Penguins pay off nearly all creditors

100% recovery of money owed considered rare in bankruptcies

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The Cecil Township police department provided security at Southpointe when the Penguins practiced there. The officers got paid -- until they didn't, to the tune of $3,234.

Ron Bruno's Videohouse in Green Tree duplicated some tapes for the hockey team and got stuck with an outstanding bill in the underwhelming amount of $109.14.

For Miller's Ace Hardware of McMurray, the amount left hanging on the Penguins' running tab was nearly inconsequential, $11.40.

When the Penguins filed for Chapter 11 bankruptcy Oct. 13, 1998, more than 200 individuals and businesses became unsecured creditors. They were owed varying amounts, totaling in the millions.

They had to wonder how much, if any, money they would recover.

They're not wondering anymore.

In an outcome considered unusual and pleasantly surprising, the Penguins have paid back in full the principal amount to all their creditors, including unsecured creditors. The only remaining debt from the bankruptcy is interest to four former players, and that will be satisfied this fall or next.

"We're the little guys -- although mine was significant -- so we didn't expect to see the money," said architect Jack Kosko of John R. Kosko Associates in Elizabeth. He recovered $83,000 for design work at Mellon Arena.

Because his claim was high, Kosko was appointed as a trustee for the unsecured creditors and eventually headed the committee representing them during the nearly year-long case.

Often, unsecured creditors in a Chapter 11 bankruptcy case recover less than 50 percent of their money, if they get any at all. Sometimes they settle for stock or other trade. A 100 percent monetary recovery is considered rare.

"Pennies on the dollar is what I'm used to," said Joel Walker, a partner with Duane Morris who along with Phil Uher of Metz Lewis represented the unsecured creditors in the Penguins' bankruptcy case.

Some of those involved with the Penguins' bankruptcy proceedings look back at that bumpy ride and feel the deal that was hashed out, with Mario Lemieux and his group of investors taking over ownership of the NHL team from Howard Baldwin and Roger Marino, was crucial to the resurgence the Penguins are enjoying now.

Ticket sales have soared since the Penguins drafted Sidney Crosby first overall and reshaped their roster through free-agent signings on the heels of the NHL's new collective-bargaining agreement, which is designed to foster financial parity among the league's teams.

During the first months of the bankruptcy case, though, the outlook was bleak.

"There were times when I sat in Joel's office and I just wondered when they were going to end up in Portland," Uher said. "It was depressing. There were some dark days."

The first thing the attorneys had to do was convince U.S. Bankruptcy Judge Bernard Markovitz that the franchise was worth enough for it to secure a $20 million loan so the team could afford to continue to operate.

"It was really tenuous," Walker said.

Then came proposals. Mario Lemieux, who was owed millions in deferred salary, had a plan. Fox Sports Net, which televises Penguins games, and SMG, which manages the arena, fostered a plan. They were the three biggest unsecured creditors. The NHL also had a plan, which included an option to move the club.

The unsecured creditors committee backed Lemieux because, Walker and Uher said, his plan seemed to offer the best shot at recovering some money.

Lemieux's plan called for him to forgive $7.5 million of the debt owed to him and transfer another $20 million into equity in the team, leaving him with a claim of $5 million.

That deal was approved by the court June 24, 1999. Fox Sports Net had struck a deal, but to finalize things, there was still the matter of a deal with SMG. A deadline was set to meet the NHL schedule for 1999-2000.

On Sept. 3, with time running out and Markovitz's patience running low, Doug Campbell, the attorney representing Lemieux, and Daniel Shapira, the attorney representing SMG, rushed into the courtroom with a deal.

"It was really down to the wire," said Uher.

Campbell earlier had come up with the Lemieux plan that won the court's approval.

"It was based on something I wrote at my dining room table on a weekend when my family was out of town and while I was eating chicken Kiev," said Campbell, of Campbell & Levine.

He gives Lemieux tremendous credit because of the deal he wanted and his insistence that everyone be paid in full.

"There was a real risk whether it would succeed as planned," Campbell said. "I think it's a tribute to the goodwill he enjoys. He took a very high risk, and it ended up paying off. If Mario hadn't stepped up, I fully believe the franchise would have ceased and the creditors wouldn't have anything."

Lemieux this week declined comment.

Campbell said the fact the Penguins were able to follow through and pay the debts is all the more impressive considering they made the final payment on the principal amount during the lockout season and did so despite the fact that plans for a new arena have not materialized.

The bankruptcy plan included a promise from local officials for a new arena by 2007.

"That promise, I can say, was broken by the government," Campbell said.

Team president Ken Sawyer, hired when the Penguins emerged from bankruptcy in September 1999, said not making the payments was never an option, even as the team was declining on the ice as the payroll had to be pared and talk of a new arena evaporated.

"We've been making payments steadily whether there was a work stoppage or not or whether we made money or not," Sawyer said. "That's just the way we do business. There's absolutely a sense of pride."

Of the original $114,314,543.70 in liabilities in the bankruptcy filing, $55,241,978.69 was secured debt, such as money owed to banks. Another $1,386,877.18 was priority debt owed to entities such as the IRS. The unsecured debt total was $57,685,687.83. Unsecured creditors get paid last.

Tom Pratt, of Gleason and Associates, was the dispersing agent in the case. He said after Lemieux, Fox Sports Net and SMG struck their own deals, there was $9.2 million due to unsecured creditors -- $1.8 million to 217 individuals or businesses and $7.4 million to former players who had lost deferred compensation.

The businesses included hotels, utilities, manufacturers, doctors, lawyers, rental-car agencies, moving companies, advertisers and many others. The players were Ron Francis, Kevin Stevens, Ken Wregget, Luc Robitaille, Rick Tocchet, Craig Muni, Joe Mullen, Dan Quinn, Greg Hawgood and Mike Ramsey.

Payments to unsecured creditors were made yearly, with the Penguins paying at least $850,000.

"It came in little spurts," Cecil Police Chief John Pushak said. "We figured we would get a little bit, but it was nice to get it all."

Ron Fees, owner of Photo Plaque Productions in Bethel Park, recovered his $2,675 for work at a Penguins golf outing for team sponsors.

"I wasn't sure if I'd ever get any money out of it," Fees said, "but it still would never have changed my opinion of Mario. He's a great guy."

Uher said some of the unsecured creditors sold their debt to speculators, getting perhaps 10 percent.

Others fell through the cracks because of paperwork problems. There is about $80,000 set aside for those claims if the debtors come forward and file.

Branded Solutions, formerly Imagraphics, on the North Side, apparently is in the latter category.

President Dan Weisberg said his company produced many of the Penguins' banners hanging in the arena and delivered one the day before the team filed for bankruptcy. The original filing indicates his company is owed $2,553.02.

Weisberg said he didn't receive any money and had assumed he wouldn't recover any. He planned to make some phone calls and look into that paperwork.


Shelly Anderson can be reached at shanderson@post-gazette.com or 412-263-1721.


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