Arena bondholders will learn the size of their haircut

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CHICAGO — Holders of $20 million of unrated bonds issued to build a state-of-the-art ice rink complex in the Chicago suburbs will soon know how much of a haircut they will get.

The venue built for the Leafs Hockey Club youth hockey organization is being sold for $10 million.

Bond trustee UMB NA began marketing the facility for sale late last year and notified bondholders last month of a stalking horse bidder and planned auction with a deadline of March 5 for competitive bids.

Leafs Ice Centre in West Dundee, 40 miles northwest of Chicago, has three full-size ice rinks, additional training facilities, a pro shop and a restaurant.

“No additional bidders have submitted competing offers to purchase the facility,” UMB reported in a notice March 6, ”and the trustee intends to close the sale of the facility to the stalking horse bidder for a purchase price of $10 million."

A previous notice had set a closing date of March 21 for the cash sale and the trustee said it planned to notify bondholders of distribution information within one week of closing.

Real estate taxes, rents, revenues, and other items of income and expense will be prorated as is customary in real estate closings and with other factors are not yet final so “the trustee cannot estimate the amount which will be distributed to repay principal and interest owed on the bonds,” a February notice said.

The Illinois Finance Authority issued $18.9 million of tax-exempt revenue bonds and $1.1 million of taxable bonds on behalf of borrower LHC LLC in 2007 to finance construction of the facility.

With unpaid interest accruing since the last payment on the bonds was distributed in September 2012 and repayment of a $5 million loan holding priority over the bonds, holders “should not anticipate that the principal and interest outstanding will be paid in full,” one notice says.

No interest or principal has been paid on the bonds since the trustee took title through a special purpose entity. The trustee has used revenue to pay down the senior loan provided by Externa Funding LLC. The loan was taken out in the form of trustee certificates to cover trustee costs.

Distributions from the sale will be final as there are no other sources of recovery to pay the bonds, the trustee said in a notice. The probate court for Hennepin County, Minnesota, had cleared the way for the March auction at a hearing in February.

Several potential bidders had indicated their interest in the facility through a UMB-hired broker but they backed off closer to the auction deadline. The stalking horse bidder’s price was more than they were willing to pay based on the facility’s economic performance and the costs of operating the facility so the deadline passed without additional buyers stepping forward and the auction was canceled.

The tax-exempt bonds paid interest rates of between 5.6% and 6% while the taxable tranche paid 9%. The bonds traded last month, when the stalking-horse bidder and court action were announced, at 35 cents on the dollar, according to trading data on the Municipal Securities Rulemaking Board's EMMA disclosure website. % rate. The bonds traded last month when the stalking bidder and court action was announced at 35 cents on the dollar.

The nonprofit Leafs Hockey Club guaranteed repayment of the bonds. The LLC that borrowed the money on behalf of the hockey club defaulted on a bond payment for the first time in 2008, according to a court document posted on EMMA, then filed for Chapter 11 bankruptcy in 2013. The hockey club itself filed for Chapter 11 in 2015.

Negotiations over the terms of a reorganization that included repayment of the bonds fell short and the trustee demanded that it take ownership of the facility. The court approved the transfer of title to a special purpose entity created by the trustee in late 2015.

Since then, the facility has been managed by Fairview Facilities Management LLC with the aim of improving the market value of the facility to “allow the trustee to offer the facility for sale to a buyer as a viable going concern, rather than as a failed enterprise,” a February notice said.

Last fall the trustee decided to market the facility for sale through an open auction process and hired Certus Financial Advisors LLC as broker. A letter of intent was struck in December with the stalking horse bidder for $10 million in order to set a floor for the price and in January a purchase and sale agreement with the minimum overbid at auction was set at $10.225 million.

The Leafs deal is not the only Chicagoland amateur sporting facility to burn bond investors.

The International Ice Centre in Romeoville defaulted in 2008 on $18 million of bonds and the bond trustee foreclosed on the facility in 2011. It was purchased debt-free for significantly less. Lake Barrington Field House went into foreclosure after defaulting on $28 million of bonds. Both facilities are now operated by the same private Canadian firm.

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