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Devils have time to get financial house in order Add to ...

The New Jersey Devils are in serious financial trouble and may be in default on a large loan payment but they are not about to slide into bankruptcy and a bank repossession. At least not until next June at the earliest.

Thanks to something called a “stand-still”, the Devils’ lenders cannot make a move on co-owners Jeff Vanderbeek, Ray Chambers, Mike Gilfillan and Peter Simon until a minimum of 180 days passes after they missed payment on a $100-million (all currency U.S.) loan on Sept. 1. And if the 180 days end during the NHL season, as they would in this case, then the banks are bound to “stand still” until the day after the last game of the Stanley Cup playoffs.

Every loan to an NHL franchise has a stand-still agreement in the consent letter between the team, the banks and the league. It is there at the insistence of NHL commissioner Gary Bettman, who is understandably averse to seeing one of his teams pushed into bankruptcy by an unhappy lender in the middle of a hockey season.

The consent letter forces the banks to wait a minimum of 180 days after they declare a team in default on its loan before moving to take over the team and place it into bankruptcy. Not only does this spare the NHL some embarrassment during the season, it gives the team owner and Bettman time to find new financing and work out an agreement with the lenders.

A team itself can declare bankruptcy during the season, as the Phoenix Coyotes did a few years ago, but that was part of a failed strategy to sell the team and move it.

When a team misses a loan payment it does not mean the banks automatically declare it in default. Technically, any time a payment is missed the loan is in default but that is a problem only if the banks say so. What usually happens, and appears to be happening with Vanderbeek and the Devils, is a negotiation for an extension while new money is sought for the team.

The New York Post, which reported the loan default on Monday, said on Tuesday that Vanderbeek plans to buy the shares held by Chambers and his son-in-law, Gilfillan. This would give Vanderbeek 94 per cent of the franchise.

A banking source is dubious about this, simply because he does not think Vanderbeek has the necessary financial resources. Then again, the banker is also highly skeptical Chambers and Gilfillan can get the $160-million (all currency U.S.) they are said to be demanding.

However, at the very least a move to refinance the loan, which is held through CIT, is in the works. Banks typically do not make a move on a team if they know more money is coming.

At this point, Chambers and Gilfillan, control 47 per cent of the Devils and their operating company, Devils Arena Entertainment, through a company called Brick City LLC. They have been trying to sell their stake for almost a year.

Vanderbeek also has 47 per cent of the franchise while Simon has 6 per cent.

In addition to the $100-million owed to CIT, Devils Arena Entertainment owes another $180-million, so things are far from rosy in Newark.

Vanderbeek and the Devils say they are not about to fall into bankruptcy and they already negotiated an extension on the $100-million payment. After that, things get murky.

If Vanderbeek is buying out Brick City, he could be getting the additional 47 per cent for little, if any, cash if he agrees to assume all of the bank debt. That gets Chambers and Gilfillan off the hook, which might be enough for them to walk away with nothing since it’s assumed Chambers was the one covering the Devils’ annual losses.

Then the question is who would take the chance of lending Vanderbeek enough money to pull this off.

Vanderbeek could not be immediately reached for comment.

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