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No Ryan Express for 363 Sales?

Posted on: July 27, 2010

Apparently, even Hall of Famers need to concern themselves with the intricacies of the Bankruptcy Code. When Tom Hicks, the Dallas billionaire and current owner of the Texas Rangers baseball team, filed his team for bankruptcy in late May, the intent was to facilitate its sale to a group lead by baseball Hall of Famer and native Texan, Nolan Ryan.

Hicks and Ryan hoped that the chapter 11 process would help facilitate the consummation of the sale, even though certain secured lenders with claims against the Rangers, and additional claims against the holding companies that held all of the equity in the Rangers, refused to consent to the sale. The lightening-quick bankruptcy sales that occurred in the recent chapter 11 cases of Chrysler, General Motors and Lehman Brothers likely also provided reassurance that a swift sale could be achieved in bankruptcy.  However, as we head into the peak of summer, the battles in Bankruptcy Court remain heated and the sale to Ryan still has not been approved. While Ryan may eventually prevail, it certainly won't be with the same speed Ryan had initially envisioned when he first partnered with Pittsburgh sports attorney Chuck Greenberg and other investors to form "Rangers Baseball Express LLC" as conduit to purchase the team.

Prior to the bankruptcy filing, Ryan's group had already received approval from Major League Baseball. Ryan's group was also Hicks' preferred purchaser, and the parties entered into an asset purchase agreement on the day before the bankruptcy filing. The terms of the asset purchase agreement prohibited the Rangers from soliciting, negotiating or entering into any agreements with anyone other than Ryan's group with respect to the sale of the team. As such, the stage was set to complete the bankruptcy sale faster than Ryan threw his "Ryan Express" fastballs as legendary pitcher.

However, the lenders shrewdly filed involuntary bankruptcy petitions against the Rangers' holdings companies and forced the appointment of a Chief Restructuring Officer for the bankrupt holding companies. The Rangers' plan of reorganization contemplated only impairing its equity holders, and as such, the Chief Restructuring Officer soon began to solicit other bids for the Rangers in hopes of securing a better return for equity (and ultimately benefiting the lenders with claims against the holding companies). Thereafter, the Rangers, the Chief Restructuring Officer and Ryan's group entered into negotiations regarding amendments to the asset purchase agreement that would allow the team to be sold at an auction in which Ryan's group would serve as the stalking horse bidder. Following a period of negotiations, the Rangers sought Court approval of certain bidding procedures to complete that sale at an auction.  However, the Chief Restructuring Officer soon withdrew his support of the bidding procedures because he felt the terms were too favorable for the stalking horse bidder and would not encourage competitive bidding. Ryan's group countered by filing a complaint against the Rangers that asserted breaches of the exclusivity provisions in the asset purchase agreement. Ryan's group also asked for a preliminary injunction to stop the solicitation of additional bids.

Under section 363 of the Bankruptcy Code, a debtor is normally expected to sell its assets to the highest bidder at an auction to ensure that the sale price is "fair and reasonable." The complaint filed by Ryan's group would appear to run counter to this basic tenant of section 363, especially given that the lenders and the Chief Restructuring Officer have argued that other bidders are available. Perhaps in recognition of this fact, at a hearing on the preliminary injunction, the Bankruptcy Court ordered it own bidding procedures for an auction scheduled to occur in early August.

Ryan, the home town hero, may still end up as the winning bidder once the auction is ultimately concluded. His group will serve as the stalking horse bidder, and the lenders were unsuccessful with respect to many of their objections to the bidding procedures. For example, the Bankruptcy Court was generally unsympathetic to the lenders' arguments that more time should be build into the bidding procedures to allow other potential bidders to formulate bids. The Bankruptcy Court was also generally unsympathetic to the argument that the proposed $10 million break up fee for the stalking horse bidder (to be paid if another bidder is selected as the successful purchaser) would inhibit competitive bidding. However, no matter what the ultimate result turns out to be, the "Ryan Express" train to a successful purchase of the team won't be as fast as hoped, and this case shows that, in general, debtors will be required to go through the auction process to ensure the sale is indeed "fair and reasonable."