous about a game in a long time. All to do with us being in with a shout of winning the League, whether we eventually do so or not. I’m sure that will change by tomorrow night!!
Sorry to be way off topic but I had to comment on Rafas latest.
C’mon Rafa knock that c**t off his f**king perch!
Apologies for the language.
Hicks Sports Group officially defaulted on $525m worth of loans today:
Thanks for the link Julie.
Good/bad news who knows. What it shows, however, is that times are as difficult for him as it is for the rest of us. The impact on our club remains unclear but if your a possible/probable future investor they’ll be watching his troubles with interest.
To be fair, whatever we do or do not achieve this year – and i am hopeful rather than expectant on that front – just witnessing Fergie squirm tells me that Rafa’s doing the right job.
Last line is the kicker.
Schnurman: Hicks is pressing, but banks may not want to play ball
BY MITCHELL SCHNURMAN
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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.
MITCHELL SCHNURMAN’S COLUMN APPEARS SUNDAYS AND WEDNESDAYS. 817-390-7821
and the other jerk:
HOCKEY: STORIED TEAM ON THE BLOCK
Bidders preparing offers for Montreal Canadiens
SEAN GORDON AND ROY MACGREGOR
April 8, 2009
Potential bidders have been poring over the Montreal Canadiens’ books for several weeks as part of due diligence procedures that could eventually lead to a deal to sell all or part of the team, sources say.
A source with knowledge of the behind-the-scenes machinations involving the Canadiens told The Globe and Mail that the process has been continuing since early March. There have been continued denials from the ownership that a decision has been made to sell the franchise, but it has emerged that would-be buyers are being asked to submit formal offers this week.
According to Radio-Canada, which cited unnamed corporate sources, several groups have signed confidentiality agreements with the Bank of Montreal’s investment banking arm.
The network reported that 10 groups, including billionaire businessmen Stephen Bronfman of Claridge Investments Inc.; Joey Saputo, son of cheese magnate Lino Saputo; and Guy Laliberté, founder of Cirque du Soleil, have signed the pacts.
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Go to the section
A source told The Globe it was “very disturbing” the names were made public and didn’t deny the veracity of the list.
Formal bids are to be tabled by 5 p.m. tomorrow and as many as 50 potential purchasers have been identified by the bank advisers, the network reported.
The list reportedly includes: Caisse de dépôt et placement du Québec; Productions Feeling, owned by songstress Celine Dion and promoter-husband René AngélilClaridge Investments Inc., the company controlled by Mr. Bronfman; publishing and television giant Quebecor; arena management and hockey equipment concern Roustan Capital; and Spectrum Equity, a U.S.-based private equity fund; the ALDO Group, a shoe and leather consortium founded by Montrealer Aldo Bensadoun.
Majority owner George Gillett, who owns 80.1 per cent of the team, recently retained BMO Nesbitt Burns Inc. to evaluate his Canadian holdings – which include the team, the Bell Centre arena, and a concert production firm – with a view to “profit maximization” strategies that could eventually involve a sale of one or more assets.Though Mr. Gillett owns the Bell Centre outright, 19.9 per cent of the Canadiens is held by the Molson Coors brewery, the previous owner. The company has said it’s not interested in divesting itself of its stake, and Radio-Canada reported that the Molson family is one of the bidders.
The news that Mr. Gillett had brought in the investment bankers was first reported by the Montreal newspaper La Presse on March 23; he subsequently told the Associated Press the move was about “estate planning, it has nothing to do with any decisions to sell any assets.”
Mr. Gillett couldn’t be reached for comment late last night, but Canadiens vice-president Donald Beauchamp said the story is substantively similar to the La Presse revelations.
Ronald Monet, a spokesman for BMO, said “we cannot comment on any rumours relating to the Canadiens, but can only reiterate that BMO… has the mandate to evaluate the Canadian assets of the Gillett family so as to maximize their value.”
Since the banking and financial crisis worsened last year, Mr. Gillett, an old hand at heavily leveraged business acquisitions (he also filed for bankruptcy in the early 1990s before rebuilding his business), has been beset by talk he is in financial distress.
But sources close to the Denver-based ski resort tycoon, who made his fortune in meatpacking and television stations, say the reports are exaggerated.
Nevertheless, the Canadiens – which Fortune magazine estimates are worth $335-million (U.S.), third-highest in the NHL – are an eminently sellable asset. Given Mr. Gillett, who was initially viewed with suspicion by the Habs nation, paid a modest $180-million for the team and the arena, he stands to make a substantial profit.
It could come in handy.
Mr. Gillett and Texas businessman Tom Hicks jointly own British soccer giants Liverpool FC, and are trying to refinance nearly $470-million in debt they used to purchase the team before a July deadline.
Mr. Hicks has also indicated he is looking at selling minority stakes in his sporting properties, which include the NHL’s Dallas Stars and Major League Baseball’s Texas Rangers.
Though former Habs great Serge Savard said earlier this week he would be interested in buying the team if it were for sale, Radio-Canada said his name doesn’t figure on the list
Michael K. Ozanian is National Editor at forbes.com
Liverpool Is Next
Living in denial is a recipe for disaster. Take former LBO king Tom Hicks, whose sports properties—Texas Rangers, Dallas Stars, Liverpool—have accumulated piles of debt. Hicks should have raised equity or cashed out of these teams months ago but obviously refused to acknowledge the depth of the financial crises. Now he will pay a steep price.
Last week Hicks reportedly defaulted on more than $525 million in bank loans tied to the Stars and Rangers and is making a mad dash for cash to avoid foreclosure. That means he will likely have to sell his interest in the teams, previously worth $270 million and $400 million, respectively, at steep discounts. Shame on the NHL and MLB for allowing Hicks to saddle his teams with so much debt—their bad balance sheets could have a domino effect on the two leagues.
Next up is Liverpool, the famed English soccer club worth $1 billion. Liverpool has $600 million of debt and a big chunk of it must be paid off or refinanced withing the next three months. Hicks will probably sell his 50% interest for much less than $500 million.
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