The Breakdown

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Dodgers sale: What exactly does 'all cash' mean for Guggenheim Partners?

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LABiz Observed's Mark Lacter talked with KPCC's Steve Julian this morning about some lingering questions regarding the sale of the Dodgers to Magic Johnson, Stan Kasten, Peter Guber, and Guggenheim Partners — a group now collectively known as "Guggenheim Baseball Management." The big question is about the financing of the deal. It's reportedly an "all cash" deal, meaning no debt is going in. But a purchase price of $2.15 billion makes me wonder about that. So do the vast ambitions of Guggenheim, which currently include a deal that dwarfs the Dodgers sale: the $500 billion purchase of Deutsche Bank's U.S. assets.

Still, Can the Magic team really be bringing that much cash to the table? Back when the price was speculated to be around $1.5 billion (that was two weeks ago), the guy with the largest checkbook was hedge-fund king Steven Cohen, who was thought to be bringing in personal net worth of $8 billion and nearly $1 billion is cash.

I have two theories — and I emphasize theories — about what's going on here:

•The "all cash" part of the deal applies to the Dodgers' current debt, estimated at $573 million. It could be that aspect that Guggenheim's CEO, Mark Walter, and the Magic group are talking about. They would deploy their cash to pay off all the team's creditors and allow the team to exit bankruptcy. That would leave around $1.5 billion to be financed or covered with personal investment of some sort.

•"All cash" means some combination of cash and Guggenheim Partners equity. The firm is a private partnership, so presumably the partners can decide to "pay" for the Dodgers by creating a debt-for-equity swap in which Dodgers creditors receive equity in payment for the claims they hold. A wrinkle in this is that current owner Frank McCourt would be the beneficiary of an additional equity payments, effectively becoming a very substantial stakeholder in Guggenheim Partners. It's unclear whether he could actually participate in such a deal.

I traded some thoughts with Mark yesterday and he brought up the idea of collateralization. This made me think that some of the purchase of the Dodgers could be finances by borrowing against assets, such as the Dodger Stadium. 

These are all somewhat speculative scenarios. And obviously we don't know whether "all cash" truly means...all cash! It's not inconceivable that Walter and his partners have raised a $2-billion plus private-equity-type fund, through Guggenheim Baseball Management, to buy the team. This would mean additional investors, represented by Guggenheim in some way. 

We'll see how it all shakes down. What happens later this month in bankruptcy court may be telling.

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