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Jerry Jones Looking For an Extra $350 Million

Posted by srr50 on November 10th, 2008 under Football

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.

Dancing Jerry
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.

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5 Responses

  1. t1climb1 said:

    November 11th, 2008 at 5:10 am

    Full disclosure here, I’m an idiot when it comes to matters of finance etc. But I don’t understand why in this instance it would be tough to auction these rates. I mean, we are talking about the Dallas Cowboys. It seems like to me there would not be a lot of risk involved with financing this stadium. Or is it that the investors who normally buy these are no longer playing because they are all hurting financially.

    Again, this is so not my area of expertise so pardon my ignorance.

  2. Euclid Pi said:

    November 11th, 2008 at 5:34 am

    t1climb1, it could be Jesus who issued the ARS and he couldn’t find refinance them.

    Even ARS that are backed by federally guaranteed student loans don’t have a market (federal guarantee inherently makes them less risky than Cowboys’ debt). Down the road in Waco one of the country’s largest student loan issuers just tried to refinance $2B in ARS (collateralized by federally guaranteed student loans) and had no luck.

    I really hope Jerry is successful because it could signal that things in this market are starting to improve.

  3. The Source said:

    November 11th, 2008 at 6:21 am

    MAC BROWN CURSE: North Carolina tight end Zack Pianalto has a broken left leg that will keep him out indefinitely.
    Pianalto fractured his fibula while making a touchdown catch in Saturday’s 28-7 win against Georgia Tech.

  4. BoomerFreakinSooner said:

    November 12th, 2008 at 5:00 pm

    Jerry Jones is an ID-I-OT. Go get more plastic surgery.

  5. WELCOME TO COWBOYS NEW STADIUM: HOME OF THE $90 PIZZA « The Sports Pig’s Blog said:

    August 5th, 2009 at 6:08 am

    [...] owner Jerry Jones reportedly found himself some $350 million short last year when he tried to come up with the financing to finish the stadium. [...]

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