The Good Faith of the Dodgers

By popular demand -- and only by popular demand -- here is a post on the chapter 11 in the Dodgers case. My beloved Redbirds seem to have found the mid-season swoon that we all knew was coming. I have been in baseball denial, but the Dodgers have dragged me back in.

Bruce Bennett, the Dodgers' bankruptcy lawyer, was quoted in a Bloomberg story as saying the Dodgers were "substantially solvent." Bloomberg then reported Bennett said the goal of the bankruptcy filing was to buy time to negotiate a television deal. If that is right, then doesn't the Dodgers' filing raise issues under the good-faith filing doctrine? There are numerous cases dismissing the chapter 11 petition of a solvent debtor which is using bankruptcy as a negotiating or litigation tactic.

In the event, Bennett's statements come across as the usual posturing at the time of a bankruptcy filing. I cannot believe that the bankruptcy court would dismiss the case for lack of good faith. Media reports suggest the Dodgers were in danger of not meeting their end-of-the-month payroll. A cash crisis for a debtor with valuable but illiquid assets is the paradigm scenario for chapter 11. There is also the unwritten rule that big chapter 11s never get dismissed for bad faith, but that is a story for another time.

I will say that a 10% interest rate on a loan for a company that says it is "substantially solvent" seems like a good deal for the lender. But, that observation again reflects on the company's characterization of its financial condition, not necessarily on the the terms of the loan.