Balsillie back in Predators picture
Twice-spurned NHL suitor has competition for 27-per-cent share of team up for grabs in bankruptcy court
DAVID SHOALTS AND SEAN GORDON
From Wednesday's Globe and Mail
September 30, 2008 at 9:51 PM EDT
Jim Balsillie has competition for the minority share of the Nashville Predators once held by the disgraced William (Boots) Del Biaggio.
Herb Fritch, a minority partner in the NHL team, plus two other sources told The Globe and Mail Tuesday the Predators ownership group headed by majority owner David Freeman has bid for Del Biaggio's 27-per-cent share of the team, which is under the control of the U.S. Bankruptcy Court in San Francisco.
Del Biaggio was supposedly investigated and approved by the NHL as a prospective owner after the league rejected a bid for the team from Balsillie, the co-founder of Canadian-based Research In Motion Ltd.
Del Biaggio lost control of his share when he filed for bankruptcy last June. He has been accused of fraud by several lenders and is facing a multitude of lawsuits seeking upward of $170-million (all currency U.S.).
Balsillie's lawyer, Richard Rodier, declined to comment. A Predators spokesman said Freeman also has no comment.
Fritch, the chief executive officer of HealthSpring Inc., a health-care company based in Nashville, said purchasing Del Biaggio's share would increase the value of the franchise, which cost the partners $176-million when it was purchased from Craig Leipold last year.
Fritch also said, “There are some governance issues we could clarify easier.”
One source said the bid for the 27-per-cent stake is for $20-million. In Del Biaggio's bankruptcy filing, the share is said to be worth $23.5-million, and is his biggest single asset. Fritch declined to say how much the partners bid, but admitted it was at a discount to the stated value.
There is ample evidence, however, that Balsillie would not be afraid to make a much higher bid.
Before he was rejected as a potential owner by the NHL because he made no secret about his plans to move the Predators to Hamilton, Balsillie had agreed to pay Leipold $238-million for the team.
Fritch said the bankruptcy trustee may not be able to simply sell to the highest bidder. He said there are two complications: Balsillie's bid would have to be approved first by the rest of the Predators' owners, and then by the NHL's board of governors.
“I believe our group has to approve any sale of those shares, so we have some control over who gets them,” Fritch said, before adding he was not sure if that right would hold up in bankruptcy court.
“I don't care what the amount [of the bid] is, it's got to be approved by the powers that be,” he said. “I think the bankruptcy trustee has to take that into account.”
Del Biaggio once claimed his shares included the right to buy out the other partners if certain financial obligations were not met.
That is crucial to any potential bid by Balsillie, who would need full control to take advantage of clauses in the Predators' arena lease that allow the team to move by the end of the 2009-10 season if attendance targets are not met and the team loses a total of $20-million over three seasons.
While Freeman has said there is no such right, sources say it might have to be decided by the bankruptcy court.
Todd Neilson, the bankruptcy trustee, would not say who has filed a bid for the shares. When asked via e-mail if he was bound to accept the highest bid, Neilson did not respond.
If the partners succeed in buying the Del Biaggio shares, they will own 95.4 per cent of the team. The remainder is in the hands of Warren Woo, who bought 30 per cent of the franchise in partnership with Del Biaggio.
In any event, it looks like it will be a long time before the winning bid is announced. Del Biaggio's court problems are complicated and it looks like a long, bitter fight is ahead.
Del Biaggio's labyrinthine business dealings are detailed in the increasingly fractious and complicated bankruptcy proceeding that continues to grind on in a San Francisco court. (Del Biaggio is also the subject of a U.S. grand jury probe and a separate FBI criminal investigation.) There are more than three dozen creditors – including Washington Mutual, a savings and loan that went bust this week in what it being termed the largest bank collapse in U.S. history.
The various factions of creditors are squabbling with the bankruptcy trustee over whether they should have access to confidential filings and documents.
A lawyer for the trustee, John D. Fiero, said during a court proceeding in mid-August that they shouldn't because he is trying to protect “what the trustee is doing with regard to trying to tee up a sale of the hockey team.”
And the court-appointed trustee is even suing one of the creditors, a California-based family trust fund, alleging it is really a co-debtor of Del Biaggio's and should therefore return the portion he paid back of a $5-million loan.
According to court documents filed on Aug. 15, the fund, known as the Brandenburg Revocable Trust, lent the money to Del Biaggio on July 18, 2007, “so I [Del Biaggio] can make an offer to acquire the assets of the Predators.”
The loan was to expire 18 months later, at which point the fund could ask for money, or convert the loan into a 7.5-per-cent interest in the hockey team.
In a breezy letter to confirm the deal, Del Biaggio added a sweetener: If the trust converted the loan into equity, they would get an additional 10-per-cent cut on profits and bonuses.
But three weeks later, on Aug. 6, 2007, the Brandenburg trust suddenly called the loan, and received $4-million in November.
The catch? The trustee alleges Del Biaggio was already insolvent by then, and that he made the payments “for the benefit of Lee H. Brandenburg” – a trust administrator who referred to Del Biaggio as “dear Boots” and “a great partner and a great friend” in a letter calling the loan.
He also alluded to the Predators purchase as “a terrific deal.”
Brandenburg denied the allegations in a counter-claim filed last week, and continues to be listed as a creditor in the court file.
Another of Del Biaggio's creditors is a group of companies in which he once held major financial stakes – in a quirk of U.S. law, they are also listed as debtors, given his stocks.
And in a hearing before Northern California District Bankruptcy Court Judge Thomas E. Carlson, the lawyer for the group likened Del Biaggio's methods to “a Ponzi scheme” and speculated the flamboyant former venture capitalist could well confess to his misdeeds rather than drag out a criminal prosecution.
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