Tuesday, December 02, 2008

Financial dominoes may tumble onto the Habs

George Gillett, the current custodian of Les Habitants of Montreal, is like many other high profile business people these days, watching the world's economic order and finding the times are getting tougher.

Gillet, according to the Globe and Mail has recently taken out a 75 million dollar loan in the US, using his share of the Liverpool football club as his collateral, indicative they say as to the impact of the current liquidity crisis in the business world and a situation which may have an effect on the Canadiens as the year progresses into 2009.

For the moment the anticipation is that the Canadiens are perhaps one of his strongest assets and should be able to weather any direct financial storms, but the questions are whether Gillet himself can weather those storms.

Many of his non sporting interests invlove industries that are having tougher times, the auto industry and the ski resort business are his two main business domains these days, both sectors which are showing the strains of a struggling economy.

His other passion, NASCAR racing is also facing some troubled times, especially in the world of sponsorships which of course as would be expected are auto industry related and thus suffering from the current troubles that sector is facing.

So while the Canadiens prepare to launch their year long festival of celebrations on their 100th Anniversary, the world economic situation may in the end prove to be the party pooper.

Most suggest that the Habs are on fairly solid ground, but once a stone starts rolling down a hill, there's not a lot to stop it.

If Mr. Gillet's financials continue to offer up such drama, one wonders if he may soon bring to life some of those rumours of late that he is seeking partners for, or an exit from his stake of the Canadiens.

Habs could feel ripple effects of owner's loan
Gillett borrows $75-million against another sports asset, which might lead to pressure on storied NHL team
From Wednesday's Globe and Mail
December 3, 2008 at 12:34 AM EST

MONTREAL and TORONTO — Montreal Canadiens owner and Colorado-based debt-financing king George Gillett is engaged in another financial high-wire act that could have an impact on Canada's most storied hockey franchise.

According to a lien filed in Delaware, Gillett has taken out a high-interest, $75-million (all currency U.S.) personal loan from a U.S.-based private investment fund, putting up his heavily-leveraged share of British soccer giant Liverpool Football Club as collateral.

Though the loan doesn't directly involve Gillett's separate ownership of the Canadiens, it's clear that the global credit crunch is having an impact on his other businesses, and could well splash onto the NHL team, which continues to carry an estimated $240-million in arena debt.

If Gillett's other interests begin to collapse, it will heap added financial pressure on the Canadiens and concert revenues from the Bell Centre, and only fuel speculation over his continued ownership.

As someone who also counts dozens of car dealerships and several up-market ski resorts to his name, Gillett may be in the wrong businesses at the wrong time.

That Gillett would seek the loan from a relatively obscure lender rather than a well-established bank illustrates the difficulty many monied, but leveraged investors are having raising capital.
It also shows he's keen enough to have the money that he's willing to incur steep interest costs, which could rise to as high as 19 per cent.

The five-year loan is from a Virginia-based company called Mill Financial, and was taken out on Jan. 25, 2008, according to the documents.

As security for the loan, Gillett's company, Delaware-incorporated Gillett Football LLC, pledged all of its "right, title and interest in Football Investments LLC," the documents show.
Gillett owns his 50-per-cent stake in Liverpool through Football Investments.

A spokesman for Gillett declined to comment on either the loan or his overall financial picture.
Though speculation was rampant in sports business circles earlier this year that Gillett was interested in taking on a partner, that talk has been strenuously denied, as have suggestions he is interested in selling the team outright (most recently floated in a newspaper interview quoting technology billionaire Jim Balsillie). "I don't know who would want to invent such a story," Gillett said of the rumours last month.

But it's clear Gillett is among the many NHL owners facing stormy financial seas because of the economic downturn.

Hockey industry sources say at least three other teams — the Florida Panthers, Tampa Bay Lightning and the Phoenix Coyotes — have recently taken out high-interest loans with distress lenders or private equity funds because of tightening credit in the United States.

But unlike most of his NHL peers, Gillett is an old hand when it comes to complicated, debt-laden financial deals.

Whether it was buying into his first sports team — the Miami Dolphins, at 28 — or using the money from his sale of the Harlem Globetrotters to buy a meatpacking plant, Gillett has rarely been afraid to spend money to make money.

In 1991, Gillett's businesses — then focused largely on ski resorts and television stations — went bankrupt after defaulting on $983-million in junk bonds.

The next year he filed for personal bankruptcy, giving his $5-million classic car collection to a creditor to settle a debt and selling his 250,000-acre ranch in Oregon. (He also had to buy his clothes back from the bankruptcy trustee.) Since then, Gillett has rebuilt his fortune, and bought into two of the world's most legendary sports teams.

Gillett and his partner Tom Hicks, who also owns the Dallas Stars and baseball's Texas Rangers, are in hock to the tune of more than $600-million over their purchase of Liverpool, and are facing mounting pressure from supporters to sell.

For the time being, the Canadiens and the Bell Centre, which Gillett bought in 2001 for roughly $180-million, are probably the strongest businesses in the Gillett empire.

But with the Canadiens spending $11.5-million annually on revenue sharing and the Canadian dollar sliding fast, the NHL team is bracing for difficult times.

Gillett is running into challenges at some of his other holdings as well.

Last year he sold his interest in Swift & Co., a Colorado-based meat company that had only one profitable quarter in four years.

The sale came a few months after U.S. Immigration and Customs Enforcement agents raided Swift plants in six states and arrested more than 1,200 workers for having fake identification. Gillett bought the company in 2002 along with a private equity firm.

Gillett is also a car lover and last year he became the majority owner of a NASCAR team.
"Racing is in my blood," Gillett said at the time, noting his family's long history in the auto business.

But the team — Gillett Evernham Motorsports — is now in a state of flux.
A couple of weeks ago, Gillett's partner, former NASCAR champion Ray Evernham, said he wants to sell his 20-per-cent interest.

A spokeswoman for the team said yesterday that Evernham has had discussions with potential buyers but has yet to cut a deal.

Times are tough for NASCAR, in general, as the U.S. auto industry runs out of gas. Sponsorships are drying up and several teams have already announced plans to scale back (it costs roughly $25-million annually to run a competitive car). The Gillett Evernham team drives Chrysler cars but is trying to cut a deal with Toyota.

As if all that wasn't enough, one of Gillett's key holdings is a string of about 40 car dealerships across the United States. Yesterday, the major North American auto companies, as well as Toyota and Honda, announced that sales had dropped by more than 30 per cent in November.

The Sports Business Journal reported this week that Mill Financial's parent company, Springfield Financial, is selling the $75-million note — which is subject to an interest rate as high as 19 per cent — and that it's expected that will be done by mid-month.

Citing anonymous sources, the publication said Gillett and a group of investors are negotiating to acquire the debt, as is another entity seeking control of Gillett's slice of Liverpool, which would presumably be available if he were to default on the loan.

Even if he doesn't succeed in acquiring the note, Gillett has the possibility of paying it off — assuming he can come up with the liquid cash — by Jan. 25, the magazine said.
The holiday period and early 2009 promises to be a busy time for Gillett, who with Hicks is also scrambling to renegotiate a $600-million loan to purchase the Reds.

That loan is held by Royal Bank of Scotland, and comes to maturity in January, although it's believed the renegotiation of terms can be put off until the summer.

Unfortunately for Gillett and Hicks, the global credit meltdown has resulted in a partial nationalization of RBS, and it's not clear the two men would qualify for new loan terms from the bank under stringent new creditor regulations.

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