Three banks claiming to be owed nearly $162 million by King owner Bruce McNall moved late Friday to force the sports mogul into personal bankruptcy proceedings, an action that threatens to scuttle his deal to sell a majority of his hockey team, The Times has learned.
The three banks are the French bank Credit Lyonnais, Dutch-owned European American Bank and IBJ Schroder, a unit of the Industrial Bank of Japan.
The three are seeking to have McNall's assets liquidated under Chapter 7 of the U.S. Bankruptcy Code. Credit Lyonnais is by far the largest creditor, listing $121 million in loans to a movie producing operation, horse racing businesses and a coin firm. European American listed $31.4 million in a loan to McNall, and IBJ listed $9.2 million owed for loans on McNall's horse racing interests. The loans are largely unsecured.
In a statement on behalf of the three creditors, a Credit Lyonnais spokesman said: "We have had protracted negotiations with McNall that have not produced a satisfactory resolution for all creditors. The purpose of this action is to make sure that all assets of McNall's are available to his creditors on an equitable basis."
McNall can legally contest the filing for involuntary bankruptcy, and a bankruptcy judge must accept the petition. But experts said that acceptance is likely to be only a formality. Should the Kings and other McNall operations be placed under bankruptcy proceedings, it would mark the first time such a thing has happened to a major Los Angeles sports franchise. It also would be the first time since the 1970s that an NHL team would be involved in bankruptcy proceedings.
In a statement, an attorney for McNall called the filing "precipitous and uncalled for." The lawyer added that McNall "has been exerting herculean efforts to maximize the value of his assets for his creditors' benefit" and that he "intends to continue his efforts to maximize repayment to his creditors, which has always been his primary objective."
The filing clearly throws into doubt the sale of the Kings, which all of the parties involved were aiming to close as early as Monday. As previously reported, McNall is trying to sell a 72% interest in the team for $60 million to telecommunications executive Jeffrey P. Sudikoff and entertainment executive Joseph M. Cohen as part of a plan to rid McNall of a $92-million loan owed Bank of America. McNall's remaining 28% would be put into a trust, with a percentage of cash generated by the Kings used to pay off some other creditors.
Sources said that Bank of America--which is financing the transaction temporarily--could still use its leverage as a secured creditor to push for the sale regardless of the petition, although Credit Lyonnais and the other banks could seek a court order to stop it.
A Bank of America spokesman declined comment. Prospective buyer Sudikoff also declined to comment on the impact of the filing.
There are several immediate concerns should the sale remain in limbo for any length of time. Sudikoff and Cohen already spent more than $4 million covering the Kings' payroll during the season. The next payroll is due on Monday but appears to be covered through monies due the team from the Forum's Senate Seat program, sources told The Times.
During the last pay period--in which the club was late in issuing paychecks by two days--Cohen said he approached Laker and Forum owner Jerry Buss and received the Senate Seat money to cover payroll. "He didn't have to do it, he was a gentleman about it," Cohen said of Buss. "If he hadn't done it, we would have met payroll ourselves." Front-office staff, coaches and players that are paid all year, rather than seasonally, were affected. One prominent player confirmed that he was paid late but requested anonymity.
Separately, Wayne Gretzky's new contract calls for seven-figure payments at the end of June and the end of August. Gretzky had offered to defer his payments, so that he could be paid out of playoff revenue, thereby lessening the cash-flow problems during the season. But the Kings did not make the playoffs.
Another pressing matter is the refund of money due fans for playoff tickets. Approximately $4 million was collected from fans who wanted playoff tickets. Season ticket-holders traditionally have the option of a refund or rolling the money over toward the purchase of 1994-95 season tickets.
The Kings' season ended April 14. There is no NHL policy regarding the handling of playoff refunds or deadlines for that to be done, and different teams have different policies. For instance, the Mighty Ducks and the Tampa Bay Lightning did not send out invoices for playoff money during the season.
In late January, the Kings sent out a letter requesting a 75% payment on or before Feb. 25. The delay in refunds has been a point of contention for fans, who have been told they will receive their money once the sale of the Kings closes. Now, that close could be a long time coming.