The Dodgers and MLB came to an agreement to have temporary Debtor-in-Possession (DIP) financing to keep the teams operation aflot with sufficient cash.  The Dodgers had obtained a committment from a subsidiary of JP Morgan Chase Bank to provide $150 million in financing at 10% interest with a $4.5 million fee.  MLB proposed to offer the Debtor-in-Possession to finance the team at 7% interest with no fee.  Under the agreement the parties agreed to delay the court’s decision on financing until July 20, and if the MLB financing is used the $4.5 million fee will be reduced to $250,000.  The agreement also struck language in the financing agreement requiring the Dodgers to auction their television rights by a date certain. 

According to the Dodgers, they contacted 7 companies about DIP financing and the subsidiary of JP Morgan Chase Bank was the only one to offer financing terms.  In this economy and loan environment, the ability to obtain Debtor-in-Possession financing has been the death toll for many potential large reorganizations including Circuit City and  Meryvn’s.  It is quite difficult for a large enterprise to operate without some credit.

In a chapter 11 bankruptcy, the Debtor, in this case, the Los Angeles Dodgers LLC has to get permission to do certain things that are required to keep a business operational.  Motions were filed in the U.S. Bankruptcy Court for the District of Delware in Wilmington, DE, the first day after the case was filed.  The judge assigned to this case is Kevin Gross.  He is not the former MLB pitcher that pitched for the Dodgers.  He started the hearing explaining his style and said that he wanted to have one corny comment.  He told the attorney of record for the Dodgers, “Batter up” to start the hearing.   

Attorneys for Debtor, the United States Trustee, Jaime McCourt, Fox Sports Net 2 and Major League Baseball all appeared.  All made somewhat negative comments that they were not given any notice of this hearing or the bankruptcy filing.   

The key point emphasized by the Dodgers attorneys was that this debtor’s balance sheets solvent, a rather rare occurence in bankruptcy court.  The parties agreed not to wage their full arguments at this hearing but to keep it about maintaining the on-going concern value of the franchase and maximize value for all involved.  The Dodgers attorneys emphazied that Major League Baseball and them are in an adversarial position; however, the attorney for MLB, Tom Loria, indicated that the Dodgers are one of their crown jewels and MLB Is not adversarial to the Dodgers.  Loria did make it a point that MLB was adversarial to Frank McCourt. 

Most motions in the matters are fairly rountine interim motions that are required to keep the team operating.  Among them were motions for permission to use their current bank account and cash management, to pay their utilities and insurance, to pay their prepetition and on-going tax obligations, and wages, salaries and benefits in the ordinary course of business.  All motions were granted without any significant opposition.  Judge Gross joked “I have not seen a motion quite like this one,” to a chorus of chuckles in the courtroom when referring to the content of the motion to pay wages. 

A motion to maintain customer customer programs, specifically, the Dodger Dollars, was also made.  It too was granted without opposition.  The judge found a strong likelihood of irreparable hmar would result if the motion was not granted. 

There was finally a motion to pay critical vendors over the next few days.  The list of 2 was amazingly slim given the large complexity of the Dodgers enterprise.  The Dodgers windled the vendors down to 2.  One is a credit card from Bank of America that the Dodgers use to book their travel on the road.  There is no practical way to pay for this without the credit card.  The second vendor was their baseball academy in the Domican Republic.  Both motions were granted.  The credit card is owed between $200,000 to $300,000 and the baseball academy is owed about $30,000.   This motion was granted without any opposition. 

Unless the Dodgers have defaulted on their payment to Vin Scully, and I doubt it, his contract is only about $270,000 per year.  He is owed $152,778 for the remaining three months of the 2011 season.  So, given that 4 months have already been played, including, spring training, it would seem, he only makes $270,000 per year.  If he is only paid during April through September that would make his salary $305,000  a year.  Not bad, but considering Howard Sutkin and Steve Lyons make far more.  WOW!  I would have thought he was making much more.

The Los Angeles Dodgers LLC filed a Chapter 11 bankruptcy case number 11-12010 in the U.S. Bankruptcy Court for the District of Delaware.   In addition, closely related entities, LA Holdco, LLC, LA Real Estate Holdings Co. LLC, LA Real Estate LLC and Los Angeles Dodgers Holding Company LLC filed petitions as well.  A motion to consolidate those cases into one bankruptcy case was filed and it appears that given that these entities are McCourt owned entities with similar operations it should be granted. 

The Voluntary Petition signed by the attorney of record, Robert S. Brady, Esq. of Young Conaway Stargatt & Taylor LLP, a Wilmington, Delaware law firm, and Jeffrey D. Ingram, VP and Assitant Treasurer of the Los Angeles Dodgers LLC was filed.  In addition, a Written Consent to file bankruptcy was filed signed by Mr. Ingram as the agent.  Finally, a consolidated list of the 40 largest creditors was filed naming mostly players and formers players highlighted by a $20,992,086 claim of Manny Ramirez, a $11.075,000 claim of Andruw Jones, #1 and #2 largest creditors, respectively, and $152,778 owed to Vin Scully on his current contract.

As a life-long Dodger fan, and current bankruptcy practitioner, I am sad to say that Frank McCourt’s management has forced the Los Angeles Dodgers and related entities to file a chapter 11 bankruptcy.   Over the next few days, I will analyze and post the documents filed in the Dodgers bankruptcy case.