Trustee Worried About Coyotes Bidding Process

((HT: Toronto Star/Paul Hunter))

A United States trustee has expressed concern over the bidding process for the Phoenix Coyotes and wants to know if the NHL "encouraged" potential bidders to drop their pursuit of the team in favour of Jerry Reinsdorf's bid.

A statement of position from District of Arizona trustee Ilene Lashinsky, entered into bankruptcy court yesterday, says it is "troubling (that) ... parties who had previously expressed interest (in purchasing the club) are no longer moving forward."

The U.S. Trustee Program is a component of the U.S. Department of Justice that protects the integrity of the bankruptcy system. Essentially the trustees are watchdogs in the system to ensure proceedings are carried out properly.

And Lashinsky has questions she would like the NHL to answer in court in order to assure bidders and creditors "that it is not engaged in an effort to channel the sale process in a way that ends up with one bidder at its auction" on Aug. 5. The bidder would be Reinsdorf, who is offering up to $148 million (all figures U.S.) for the team.

At the heart of trustee Lashinsky's concerns are previous statements from the league that four potential buyers had expressed interest in the Coyotes. That was followed by a statement from deputy commissioner Bill Daly in a July 1 newspaper article that there has been a "coalescing of interest behind Reinsdorf's bid."

"This begs the question... `Why have these parties left the table?'" she wrote. "Without full disclosure the integrity of the bankruptcy system is lost."

Lashinsky goes on to write that the "current sale process cannot be validated without the details of this `coalescing' of potential bidders being properly vetted. Who were these prospective bidders?...Why did these local bidders step away from the sale process? Were they encouraged by the NHL to do so? If so, how?

"Eventually these questions are going to have to be asked in order to avoid objections to the sale of the team," Lashinsky wrote as she urged U.S. Bankruptcy Judge Redfield T. Baum to allow discovery on these issues.

On Thursday a U.S. investment firm based in Connecticut was revealed in court documents as a potential bidder on the team but so far the only participant in the Aug. 5 auction is Reinsdorf, who owns the NBA's Chicago Bulls and baseball's Chicago White Sox. If that auction does not yield a sufficient return for creditors, another will be held on Sept.10 for bidders who would be allowed to move the club. Canadian businessman Jim Balsillie, who would like to move the team to Hamilton, is expected to participate in the September auction if it comes to that.

A hearing will be held in Arizona court on Monday to help Baum decide whether the NHL must provide documents, including its communication with potential buyers. Current owner Jerry Moyes made the request. He claims to be owed $104 million by the Coyotes. That makes him the largest unsecured creditor in the case.