CHICAGO — A lengthy battle between a bond trustee and a bankrupt Chicago-area hockey arena operator over $20 million of unrated bonds is nearing an end.
A hearing is set for Dec. 8 in Chicago in the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division, on a proposed settlement and compromise of claims in which the a special entity established by the trustee UMB Bank would take ownership of Leafs Hockey Club's three-rink skating arena in West Dundee and its assets.
In exchange, Leafs Hockey Club would receive a five-year lease, with the ability to extend the lease by another five years under the same terms, and the rink and club would be free of bondholder claims and a legal judgment.
The bonds were issued in 2007 by the Illinois Finance Authority.
"Approval is in the best interest of the estates of both the rink and the club as it will avoid costly and time consuming litigation that would otherwise result with respect to any efforts by the parties to confirm a plan," says a settlement notice filed by Leafs' attorneys. U.S. Bankruptcy Judge Donald R. Cassling is presiding over the case.
If approved, the settlement would resolve a dispute that dates back to March 2010 when the rink first defaulted on principal and interest payments owed to the prior trustee as it struggled financially to make ends meet.
Restructuring efforts failed and the then-trustee moved in 2012 to foreclose on the property and sought a receiver in an attempt to recoup bondholders' claims.
That pushed the limited liability entity to file Chapter 11 bankruptcy in February 2013, bringing to a halt the foreclosure proceedings. Consensual restructuring efforts failed and the trustee then filed a complaint against the club itself to enforce its guaranty. Last May the federal district court granted a $25 million judgment against the Leafs club in the trustee's favor. UMB, the current trustee, enjoys senior priority lien status.
Subsequent restructuring negotiations to settle the dispute were held but they failed and in July the club followed the rink's borrowing entity into bankruptcy.
The club lost its tax-exempt status earlier this year as it was unable to submit proper tax documents, according to a trustee bondholder notice. The club is attempting to regain that status.
In a July notice that first reported a tentative settlement agreement was struck, UMB outlined the potential benefits for bondholders.
"These benefits include control of the hockey arena, with the possibility that it can be sold; providing a predictable income stream from payments to be made by the hockey club and other users," the notice said. The settlement also provides "liquidity to the holders of the bonds, as the bonds will be tradable again." Under a bankruptcy reorganization plan, bondholders would have a faced a more costly debt exchange.
A majority of investors based on principal holdings have been working with the trustee on the settlement. They are restricted against trading.
The Illinois Finance Authority issued $18.9 million of unrated, 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 16 cents to 24 cents on the dollar, up from nine cents on the dollar last year.
Oppenheimer was underwriter and Barnes & Thornburg was bond counsel. The proceeds financed construction of an arena with three ice sheets for hockey.