DALLAS - A bankruptcy filing by a National Hockey League team with plans to return to Canada leaves Glendale, Ariz., with a six-year-old arena and $180 million of debt amid a worsening recession.
Calling the Tuesday Chapter 11 filing by the owners of the Phoenix Coyotes "an unfortunate turn of events," city officials issued a statement that they are "working diligently to ensure that the public's interest is fully protected throughout this process."
Also at risk is the commercial development known as Westgate, which was designed to feed off the events held at the arena named "Jobing.com Arena" after a job listings Web site that purchased naming rights.
To build the arena in 2003, Glendale issued revenue bonds backed by sales taxes as well as general obligation bonds for roads, sidewalks and other infrastructure around the Westgate area. The city issued $155 million of Series 2003A and B sales tax bonds in July 2003 for the bulk of the financing under the name Glendale Municipal Property Corp.
The owner of the team at the time, Arizona developer Steve Elman, turned to Glendale after the Phoenix suburb of Scottsdale rejected his proposal for an arena and commercial development. Elman was later replaced by current team owner Jerry Moyes amid doubts about Elman's ability to finance his existing projects.
Glendale, which later landed the nearby National Football League Arizona Cardinals stadium, financed by the Arizona Sports and Tourism Authority, began promoting itself as a major professional sports mecca, with plans to add a Cactus League baseball stadium.
Ratings analysts did not respond yesterday to requests for comment on how the bankruptcy might affect the arena's bonds. Standard & Poor's rates the bonds AA-plus, while Moody's Investors Service rates them Aa3. Fitch Ratings does not provide a rating on the bonds insured by Financial Security Assurance Inc.
The bankruptcy filing included a proposed sale of the hockey team for $212.5 million to PSE Sports & Entertainment LP, a Delaware limited partnership, which would move the franchise to southern Ontario, Canada.
"Extensive efforts have been undertaken to sell the team, or attract additional investors, who would keep the team in Glendale," Moyes said in a prepared statement.
"Creating a process under the supervision of a judge assures that anyone wishing to purchase the team will have the opportunity to bid. Likewise, the city of Glendale, which has been very cooperative with efforts to keep the team in Glendale, will be able to provide potential buyers assurances of the city's willingness to offer incentives to keep the team as a tenant in the Jobing.com arena, the lease for which is subject to rejection in bankruptcy," he said.
The city said it hopes to find another buyer who will keep the team in Glendale, but given the current economic climate that looks like a long shot, experts said.
"This Phoenix Coyotes situation has been exacerbated by the financial crisis and recession, but this was going to happen anyway," said Phillip Miller, economics professor at Minnesota State University. "It was a long shot that a place like Phoenix would be a profitable hockey town.
"This is one of the problems with using other people's money to finance risky projects: investors take risks that they otherwise would not," Miller said. "If the project doesn't pan out, it's the taxpayers who are on the hook."
The Coyotes, formerly the Winnipeg Jets, moved to Phoenix in 1996 as NHL owners sought to tap into nontraditional but growing hockey markets in the South and Southwest.
As for Glendale, "they had a vision of becoming a major league city," Miller said. "But it takes more than a sports franchise to make a city major league. It's one of those things that cities grow into."
Moyes said the process of bankruptcy should provide a new team owner by June 30, which would allow the team to play in the 2009-10 season, likely in Canada.
"As managing member of the Coyotes, I have a duty to seek a transaction that will return the most in sale proceeds to the secured and unsecured creditors," Moyes said. "No other proposal to acquire the team provided nearly as much payment to the creditors as that offered by PSE, with the understanding that the procedure is in place for other parties to offer more, particularly if the city of Glendale provides financial incentives to keep the team in Glendale. Overbids must exceed the PSE proposal by $5 million and must be fully funded at closing without a financing contingency."