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Bankers warned Sox on funding

FleetBoston cautioned ballpark financing could fall tens of millions short

By Meg Vaillancourt, Globe Staff, 10/11/2000

wo weeks before Boston Red Sox chief John Harrington announced he was selling the controlling interest in the team, the Sox's bankers warned that crucial private financing to build a new ballpark could fall short by tens of millions of dollars.

Worried that Fleet's analysis would undermine interest in their team from potential bidders, Red Sox officials insisted yesterday that the analysis by FleetBoston Financial Corp. was ''preliminary.''

They also said Fleet's review, conducted in September, did not play a role in Harrington's decision to sell the majority stake in the team.

''Fleet's Sept. 19 letter identified a potential shortfall, based on conventional bank financing model, which we did not deem insurmountable,'' Red Sox vice president James Healey said last night.

''Based on our recent conversations with several financial advisers, including Fleet, we continue to believe this project can be financed, particularly given our recent broadcast agreement and the current market for naming rights.''

Fleet's analysis stands in sharp contrast to a more upbeat letter from Salomon Smith Barney, the Wall Street investment firm.

During a press conference last Friday at which he announced he was selling the majority stake in the team, Harrington cited the Salomon letter several times as evidence that the team was making progress in securing private financing to build the ballpark.

The Salomon letter suggested several funding options but did not state definitively that the team could win financing.

The Fleet letter, which Harrington did not mention at the news conference, was more pessimistic. In the letter, Daniel Williams, managing director of Fleet Securities, said that based on information supplied by the team, ''we believe that conventional commercial financing, including any combination of bank loans, securitizations and private placements,'' could raise between $160 to $200 million for the construction project.

Although the team will contribute $117 million in equity, under the Fleet analysis it would face at least a $35 million financing shortfall, a figure that could grow substantially if the cost of the project escalated, as many believe is likely.

In a further discouraging analysis, Fleet listed several ''major issues'' it said ''must be resolved before we could move forward with conventional funding for the project.'' They include finalizing negotiations with the city on the team's cut of parking revenues and payments to the city for land and development rights.

Asked about the September letter last night, Fleet officials stressed that the bank is still reviewing the team's financing options and said they are in the process of upgrading their analysis based on new information.

Officials were adamant that no one at the bank has determined that the project outlined by the Red Sox can not be financed.

''We are contuing our review of the sources and uses of cash flow based on new, more positive assumptions, including the new TV contracts and increased estimates for naming rights,'' FleetBoston president and chief operating officer Charles K. Gifford said. ''No one has told the Red Sox this can't be financed.''

Under the terms of a ballpark bill passed by the Legislature in July, the team bears the burden of building the facility and covering any cost overruns related to construction or land acquisition and clean-up. The biggest problem for the Red Sox has been and remains to be finding a way to limit those potential overruns.

Before the bill passed, the team fought to have the city or state accept the risk of cost overruns, and Harrington himself warned that the uncapped land costs could make the deal ''unfinanceable.''

However Harrington accepted the deal and pledged to ''go to the wall'' in his attempt to find financing.

None of the cost overrun issues has been resolved, although the team is continuing talks with the administration of Mayor Thomas M. Menino.

Nonetheless, team officials said Harrington still believes the project can be financed.

This story ran on page D1 of the Boston Globe on 10/11/2000.
© Copyright 2000 Globe Newspaper Company.



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