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Boots Del Biaggio to Craig Leipold: "I lied to you."

There was an outstanding piece at Sports Business Journal yesterday (thanks to Preds on the Glass for the pointer) which details the rise and fall of Boots Del Biaggio, who is scheduled for sentencing in September for his conviction on fraud charges related to his purchase of a minority position in the Nashville Predators. Contained in the story are a few interesting notes for Preds fans as the team moves forward from this scandal...

Nashville fans should thank Craig Leipold

While the salary purge that Leipold ordered led to the departure of some great talent (perhaps most prominently, Tomas Vokoun), Leipold ended up taking some extraordinary measures to make the deal go through and keep majority control of the team in local hands.

Leipold was optimistic that the deal would close by October but got a call that fall from Boots that put the closing in jeopardy. Boots said he had cash-flow and personal issues he was dealing with that might prevent him from closing the deal. He added, according to Leipold, "That’s unless you can loan me some money until January or February. I can just pay you back in February."

"I think that could work," Leipold said.

Boots got in touch with Leipold’s attorney and had his brokerage firm provide the attorney with financial statements detailing his assets. The attorney reviewed them and determined that Boots held three times collateral for the loan in stock. On Oct. 23, 2007, Leipold signed the paperwork and extended Boots a $10 million loan.

Of course, as we know now, the financial statements were fraudulent, and Leipold is likely to see little, if any return on that $10 million loan.

Whither the CIT loan?

According to the SBJ article, the Predators took out a $70 million loan from CIT Group, with Del Biaggio guaranteeing $40 million of that. In light of Del Biaggio's bankruptcy, what happens to that obligation? According to the documents that Boots used to drum up interest among investors, he refers to his guarantee on the CIT loan by saying it "is part of the term loan and secured by the assets of the Predators, but will be guaranteed by Boots (non-recourse to any other Forecheck investor)." Forecheck refers to Forecheck Holdings, Del Biaggio's corporate vehicle for NHL ownership.

Mark, you really need to get from vacation and chime in on this. Considering that Forecheck Holdings is currently in the hands of a bankruptcy trustee, I would guess that they're no longer making payments to CIT Group, which is of course teetering on the brink of bankruptcy itself. If the "non-recourse" bit is true, does that mean that CIT is SOL regarding that $40 million in debt? I don't have the documents in front of me, but I recall from reading a draft version of the Operating Agreement among the Preds ownership (which was leaked by the Tennessean several months ago) that the team paid Del Biaggio a fee that covered his interest payment to CIT, but I wonder how those obligations get sorted out during the course of bankruptcy.

On a yearly basis, the interest on this debt is in the neighborhood of $2 million. Again, according to Del Biaggio's documents, the rate is LIBOR + 2.75%. If the team were to wriggle out from under that burden, it would directly bolster their bottom line and perhaps allow for a slight increase in the hockey operations budget...

All in all, Tripp Mickle from the SBJ deserves our thanks for the most comprehensive timeline yet as to how this whole scenario came to pass. The stunning conclusion, however, has yet to be written.