While the Dallas Cowboys struggle on the field, Jerry Jones is trying to deal with the current financial crunch that has him looking for some relief on his debt for the new stadium.  Jones and his financial partner, American Bank, are looking for new investors to help relieve the high interest payments that are the result of Jerry’s use use of Auction Rate Securities.

Jerry wants to borrow $350 million by Dec. 1, in order to re-finance the $126 million that the team borrowed last year through the now wrecked auction-rate securities market. The money would also help to cover cost overruns at the team’s $1.2 billion stadium that is set to open next year, the sources said.

Auction rates are typically long term bonds (corporate or muni) that have their interest rate reset over a short period of time, perhaps every week or every month via an auction. This does two things. First it allows the borrower (in this case Jerry Jones) to pay short term rates on a long term security.

And that can be very beneficial to the borrower. Secondly, auction rates securities also allow the purchaser of the bond to have much higher liquidity because they are re-auctioned every week or month.  So in a very short time, you have the opportunity to say that you want out and you get out. At least in theory. These securities are sold to large individual investors and financial institutions as a way to find a secure and favorable place to park liquid assets.

However, one provision of auction rates is that if a bond auction does not generate enough demand to hold an auction at any time in the short life of the bond, it reverts to a long term bond and pays a maximum rate of interest. This is known as the penalty rate (or maximum rate).

The issuers of auction rate securities generally get the bonds insured against default in order to improve the credit quality and rating of the bonds. These bond insurers have gotten into trouble in the subprime mess and they are in financial distress. Without the security blanket of the bond insurer, many of these auction rate municipal bonds look a bit riskier and so the demand for them has gone down — way down.

Pretty good for the investors, who get a higher interest rate in return for not having their money readily available, not so good for those who issued the bonds. Jones is not alone in his worry over increased debt. At least three other NFL franchises have used auction rate securities to partially finance their stadiums.

Jerry Jones is trying to tap dance his way out of high interest debt.

Starting in February, the auction rates securities market dried up, and that automatically triggered significant interest rate hikes. Jerry Jones and the team’s lead lender, Bank of America, hosted more than a dozen banks at the suite sales center, offering a deal priced 2.5 percent over the London Interbank Offered Rate, a floating-rate index, for the ARS bonds.

Jones has a couple of other revenue streams that are not yet in place. The naming rights to the stadium still have not been sold, and there are still 55,000, 30-year personal seat licenses available at prices ranging from $2,000 to $150,000.

Maybe trying to decide if he should keep Wade Phillips as head coach isn’t the most important task on his mind.