News

The Nashville Predators' ownership tangle has taken another twist with the startling admission the NHL team has defaulted on a $40-million (all currency U.S.) loan.

If that raises fresh questions about the franchise's viability, Nashville's owners say the blame should be laid at the feet of former minority owner William (Boots) Del Biaggio III, who declared bankruptcy in June.

When Del Biaggio's problems first emerged, Preds principal owner David Freeman reassured the community and the NHL they "will not impact on the operation of the club."

But now Predators Holdings LLC is petitioning a California bankruptcy court for damages of up to $100-million, which it says were incurred by Del Biaggio's alleged "fraudulent activities and misrepresentations."

Court documents also reveal an unnamed bidder is negotiating to acquire the $40-million debt owed to CIT Group Inc.

"At this time, the damages to Holdings as a result of [Del Biaggio's] default are incalculable," reads a claim filed with the Northern District of California Bankruptcy Court this week. "Holdings has been informed that the trustee is negotiating with a potential bidder that allegedly may provide a replacement guaranty."

The document also contends the ownership consortium was forced to come up with $28-million to cover Del Biaggio's portion of a lease guarantee with the city of Nashville, which owns the club's arena.

Sources say Waterloo, Ont., high-tech billionaire Jim Balsillie, who was frustrated in his efforts to buy the team in 2007, is considering a bid for Del Biaggio's stake.

But it's unclear whether Balsillie is the mystery bidder for CIT's debt.

People familiar with the Nashville ownership situation suggested the lease-guarantee payment has particular importance because the team would face a penalty of up to $50-million if the Predators were to default.

But despite the apocalyptic language of the claim, minority Predators owner Herb Fritch told The Globe and Mail the team faces no immediate danger.

"We don't think the franchise is in that bad shape. I don't think we're concerned about the franchise, but we certainly didn't think this bankruptcy helped," he said, adding "there's been more in the Toronto papers than in Nashville … we feel pretty good about [the franchise] all in all. It will pass."

It's not clear what, if any, impact the latest developments will have on the rest of the league's owners.

NHL executive vice-president Bill Daly is travelling overseas and couldn't be reached for comment.

Del Biaggio's 27-per-cent stake in the Predators is in the hands of a trustee, who is accepting bids from potential suitors.

Freeman has confirmed the ownership group has lodged a bid for Del Biaggio's shares, which are worth $23.5-million, according to court documents.

Those close to the situation believe the latest legal gambit by the Predators owners suggests they are in deep trouble, and by exposing their financial woes publicly, they're signalling to sponsors, season-ticket holders and potential investors they aren't planning to be around in the long term.

A prominent U.S. bankruptcy expert said the trustee in the case is effectively bound to accept the highest bid for Del Biaggio's share.

"The trustee needs to take care of his fiduciary duty, which is to get as much cash as possible to redistribute to the creditors. He doesn't care who gets [the share]," said Henry Cheesman, a business law professor at the University of Southern California.

The NHL is of the opinion that whoever buys into the Predators, they will require league approval — and the owners are saying they have to approve any buyer as well.

While the league's bylaws would suggest the NHL has a case, Cheesman said it could prove difficult for the Predators owners to reject a purchaser approved by the trustee. Either way, a legal battle is likely to ensue.

Del Biaggio said a clause exists in the ownership agreement that would have permitted him to make a bid for all the shares at a later date, which the ownership group denies. But if such were the case, Cheesman said the clause would likely still apply to a new owner.

Because Del Biaggio's erstwhile co-owners are unsecured creditors — although they do have the possibility under U.S. law to obtain some redress — they could end up empty-handed once all is said and done.

An investment banking source said CIT Group Inc., a New York-based lender that specializes in business loans and debt financing, has been buffeted by the growing U.S. financial crisis.

The company has provided financial capital for several sports teams, including English soccer giant Manchester United, the NHL's New Jersey Devils and the Ottawa Senators, who went to the investment house in early 2007 to refinance lingering debts from the construction of Scotiabank Place.

They also provided financing to finalize drugstore tycoon Daryl Katz's acquisition of the Edmonton Oilers.

Despite CIT's travails, neither the Predators owners nor financial analysts believe they will call the $40-million Predators loan — they are more likely to recoup their money once Del Biaggio's stake is sold.

"I don't know that we're in any different shape, at least in the U.S. credit markets, as any other business. It's not a good time to be trying to refinance," Fritch said. "But I don't think we're overly worried.

"We'll see what happens. A lot is in flux right now."

Though the claim says the team's "attempts to refinance certain high-interest debt have been frustrated," it says the default on the financing is no fault of the current owners.

The claim also asserts Del Biaggio's spectacular fall from grace has resulted in a devaluation of the team (estimated in the document at $27-million) and a loss of revenues that is expected to top $50-million.

"The debtor's fraudulent activities, breaches and bankruptcy filing have detrimentally impacted the value of the club's 'brand' and held the club up to local, national, and international public scorn and ridicule for a period of time expected to extend for decades," the document reads.

Del Biaggio, who once owned a small share of the San Jose Sharks, joined a consortium of local investors in 2007 who bought the Predators from then-owner Craig Leipold for $176-million.

Balsillie had offered nearly $40-million more for the team, but was thwarted by the NHL.

League officials and several owners were apparently rankled by Balsillie's campaign to sell seat licences in Hamilton — as clear an indication as he could give of his intention to move the team to Southern Ontario.

During last year's Stanley Cup finals, Del Biaggio's myriad legal and financial difficulties surfaced publicly.

He filed for bankruptcy in June, at which time it emerged he was facing several lawsuits for allegedly defrauding creditors in his bid to buy the hockey team. Del Biaggio is also the subject of a grand jury investigation in California, and a separate federal criminal probe.

It later emerged that Leipold lent Del Biaggio $10-million of his own money to buy part of his stake in the team. There was also a secret $7-million loan from Los Angeles Kings owner Phil Anschutz's company.

The Predators are one of at least four NHL teams known to be struggling financially — the others most frequently mentioned are the Florida Panthers, Atlanta Thrashers and Phoenix Coyotes — and with financial storm clouds brewing in the U.S., some in the league have revisited their opinion of Balsillie.

"He's admired for his business skill and he's admired for his love of the game. He's wealthy and he wants to own a team desperately," one NHL team official said. "These days, I believe the owners would look more favourably on him."

With reports from Stephen Brunt and Allan Maki