Societe General, the French bank whose $340 million loan helped Daniel M. Snyder buy the Washington Redskins this summer, is now trying to spread its risk on the franchise by lining up other investors to take on part of the loan.
Two analyses of the bank's private offering, issued yesterday, provide new details of the debt Snyder assumed as he and associates bought the Redskins for $800 million--the highest price ever paid for a professional sports franchise in the United States.
According to the analyses by two credit-rating agencies, Snyder borrowed $100 million using the Redskins franchise as collateral--the maximum debt that can be backed by a team's assets under the National Football League's rules. Snyder and his investors also borrowed an additional $240 million secured only by stock in a Snyder-controlled holding company that in turn owns the Redskins. The team is not collateral for that portion of the loan, analysts said.
"There is no issue as far as the league's debt-ceiling rules about that," said NFL spokesman Greg Aiello. "That's the bottom line."
In a worst-case scenario, if Snyder's company defaulted on the $100 million loan, the NFL would have the right to pay off the loan and take control of the team and the stadium.
The rating agencies said their evaluation of the Redskins reflected both the high level of debt and the considerable economic resources of the team, financially one of the strongest in the NFL.
The size of the $340 million loan made it necessary to find other investors to share the bank's risk, analysts said.
"Because of the skyrocketing franchise values we're experiencing these days, what has historically been financed by just one institution or the principal's equity, now there's a need to broaden the investor scope because valuations have been so high," said Bill Brennan, director of loan products at Fitch IBCA, one of the two rating agencies.
Having the issues evaluated and rated makes it easier to get risk-averse institutions such as insurance companies to invest. "Normally you wouldn't get it rated if you are selling it to banks," said Tom McCormick, the lawyer at Washington's Shaw, Pittman, Potts & Trowbridge who handled the team purchase for Snyder and was speaking for Snyder yesterday. "Insurance companies require it to be rated, and this broadens the pool of people available to participate."
"I know a lot of people think this is a high-risk business, but it's not," said Sal Galatioto, managing director and head of sports finance at SG Cowen Securities Corp., Societe General's investment-banking arm.
He said the Redskins have all their luxury suites sold, the NFL's big TV contract, a full stadium and a long waiting list for season tickets--all sources of the roughly $50 million a year in earnings currently generated by the team before taxes and interest--one of the highest returns in professional sports.
The rating agencies agreed that those were all pluses--but said there were some minuses, too, especially the size of Snyder's debt. The $340 million plus the $155 million mortgage on Redskins Stadium is equivalent to 62 percent of the purchase price of the team, an amount both rating agencies called highly leveraged.
Snyder bought the team from the estate of Jack Kent Cooke after New York real estate billionaire Howard Milstein lost out when it became clear the NFL would not approve his purchase. NFL owners cited questions about Milstein's financing plans, particularly the amount of debt he had planned to rely on for the purchase.
Of Snyder's $800 million, $155 million was the stadium mortgage he assumed. He paid the Cooke estate the rest in cash, but to get that cash, he took out bank loans and raised money from family and friends, including real estate magnate and publisher Mort Zuckerman and his partner, Fred Drasner.
A share in that $340 million bank loan is what is now being offered to other investors. Of the rest, $120 million was in Snyder's own cash, according to McCormick. The remainder, approximately $185 million, came from his co-owners.
While it is possible that Snyder's group may have taken out additional personal loans or used other debt to raise their stakes in the team, no such loans are linked to the Redskins or the holding companies, according to both Brennan and Neil Begley, an analyst at Moody's Investors Service Inc., the other rating agency that examined Societe General's offering.
The two rating agencies had differing opinions on the safety of these investments, which are called bank loan facilities and are sold to insurance companies and similar institutional investors.
According to Fitch, both portions of the loan were worthy of investment-grade ratings. The $100 million portion, which is considered safer because it gets paid off first and is secured by the team, was rated A-; the $240 million portion was rated BBB-. The mortgage on the stadium gets paid off before either of the loans.
Moody's gave the $100 million portion of the debt an investment-grade rating of Baa3. The other portion, though, received a speculative, or "junk," rating of Ba2, which means payment is much less certain.
Begley said that loan earned its junk rating because it is not secured by the team, and because in case of financial problems the entire $100 million portion of the debt would have to be paid off before holders of the $240 million portion got their money.
CAPTION: Daniel M. Snyder and associates bought the team from the estate of Jack Kent Cooke for $800 million.