CHICAGO — The trustee for $20 million of unrated bonds issued for the bankrupt Leafs Hockey Club in suburban Chicago hopes to reach a debt restructuring deal with the club by early October but the two sides remain at loggerheads over the club's fiscal prospects.

The club, which runs a three-rink skating arena in West Dundee, filed for Chapter 11 bankruptcy in February 2013.

In lieu of filing a competing reorganization plan with the bankruptcy court, trustee UMB Bank said in a bondholder notice earlier this month it "has continued to negotiate with the borrower" to develop a consensual plan.

"These negotiations continue, and the trustee hopes a plan can be agreed to within the next 60 days," it said.

The period during which the bankrupt club exclusively can submit a reorganization plan ends Aug. 27.

The discussions center around the amount the club should be expected to repay from its operations over the next 30 years to cover debt service on new bonds that would be exchanged with the existing obligations.

"The borrower consistently has argued that the trustee's projections of net operating revenue are overstated, while the trustee has consistently pressed to make the payments as large as fiscally prudent," the 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 LHC LLC for the project in 2007.

The tax-exempt bonds paid interest rates of between 5.6% and 6% while the taxable tranche paid a 9 % rate. The bonds have traded recently at nine cents on the dollar.

Oppenheimer served as underwriter and Barnes & Thornburg was bond counsel.

The proceeds financed construction of an arena with three ice sheets for hockey.

The Leafs Hockey Club guaranteed repayment of the bonds, but payment defaults began in March 2010 as the new arena struggled to meet its fiscal obligations.

The dispute between the club and trustee centers on competing views of the future usage of the facility and the degree to which the club's past financial performance may have been negatively impacted by "mismanagement and unreasonably deferred capital expenditures," the trustee reported.

Bondholders face a haircut in any future plan.

Any plan, whether proposed by the borrower or by the trustee, would require the issuance of exchange bonds in a lower principal amount than the current balance of the bonds and forgiveness of past due interest, the notice said.

"This result is required by the provisions of the bankruptcy code, which prevent accrual of interest during a bankruptcy case, and reduce the amount of the debt, when the value of the facility is less than the amount of the debt, as is the case here," the trustee notice said. "Understandably, the trustee is pressing for the highest recovery obtainable."

In addition to its update on the bankruptcy, UMB issued a warning over the lack of funds in the trust estate to pay attorneys and a financial advisor.

The trustee intends to issue trustee certificates, with the approval of investors holding a majority of principal, and using the proceeds to allow the trustee continued access to counsel and a financial advisor.

The trust estate owes its counsel and financial advisor approximately $3 million.

Under the terms of the bond indenture, repayment of those debts is senior in right to payment on the bonds.

"The obligation of the Trustee to negotiate the best recovery for holders of the bonds and continue litigation against the Hockey Club is and will be jeopardized by its inability to pay counsel or a financial advisor," the notice said.

UMB has negotiated the sale of $5 million trustee certificates with the initial draw going to cover payments owed to its counsel and advisor. The $2 million balance won't be drawn until needed.

The expected purchaser of the certificates is Kayne Saybrook Municipal Opportunity Fund although other potential buyers are also seeking to negotiate terms of purchase. The trustee said it would pursue the least costly alternative.

The certificates, as negotiated with Kayne Saybrook, would pay an annual interest rate of 15% based on the amount drawn and hand significant power over to the holder which would "have the sole right to direct the trustee on remedies, whether to propose a plan and how to vote on any plan."

Those rights will be deferred as the trustee attempts to reach an agreement with the club that can win court approval.

As the arena struggled, the previous trustee, Wells Fargo, decided to pursue foreclosure proceedings and last year sought at the state court level to appoint a receiver.

When Wells Fargo refused to delay a scheduled court hearing, Leafs filed for federal Chapter 11 bankruptcy.

Leafs' scored a victory in bankruptcy court when the court ruled against Wells Fargo's attempt to appoint a bankruptcy trustee.

"The court finds a strong preference to retain current management over the appointment of a trustee, and the court finds that Wells Fargo has not introduced enough evidence to overcome that preference," the court opinion said.

UMB was appointed to replace Wells Fargo as trustee in January 2014.

The hockey club's prior management has been accused of mismanagement, while the court found that the new team was improving fiscal results and remedying previously hazardous conditions at the club.

The Leafs saga is similar to other amateur sporting facilities in the Chicago area and elsewhere.

The International Ice Centre in the Chicago suburb of 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. Oppenheimer also served on underwriter on both of those suburban Chicago issues.

In Minnesota, the city of Vadnais Heights issued $27 million of bonds through its economic development authority for a sports center and backed them with a lease.

The city subsidized payments for a while but pulled the assistance last year and the bonds went into default. The facility was recently purchased by Ramsey County for $10.6 million.

Officials with the club did not respond to requests for comment.

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