CUP: RPM In Default Of $90 Million Loan

Article written by Daniel Kaplan – Street & Smith's SportsBusiness Journal

Richard Petty Motorsports, the NASCAR team owned by George Gillett, has been in default on a roughly $90 million loan since at least February but expects to soon restructure the obligation, sources said last week.

The default on the debt underscores the harm NASCAR suffered from the economic collapse of late 2008 and, in particular, the impact of contraction among Detroit’s Big Three automakers on race teams. Gillett, who last year sold the Montreal Canadiens and still owns half of Liverpool FC, lost Chrysler’s backing of his race team when that company filed for bankruptcy protection. Ford is now supporting the four-car team.

“This is a very positive story,” Gillett said. “To lose Chrysler but regain the revenue and not go into the red, and the company is very healthy, that is an amazing story.”

Wachovia, which leads a syndicate of about a dozen financial institutions that issued the loan, declined to comment.

Gillett declined to comment on specifics of the restructuring because of the ongoing creditor talks, but he emphasized the default is technical in nature, meaning that he did not miss a payment but, rather, failed to meet terms of at least one covenant.

Loans commonly have covenants that might, for example, require the borrower to sustain a certain level of cash flow. Prior to the economic troubles of late 2008, lenders were relatively lenient with these kinds of defaults, but they since have become more stringent and less forgiving.

One finance source, who requested anonymity because of knowledge of the deal, denied Gillett’s characterization, insisting the default was payment-related.

No one would dispute, however, that Gillett had unfortunate timing in his summer 2007 purchase of the team.

“George bought right at the peak,” said motorsports consultant Tim Frost. “Manufacturer support has dried up and it was really strong when he bought the team.”

Upon purchasing what was then known as Evernham Motorsports, Gillett renamed the team Gillett Evernham Motorsports. According to a Uniform Commercial Code document filed on Aug. 3, 2007, with the state of Delaware, where the team is incorporated, Gillett Evernham Motorsports obtained the loan from Wachovia. The document lists the collateral as being all assets of the debtor, meaning the loan does not have recourse back to Gillett personally; the debtor is the race team.

That likely bestows Gillett some leverage in his talks with the creditors because at best they could take possession of the team assets and, perhaps, some contractual revenue from sponsors. They do not have recourse to his personal assets.

The team filed an amendment to the UCC document on Feb. 17, 2009, to account for the team’s name change to Richard Petty Motorsports. Gillett merged with Petty Enterprises in January 2009, bringing the stock-car legend’s single car to the team.

While the name of the team is Richard Petty Motorsports, it’s controlled by Gillett, the majority owner. The company’s application to establish the new entity in January 2009 with the state of North Carolina, where it operates, lists for its principal address Booth Creek Holdings, a Gillett-owned entity based in Vail, Colo.

Richard Petty Motorsports late last year merged with Yates Racing, which brought the Ford relationship into the fold.

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