SBJ/November 16 - 22, 1998/No Topic Name
French bank nearing front of creditor line
Published November 16, 1998
Move over, Mario Lemieux, here comes Societe Generale. The French bank is close to lending the Pittsburgh Penguins $20 million in a financing deal that would given the financial company lead creditor status.
Creditors like former star Lemieux have been scrambling to secure their place in the bankruptcy proceedings of the embattled team, which has debts exceeding $100 million.
But if Societe Generale, which has been advising the Penguins since the team declared Chapter 11 last month, loaned the capital to the team, it would become the club's lead creditor. The one-year, $20 million loan would help cover operating expenses for the current season.
The Societe Generale loan would be made under a provision known as debtor in possession financing, or DIP, and must be approved by the U.S. Bankruptcy Court. DIPs automatically grant the lender lead creditor status. As a result, Societe Generale would jump ahead of secured creditors such as BankAmerica Corp., arena operator SMG and broadcaster Fox Sports Pittsburgh.
"They are doing surprisingly well," said Gordon St. Denis, a Societe Generale banker, commenting on the Penguins' financial results. "They can be profitable and don't have to be sold to repay the loan. They certainly can continue to operate under current management."
The key to profitability, however, will be reworking the arena lease with SMG and the TV contract with Fox, said St. Denis, who works for the French bank's investment bank in New York City. A new marketing campaign aimed at college students has proved successful, St. Denis added.
Societe Generale and the Penguins are still several weeks away from reaching a financing agreement, St. Denis said. And any deal would have to be approved by U.S. Bankruptcy Judge Bernard Markovitz.
Creditors can protest the transaction before the judge if they believe it will impair the ability of the Penguins to repay all of the team's debts. Lemieux, for example, is owed $34 million in deferred compensation.
Most bankers not associated with the deal were surprised to hear that the Penguins could get a loan. The old BankAmerica arranged a $46 million financing for the Penguins 12 months ago, and by the summer the creditors declared the Penguins in default.
As a result, most bankers had shied away from the team.
"Good luck is all I can say on that one," said one banker.