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Dancing on the heads of the profane

by contributor William K. Snyder, CRG Partners | Published January 6, 2012 at 12:37 PM

The New York Mets have been striking out both on and off the field the last couple of years. Could the Mets' salvation be its Jan. 5 hiring of restructuring firm CRG Partners Group LLC, which worked with the Texas Rangers during its bankruptcy and sale in 2010? Perhaps.

The Mets have had losing seasons since 2009. Meanwhile, Mets ownership has been on the disabled list with major money troubles that include losing $70 million last year and holding an overdue $25 million loan to Major League Baseball. The club continues to try to sell $20 million minority stakes in the company.

The hiring of CRG is the biggest franchise move the team has made in the off-season. Will it result in a new lease on life, which CRG was able to give the Rangers? For more insight on the possible Mets savior, check out CRG's William K. Snyder's article penned exclusively for The Deal magazine in 2010 on his firsthand experience with the Ranger's turnaround. - Gerald Magpily

Attorney and would-be Major League Baseball owner Chuck Greenberg almost spit the words out at me when we got into an argument over the reorganization plan involving his purchase of the Texas Rangers Baseball Club: "Do you understand? This is baseball -- baseball! -- you're talking about selecting the owner of the team for the next 20 years. This is not that chicken deal which is your claim to fame. This is baseball!"

By now, I realized the Rangers bankruptcy case was not like Pilgrim's Pride Corp., the bankrupt $8 billion chicken producer that as chief restructuring officer I had a hand in turning around a year ago. Greenberg was right: It wasn't the chicken deal, not with reporters hanging on every turn of the case, a restive audience in the courtroom or minute-by-minute tweets and blogs on the bidding, not to mention belligerent lawyers or death threats from fans.

For me, laying off employees at Pilgrim's to save the company was more personally demanding, but nothing in my career could top the sheer level of emotional involvement than the experience of serving as chief restructuring officer of the Rangers case in front of Judge D. Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas.

This five-week assignment was the most hostile case I'd ever had.

The original prebankruptcy deal with the Greenberg-Nolan Ryan group did not include a bidding process after the bankruptcy filing. It was also tainted due to sweetheart side deals carved out for owner Tom Hicks. Lynn charged me to do what was best for stakeholders of Ranger Equity Holdings LP. We succeeded in conducting the auction, which produced a $590 million winning bid, returning an extra $100 million to lenders in a clean deal while satisfying first-lien creditors. And the Rangers were able to ignore the drama, win the American League pennant and go to the World Series.

Leading up to the bankruptcy, while the Rangers were setting records on the field, the club was in awful shape financially. Since 2002, it had been in positive equity territory only once. They hadn't funded their player-deferred compensation since 2007, owing $87 million of deferred compensation to players, including $47 million to Alex Rodriguez. Hicks, who also owns National Hockey League team the Dallas Stars LP, entered into a support agreement with MLB while seeking a buyer.

A group funded by oil pipeline magnate Ray Davis and XTO Energy Inc. founder Bob Simpson used Pittsburgh sports attorney and minor league baseball owner Greenberg to front for them and do the negotiations. They added former Hall of Fame pitcher and team president Ryan to foster community support using the name Rangers Baseball Express LLC. The group was eventually selected ahead of two other bidders in December 2009.

In May 2010, the banks, owed $525 million plus interest by the team, refused to accept the Greenberg-Ryan offer. Hicks put the team into bankruptcy to force the banks' hand to accept Greenberg-Ryan as the winning bidder at $495 million.

Banks and bondholders, who formed an ad hoc group, played a major role in derailing the prenegotiated bankruptcy filed by MLB. In January, when MLB, which had made debtor-in-possession loans to the Rangers to keep the club operating, pushed Hicks aside and negotiated the sale to the Greenberg group, the banks objected. Despite the lender objections, the team filed for bankruptcy on May 24 with a prepackaged plan that would force the sale to Greenberg on an exclusive basis. In that plan only $75 million of the $525 million in debt would be guaranteed by the Rangers. Although Hicks had also pledged the team's equity as collateral, the deal wouldn't be enough to pay off the first-lien holder of $400 million, let alone the second-lien holder with $125 million.

The lenders filed an objection based on an inappropriate price, sweetheart deals worth $75 million to Hicks that burdened the team, indemnifications for Hicks and a flawed auction process. Lenders filed a motion to force the team into an involuntary bankruptcy and moved for appointment of an independent fiduciary. Lynn entered the order authorizing me as CRO on June 28.

I was given a week after my appointment as CRO to decide to take the $495 million deal from the Greenberg-Ryan group. I knew early on that this was a foul deal. Hicks wanted benefits worth $75 million, ownership of the parking being the primary asset. He was also to get 1% of the team, transfer some debts and professional fees worth $9 million to the team and stick it with a lease of a Boeing 757. I thought it was wrong that Hicks should put $75 million in his pockets while the banks' first-lien lenders were looking at taking a $100 million hit, the first time in MLB history a first-lien lender would lose money on a team. I told Lynn, "This has to be a fair price or a fair process." I wasn't going to get a fair price because the deal was foul, so I decided to get an auction going, which Greenberg approved.

Bringing in other bidders to nudge out hometown hero Ryan didn't sit well with the locals. I received e-mail threats from fans that the U.S. marshals followed up on. Fort Worth Star-Telegram sports columnist Jennifer Engel, whose paper touts her as the "Little Ball of Hate," wrote after I told the court that given the Rangers' positive cash flow and winning season another month wouldn't hurt, "What kind of idiot is this guy? A bad month can kill a team." She used her columns to rile fans in demanding that Ryan-Greenberg get the team.

Eventually, Mark Cuban, owner of the National Basketball Association's Dallas Mavericks, joined Houston businessman Jim Crane to make the only other real bid. Both the prebidding negotiations and the bidding process itself covered three acrimonious days. For days lawyers shouted at and attacked me. One of my people told me he's never seen a guy take a beating like that. Even Ryan described the auction in press reports as "an emotional roller coaster."

It got particularly hairy during the debate over the "Cuban discount," which was an argument by Greenberg and the baseball team that Cuban's bid was worth less than theirs because Cuban wouldn't be approved by MLB. The press reported that lawyers were dropping F-bombs on each other in the hallway. This exchange showed up on Twitter. Greenberg's lawyer, Thomas Lauria, said to our attorney, Louis Strubeck: "You told me we were going to get a reasonable amount of time to review the bid, [expletive]." To which Strubeck answered, "[expletive]."

As CRO, I had to focus on either a fair price or a fair process. Now it looked like we were getting both. Our team of professionals and attorneys had to stay out of the emotion. You get caught up in that and start cussing and yelling, and it just inflames other stakeholders. It also helped to have Judge Russell Nelms as mediator, which brought sanity to an otherwise contentious situation. The Cuban and Greenberg teams were both heavily invested in the process and had excellent advisers. Cuban was maligned unfairly after the process, and he was actually one of the most straightforward participants.

The Rangers drama can be summed up like this: If you start with a foul deal, you're going to have a foul process. The bankruptcy process, with all of its transparency and the ability of stakeholders to have a voice, allowed the battle cry of "fair price or fair process" to play out. n

William K. Snyder is a managing partner at CRG Partners Group LLC, a provider of financial restructuring and operational improvement services specializing in creating value for the stakeholders of underperforming companies.

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