Frank McCourt, who knows from crappy loans, received one for $150 million in order to meet payroll on the 30th and to keep the team running while the bankruptcy proceeds through its paces, reports the Wall Street Journal. Some basic questions you may have, followed by the best answer I have (again, bankruptcy types, feel free to correct me if I’m wrong):
First question: How in the hell did Frank McCourt get a loan? I thought he was tapped out!
Answer: It’s a special bankruptcy loan for debtors in possession. These things happen frequently. The moment the bankruptcy goes down, the lender of such a beast goes to the front of the line for payment. It would not have been available before a filing, as a lender would then be behind all of the other creditors. The idea: better to favor a post-bankruptcy lender than to have no one get paid.
Second question: What makes this a crappy loan?
Answer: The interest rate for starters, which at 10% is higher than your usual debtor-in-possession financing. Even Borders bookstore, which is basically in a dying industry, got a better deal. Also the fact that McCourt had to pay the lender a $4.5 million fee on top of it all. Also because McCourt had to put a lien on Dodger Stadium and offer personal guarantees on the load too.
Third question: Why such bad terms?
Answer: Apparently because no one else would lend him the money, preferential treatment aside. According to the Wall Street Journal, a J.P. Morgan-affiliated hedge fund — Highbridge Principal Strategies — was the only entity willing to do business with Mr. McCourt. Maybe next time he should call Moneytree, where lenders compete for your business!
What? You mean he called Moneytree already? And they pretended they weren’t home? Awwwkwaaard.