The Globe and Mail has been publishing a number of stories this week on the Coyotes in particular. Today's is below.
HOCKEY: NHL: COYOTES
$80M DEBT AND GROWING
The Phoenix franchise is heavily in debt, bleeding red ink, laying off staff and going to the NHL for advances to meet expenses and for approval to make roster decisions. Who will ride to the Coyotes' rescue?
DAVID SHOALTS
With a report from Brian Milner
E-mail David Shoalts | Read Bio | Latest Columns
January 9, 2009
Almost everything the Phoenix Coyotes own or earn is pledged as collateral to SOF Investments LP of New York, according to financial documents obtained by The Globe and Mail.
Two NHL governors say the financial situation is distressed to the point that the Coyotes have had to draw on advances from the league to meet a $42.4-million (all currency U.S.) annual player payroll and operational expenses. The advances are made from anticipated NHL broadcast rights, merchandise sales and revenue sharing.
It is not known exactly how much money the Coyotes have received from the NHL. The game schedule is at the halfway point, which could mean, under NHL bylaws, the club cannot have received more than half of the money it expects from shared revenue. NHL deputy commissioner Bill Daly said the Coyotes have not yet received as much as half of their expected share of the NHL revenue, which could come to $22-million.
In return for the advances, the Coyotes need the NHL's approval for any major player or financial transactions, according to sources. Daly wrote in an e-mail message yesterday that the arrangement "is not as much 'approval' as it is 'consulting.' "
Earlier this week, the Coyotes laid off 18 employees, about 10 per cent of the club's front-office staff. The employees worked in ticket sales, game operations, administration, public relations and community relations. Daly said the NHL was "aware" of the layoffs before they were announced, but he did not say whether the league recommended them.
With the club's losses again expected to exceed $30-million this season, it is practically impossible to find new investors or someone to buy the team from Jerry Moyes, whose trucking company is also in serious financial trouble. Unless the franchise declares bankruptcy, it is locked into a 30-year lease at Jobing.com Arena with the city of Glendale, on the western outskirts of Phoenix.
The uniform commercial code financing statements obtained by The Globe show that, starting on Dec. 29, 2003 - only two days after the Coyotes played their first game at newly constructed Jobing.com Arena - the franchise signed over almost all assets and revenue to SOF, its primary lender at the time.
More documents show that SOF tightened its grip on the club as the Coyotes borrowed more money. The loans now total about $80-million and will expire on Dec. 29, 2013, under current terms, according to a source.
The timing of some documents suggest the Coyotes increased their loan from SOF in January of 2007 in order to pay off another loan, to a New York hedge fund, Fortress Credit Opportunities LP.
Assets signed over to SOF Investments include the rights to the franchise, all equipment, inventory, all government licences, trademarks, logos, copyrights and insurance policies.
Further, all revenue is pledged to SOF, except $2.5-million annually in arena-naming rights, $1.50 a ticket owed to the city of Glendale (for paying $180-million toward the $220-million arena) and $9 a ticket for "all NHL hockey events" to the club. Other revenue includes NHL broadcasting rights, any share of future expansion or relocation fees, revenue sharing, merchandise sales, concessions, sponsorship contracts and practice facility rentals.
The $9 cut from ticket sales does not go far. Through 21 home games, the Coyotes ranked 26th among the NHL's 30 teams in attendance with an announced average crowd of 14,789 a game.
The Coyotes received a reported $15-million in revenue sharing last season from the NHL's wealthiest clubs, the most of any franchise that qualified for the handout.
SOF Investments is a private equity fund owned by another New York company, MSD Capital, which was set up in 1998 to manage exclusively the capital of computer tycoon Michael Dell and his wife.
Its mandate is to invest in publicly traded securities, make private equity investments (venture capital), invest in real estate (in the Phoenix area, among others) and engage in other market activities. Its aim is to build an investment portfolio designed for long-term capital appreciation.
Neither Moyes nor Coyotes chief executive and governor Jeff Shumway responded to requests for comment. Daly said earlier the league is aware of the extent of the Coyotes' indebtedness to SOF.
"We have no doubt that the Coyotes' secured loan is more than covered by the value of the franchise," Daly said.
Forbes magazine recently valued the franchise at $142-million.
Daly declined to confirm or deny that the Coyotes are receiving money from the league, but did say that it is not unusual for clubs to draw on revenue-sharing amounts in advance of scheduled payment periods.
One document, filed with the state of Delaware on Jan. 17, 2007, says simply that "the collateral consists of all assets of debtor." Another, filed on Nov. 6, 2008, as a continuation of the agreement with SOF Investments, goes into much more detail about the Coyotes' collateral.
A six-page statement lists everything signed over to the financing company, starting with "the franchise to own and operate the team and all assets of the debtor related thereto (including, without limitation, all rights under the NHL governing documents)." In addition to physical assets, the team also pledged all of its bank accounts.
These assets will not belong to SOF unless the Coyotes break one of the loan covenants, such as missing a specific debt-capital ratio. But the more onerous the conditions of a loan, the more unstable a borrower is considered by a lender.
One interesting item states that "for the avoidance of doubt," the contract between the Coyotes and managing partner and head coach Wayne Gretzky is "specifically excluded."
SOF and MSD Capital are located corporately in Delaware, as are many other corporations.
Just about the only thing not mentioned in the documents is the office equipment. But that in itself is the subject of liens to two office-supply companies, which have control of the equipment.
Moyes's personal financial problems call into question his ability to continue covering the Coyotes' losses. His main business, Swift Transportation Co., was hit hard, like every other trucking company, by the rise in fuel costs and collapse of the economy in the past 18 months. The fuel costs began skyrocketing about the time Moyes took Swift private in May of 2007 with debt financing of $2.74-billion.
Like his hockey team, Moyes also has pledged significant personal assets as collateral to lenders. Moyes, his wife, Vickie, and their family trust all have liens against them, according to documents obtained by The Globe.
The Moyeses' list of creditors includes Morgan Stanley, the merchant bank involved in taking Swift private; Swift Transportation; U.S. Bank National Association, a trustee of asset-backed securities and registrar of corporate bonds; and First United Funding LLC, a short-term business credit institution.
According to Eiad Asbahi, the managing partner of Prescience Investment Group of New York, who has studied Swift's situation, the trucking company loaned Moyes $560-million as part of his takeover in May of 2007. Moyes personally guaranteed the loan, Asbahi said in an analysis of Swift done earlier this year.
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