There has been some saber rattling on MLB’s part threatening to take over the franchise and complete the sale of the team using the commissioner’s powers under the best interests of baseball to make the deal happen. The lenders did some saber rattling of their own letting it be known that they had the paperwork in hand to push HSG and hence the Rangers into an involuntary bankruptcy proceeding.

All that changed Monday morning when the Rangers announced that they had filed for protection under Chapter XI of the bankruptcy code as their strategy to break the stalemate with the lenders and complete the sale. Surprisingly the lien against the Rangers held by the lenders is only $75 million. With the help of the bankruptcy court, the sale hopefully will be completed, with $75 million of sale proceeds going to the lenders, the Rangers’ franchise released as collateral for the loan, leaving the lenders and the Hicks Sports Group (HSG) to sort out their differences with the balance of the proceeds received on the sale. It is important to understanding the transaction that the loan was made to HSG, but it is the Rangers that have filed the motion in the bankruptcy court. The process is expected to take approximately 45 days from the date of filing, which translates to a finalization of the sale in early July.

The purchase price is said to total $575 million, which includes the franchise, the lease on the stadium, and the purchase of 154 acres of land owned by a separate Hicks entity. There was no indication given Monday as to the allocation of the price between the land and the franchise, but the land sale has been a source of contention with the lenders. The land is not part of the security for the loan, and the lending group was unhappy that Hicks would be walking away from the sale with proceeds affected through the land sale, while they likely will not recover the full amount of their loan. Greenberg stressed in a radio interview Monday afternoon that without the land, there is not enough parking spaces for the operation; such that acquiring the additional land was critical to his purchase.

Greenberg, current owner Thomas Hicks, and team president Nolan Ryan appeared at a 1:00 PM press conference Monday to discuss the “pre-packaged bankruptcy” approach to resolving the deadlock with the lenders. Greenberg indicated that his operational budget for the team was different than the budget the team is currently operating under, a budget that was approved and directed by MLB. By “different”, he meant “bigger” in areas such as player salaries. (The current Ranger payroll is approximately $55 million, fourth lowest in baseball.) The bankruptcy solution was initially proposed by attorneys for Hicks about three to four weeks ago. Both MLB and Greenberg studied and approved the proposal before the team proceeded with Monday’s court filing, which significantly was done without prior notice to creditors.

With almost a third of the season played, finalization of the transaction is getting critical for the Rangers. The June draft is just around the corner. The team has four selections in the first 50 picks, selections that will likely be costly. The sale of the team obviously will not be completed by the time of the draft, but the critical date for signing these draft picks is really August 15, the date in most cases at which draft picks must be signed or lost. Also, the Rangers find themselves with a two-game lead in the American League West, a division that has so far been far worse than anticipated. In short, the opportunity for the Rangers to win the division is there for the taking, and the winner is likely the team that does the best job at shoring up their roster by July 31, the final date for making non-waiver trades. It has thus become critical that the sale be finalized within the time frame the Chapter XI filing allows, both for the success of the team on the field this year and for procuring talent for the future.

Everyone was confident Monday that this strategy will work. However, there is danger for the Rangers and MLB, even if it does. For one thing, the bankruptcy process may require disclosure of financial information MLB would prefer to keep under wraps. The Rangers’ press conference as well as a letter to fans posted by Rangers’ president Nolan Ryan on the team’s web site, assured Ranger fans that the team’s operations will not be affected. Ryan specifically assured fans that tickets will be honored. In order to keep the team afloat financially, a new $11 million credit line from MLB will be replacing the credit line previously in place. (The new credit line becomes post-petition debt and has priority on pre-petition debt.) A list of the largest unsecured debts was procured and proved of great interest. Most of the unsecured debt was in the form of deferred salaries to Ranger players. Alex Rodriguez (almost $25 million) and Kevin Millwood (more than $12 million) were the two largest unsecured creditors. Michael Young was the only current Ranger player on the list.

The consortium of 40 lenders that holds the debt, which is now probably closer to $600 million with accrued interest, is not likely to go away easily. Greenberg discussing the difficulty in dealing with the lenders to get the sale approved told that “I’m not expecting an overnight personality transplant. The odds are they (the lending group) won’t take this well.” These lenders have creative resourceful attorneys who likely contemplated this possibility. Monday’s filing will hopefully be the beginning of the end of the sale of the team to Greenberg, but there is every possibility that it will be the start of prolonged litigation.

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