With preliminary bids due Friday for buyers looking to keep the National Hockey League's Phoenix Coyotes in Arizona, one of the unstated consequences of Judge Redfield Baum Sr.'s June 16 decision is about to skate on the ice.
When Baum ruled last week that he would not set a late June auction for the Coyotes and in the process snuffed out Research In Motion Ltd.'s (NASDAQ:RIMM) co-CEO Jim Balsillie's best chance to acquire the struggling hockey franchise, he seemed to carefully omit certain things from his decision. Most importantly, while he set the stage for two auctions -- the first to take place in early August consisting only of offers to keep the team in Glendale, Ariz., the second set for September to consider bids to relocate the franchise -- he did not indicate how large of an offer it would take for him to deem it in the best interest of creditors.
Balsillie offered $212.5 million for the Coyotes, a bid far in excess of the team's estimated worth by Forbes ($142 million, the lowest in the NHL) and more than fair to its unsecured creditors, notably current owner Jerry Moyes, whose roughly $100 million in debt would be largely paid off. To be sure, if Balsillie ever gets the chance to win the Coyotes, an epic legal battle will take place between the Coyotes, the NHL and Glendale. But those matters aside, the value of the Balsillie offer would please the bankruptcy court, whose main concern is maximizing the value of the estate and giving creditors the best possible returns.
But what of rival bids, which won't be using Balsillie's offer as a floor? One report from Toronto's Globe and Mail indicated that Chicago Bulls and Chicago White Sox owner Jerry Reinsdorf's bid, expected to be submitted to the NHL on Friday, is worth $130 million. If the report is true, and Reinsdorf prevailed without competition, creditors would lose $82.5 million in potential recoveries compared to the Balsillie offer. Will that be good enough for Baum? Or would he be willing to rebuff the deal and put the Coyotes back on the block, knowing full well the legal war that will take place? Eric Schaffer of Reed Smith LLP, who is not involved in the proceedings but is familiar with the issues, having worked on the Pittsburgh Penguins Chapter 11 case in 1998, notes that all parties involved are going to have to abide by a "secret minimum."
"If you really want the team and you really want it in Phoenix, you've got a great opportunity, but you have to satisfy the secret minimum," he says. "I think people have a sense of what would work, but it's a very significant gray area."
So it will be fascinating to see if and where Baum draws the line. The NHL may well feel it's justified to continue campaigning to retain its powers to designate franchise ownership, but bankruptcy is about creditor interests, not league constitutions. The puck still belongs to Baum. - Ben Fidler
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