How Montreal money could fix the LeBreton Flats partnership
James Bagnall, Ottawa Citizen
Updated: January 18, 2019
Every good mediator understands there are times when warring parties simply aren’t ready to deal.
So it was in 2012 and 2013 when former Ontario chief justice Warren Winkler spent nearly a year off and on meeting with Nortel’s main creditors. A last ditch mediation effort in January 2013 ran hard into a wall of resistance built by the owners of Nortel’s bonds. After multiple extensions, Winkler concluded no deal was to be had. Indeed, it would be another four years before a comprehensive agreement emerged.
Winkler, retired since 2013, now 80, has given himself until the end of February to try to mediate a seemingly intractable dispute between Ottawa Senators owner Eugene Melnyk and Trinity Development founder John Ruddy — the main partners of RendezVous LeBreton. At stake: the future of a 20-year, $4-billion project to remake LeBreton Flats.
With the partnership mired in $1.7 billion worth of claims and counterclaims, and with clear evidence the partners simply don’t trust one another, the odds of a diplomatic breakthrough look slim.
But, unlike the situation at Nortel, Winkler has two things running in favour of a settlement. The first is the very real prospect the LeBreton project, at least one led by these two partners, could simply die without a deal. At Nortel, it was always understood the proceeds of the estate would be distributed eventually — the issue was on what terms.
The second difference may be the most important. There is a third party at the table in the LeBreton mediation efforts who could help Winkler shape a deal — in part by providing needed cash and equity but also by creating a buffer between Melnyk and Ruddy.
When the National Capital Commission signed a term sheet with RendezVous LeBreton 12 months ago, it was understood there was room for a third partner — and members of the runner-up bid from Devcore Canderel DLS team are a logical fit.
The RendezVous LeBreton plan comprises some three-dozen smaller projects to build condos, retail shops, a hotel, offices and an NHL arena. There is room here for negotiating a split of the related revenue streams and projected profits.
The Devcore group — which includes Power Corp. deputy chairman André Desmarais, Cirque du Soleil founder Guy Laliberté, JDS Uniphase co-founder Bill Sinclair and the Mierins family — has been waiting in the wings in case the NCC’s first choice, RendezVous LeBreton, blew up. Failing that, members of the Devcore alliance, nearly all of them Montreal based, have made pitches to get involved as a partner.
Last year, for instance, certain Devcore members offered more than $430 million US to buy the Ottawa Senators and current arena — which Melnyk turned down. The Devcore alliance has also made clear, as an alternative, its willingness to build a $500-million US arena on LeBreton Flats, encouraging Melnyk to become a tenant.
Since much of the difficulty between Melnyk and Ruddy stems from arguments over how to finance the construction of a new arena, Montreal money could be key to salvaging the RendezVous LeBreton project.
At the very least, it would help spread the financial risks. Melnyk’s last public proposal, presented Dec. 18 in a statement over the signature of the Ottawa Senators’ chief operating officer Nicolas Ruszkowski, called for Melnyk to forfeit his right to all future profits on LeBreton in exchange for rent-free access to an arena built and paid for by others.
This, of course, would put 100 per cent of the risk on Ruddy, which is one reason he dismissed the idea out of hand. But a formal role for Devcore partners might change his perspective.
Unknown is what potential Devcore players would demand in exchange for their money and participation. Ruddy and fellow RendezVous LeBreton partner Graham Bird have spent more than two years lining up dozens of subcontractors — some of whom presumably would have to be cut to make way for specialists associated with Devcore.
The cleanest deal would see either Melnyk or Ruddy leave the partnership altogether. In one scenario, Devcore partners would purchase the Ottawa Senators and current arena from Melnyk, then negotiate directly with Ruddy to stitch together a revised RendezVous LeBreton project. An alternative would be to see Devcore and Melnyk team up, thereby cutting out Ruddy.
But how likely are these? Not very. Ruddy views LeBreton as a signature project that could cement his legacy as a hometown developer.
Senators’ insiders for years have reported Melnyk has no interest in selling the team. By turning down an offer of $430 million US plus — about the same as the latest valuation estimated by Forbes Magazine — he is making it clear buying the Senators would be an expensive proposition.
Consider that a hypothetical new owner would have to shell out, say, $450 million US for the team and current arena in Kanata. Then there’s another $500 million US for the new arena in LeBreton. That’s nearly $1 billion. And, while the Montreal Canadiens and Toronto Maple Leafs are each valued by Forbes at more than $1.3 billion U.S., those teams generate nearly twice as much revenue each year and more than fifty times the operating income.
Of course, Melnyk could choose to pay commercial rent to the owner of the new arena. But in his litigation against Ruddy, Melnyk was not prepared to consider anything more than nominal rent — $1 per year.
Much of Melnyk’s litigation reflects his view that Ruddy’s participation in a nearby apartment-and-offices development at 900 Albert St. is undercutting the economics of RendezVous LeBreton.
As mediator, Winkler will have to sort out whether Melnyk is simply engaging in hardball bargaining or whether his economic interests really are being harmed.
A complicating factor has been the relative tightness of Melnyk’s cash flow. When he acquired the Ottawa Senators out of bankruptcy in 2003, he paid $100 million CAD for the team and $27.5 million CAD for the arena. At the time, the value of his shares in Biovail — the pharmaceutical company he founded in 1989 — were worth more than $1.6 billion CAD.
But within weeks of buying the team, Biovail reported unexpectedly weak financial results. By 2005, the value of Melnyk’s Biovail holdings had slumped to $441 million. Four years later, Melnyk lost control of Biovail (now called Bausch Health Corp.), then sold off his shares for several hundred million dollars, according to financial filings.
Melnyk did well by the Senators, which have appreciated in value by some $345 million US since he acquired the team. However, because he incurred losses along the way, and reinvested in the arena, Melnyk added debt along the way. It currently represents about $200 million US of the estimated $435 million US value of the team. To his benefit, half the debt is in the form of a low-interest NHL loan facility.
In short, Melnyk is far from poor, but less wealthy than he was. The NHL franchise is his big asset. The value he puts on it, along with the price he is willing to pay for his team to play in a new arena, will be the wild cards in Winkler’s mediation efforts.
Less clear in all this is the state of Trinity’s finances. Ruddy’s firm is private, making it difficult to assess just how liquid it is. Given Ruddy’s strong track record of real estate development, it’s a good bet he could raise the necessary equity to launch the LeBreton project. The same could be said of Melnyk. What’s missing is mutual trust.
The participation of Devcore partners and Montreal money could be what helps Winkler devise the financial formula that rescues this landmark Ottawa project.
https://ottawacitizen.com/news/local...ts-partnership
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Aquariums are so antiquated. Why do we still feel the need to imprison animals for our personal enjoyment? It is one thing if its purpose is rehabilitating injured animals in the hopes of releasing them, but that would be best served in a coastal city. Are they going to focus on rehabilitating local freshwater fish other local marine animals? I doubt it.
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