Posted on 01/11/2003 1:34:14 PM PST by Willie Green
For education and discussion only. Not for commercial use.
The future has already begun.
-- Rod Bryden
They don't sell tickets to the past.
-- Alexander Solzhenitsyn
Here in the business gulag we ponder why a story of enterprise goes sour.
So the workout commences on the Ottawa Senators, and Rod Bryden has little time to convince creditors that he's the entrepreneur who should get the nod to carry the team forward, albeit without the debt load that was arranged under his leadership.
Here in the gulag, we turn a jaundiced eye to such tricks, though we do note that the more current fashion is for any enterprise in bankruptcy protection to distance itself from the chairman whose job it was to make the business function profitably on the basis of realistic figures and not inflated ones.
In exchange for these observations the editor tosses us a piece of stale bread.
Bryden has the lion's share of the shares in the Senators — 24,500 preferred and 109 common for a virtual lock on the team. (Long-time business associate Robert McInnis from Bryden's SHL Systemhouse days has 7,000 preferreds and the Senators founders' club has 12 common shares in a limited partnership.)
In a news conference Thursday Bryden, offered the unstartling revelation that absent the debt "the next decade for this franchise will be hugely successful."
Drilling down into the $142.3 million in monies owed is somewhat mind bending.
The Senators' largest secured creditor is Covanta Energy Corp., which is owed, according to the team's bankruptcy filing, $50.7 million, a sum that far outpaces the sum owed to the Number2 creditor, the CIBC, at $37.5 million.
How did the two grow so close?
You want to know about Covanta because within that corporation's narrative lies the tale of delusional entrepreneurs, and delusional entrepreneurs are usually found at the heart of nutty stories such as this one.
We could go fast or slow on this, but I'm sensing your preference is for the swifter version.
So here goes. Covanta is a Fairfield, N.J., company in the businesses of biogas, hydroelectric, natural gas, liquid fuel and coal. The company has 62 power generation facilities, 46 in the U.S. and 16 spread around the globe as far afield as Tamil Nadu.
Covanta likes being in these businesses, except for Tamil Nadu, which it may be trying to unload.
The businesses it doesn't like being in, and which it has been trying to exit for close to three years, is a weird agglomeration of aviation service industries and entertainment assets.
I can't tell you why the company went into the aviation service business. Actually, I don't care. I can tell you that it has exited such endeavours as Casino Iguazu in Argentina and a Spanish environmental consulting business, so clearly someone there understood the benefit of portfolio streamlining.
It's the entertainment end we want to pay attention to, for it is here that we find Covanta's delusional faith in big, shiny hockey palaces to be paid for by the anticipated huge boost in ticket sales.
Actually, it was Covanta's predecessor company, Ogden Corp., that had the faith. It was Ogden that cut a deal with the Walt Disney Co. to make the Arrowhead Pond, home to the Anaheim Mighty Ducks, a reality. It was Ogden's entertainment services division that partnered with Arthur Griffiths on a 20-year food and concession contract at General Motors Place, predicated on huge attendance. It was Ogden who advised the brain trust that tried to rescue the Winnipeg Jets and build a new arena in that city, replete with corporate boxes.
In 1994, Ogden announced a big deal in Ottawa. The company was granted a 30-year management contract with Bryden's Palladium Corp. to manage the unnamed centre.
Ogden was in the concessions business, so I guess it understood the economics of hotdogs. The company had the food and beverage service business stretching from Wrigley Field to Maracano Stadium in Rio. In fact, it had the concession to sell the hotdogs at Lansdowne Park, which was selling out seats to Senators fans.
But a new arena in Kanata, as we know, was a long-time coming because it was darned hard to line up lenders wary of the economics of the NHL.
Had negotiations been left to conventional lenders, there's a good chance that the Corel Centre would never have been built. But along came Ogden with a $19 million (U.S.) guarantee on the hockey team's subordinated debt, an $86.2 million guarantee on the senior term debt of the arena, and a $45.3 million guarantee on the arena's senior subordinated debt. Included in further smaller change commitments was the company's pledge to make working capital advances to cover the shortfall between cash flow and operating expenses.
"We're willing to take the risk," an Ogden vice-president said in defence of what the company was calling a "credit enhancement." The money-hunting Palladium, the executive mused, merely needed to source "another pocket." In opening its own, Odgen predicted ticket sales of 18,000. According to the company's securities filings, by the fall of '99, Covanta had incurred "very substantial obligations to financial institutions" for letters of credit related to the Arrowhead Pond and the Corel Centre.
In an attempt to keep the company afloat, management moved to unwind such noncore assets. But get this. The energy crisis in California caused utilities in that state to fail to pay for power purchased from the company to the tune of $74 million. Then there was Enron. Not to mention Sept. 11.
At the end of 2001, Covanta recorded an impairment of $74.4 million on its interest in the dismally attended Arrowhead Pond. The company defaulted on its credit facilities, debt rating agencies reduced the company to below investment grade, and the holders of the majority of the aforementioned Ottawa debt required Covanta to purchase said debt in March, which pushed Covanta itself into bankruptcy protection in April.
Where it now remains.
The Senators now join it in deep space, with debt collection stayed pending reorganization.
They have no one to blame but one another.
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