Friday, October 11, 2019

Oshkosh arena developer asks to hire financing broker to turn promised TIF payments from city into cash

The bankruptcy judge overseeing the case must still give his approval for proposed hiring.
By Miles Maguire
The owner of the Menominee Nation Arena is seeking permission to hire a high-risk financial specialist to turn a string of promised payments from the city into a lump sum of cash that can be used to start satisfying creditors and to fund operations.

In an Oct. 9 filing, Fox Valley Pro Basketball Inc. identified Chicago-based Hillenbrand Partners as the firm it wants to use to “securitize” roughly $5 million in tax increment financing that the city has promised to pay in annual installments each November over the next 17 years.

The promised money carries a floating interest rate, initially set at 5 percent. Hillenbrand’s job would be to find an investor that would pay cash up front to the arena owners in exchange for the rights to the future ongoing payments.

“The financing could be through a loan, assignment of rights or a sale,” lawyers for Fox Valley said in a court filing.

Hillenbrand is headed by Eric Hillenbrand, who is described in court papers as having “a personal friendship” with one of the top officials of Fox Valley, Walter Koskinen, and also a “relationship with the Menominee Nation in matters that are unrelated” to the arena’s bankruptcy case.

The Wall Street Journal has described Hillenbrand as a pioneer in developing the market for high-risk loans tied to commercial real estate.

“Mr. Hillenbrand is the founder and chief executive of Hillenbrand Partners, a Chicago firm with $200 million in capital that specializes in buying the riskiest portions of bonds backed by mortgages on offices, retail stores and other commercial properties,” the Journal said in 2008.

The market for such loans dried up following the 2008 financial crisis but has been growing again over the last five years or so.

Hillenbrand’s stature is such that the Journal wrote an article in 2013 taking note of his return to dealing in high-risk commercial real estate loans. “Mr. Hillenbrand’s comeback is the latest sign of recovery for the real-estate and structured-finance markets,” the paper said.

Before starting his own firm, Hillenbrand worked for Morgan Stanley, J.P. Morgan, Bank One and First Chicago, according to his social media resume.

The proposal to hire Hillenbrand would need the approval of the judge overseeing the arena bankruptcy case. According to court papers, the firm would receive a retainer of $5,000 and could be paid up to $75,000. Hillenbrand himself could charge $300 an hour for his work on the case if the engagement agreement is approved.

Hillenbrand’s firm had previously worked on efforts to obtain financing for the arena, according to Fox Valley’s court filing. Those efforts were stymied by environmental issues at the arena site, which have since been resolved.

Hillenbrand did not respond to a request for comment.

Friday, October 4, 2019

Lawyers for former UWO officials say criminal case is weak, ask for dismissal or 'bill of particulars'

From left, sttorneys Raymond Dall'Osto and Steven Biskupic are representing former Chancellor Richard Wells and former Vice Chancellor Thomas Sonnleitner in a criminal case in Winnebago County Circuit Court.
By Miles Maguire
The criminal case against two former UW Oshkosh officials is so weak, their attorneys say, that the state needs to put up or shut up.

Lawyers for former UWO Chancellor Richard Wells and former Vice Chancellor Thomas Sonnleitner argue that the case should be dismissed or prosecutors should be required to “file a bill of particulars specifically stating what facts, specific conduct, actions and/or statements and other evidence exists” to support the criminal charges.

Wells and Sonnleitner have been accused of five counts of misconduct in public office and face up to $50,000 in fines and almost 18 years in prison. They have been charged with exceeding their legal authority in facilitating financial transactions between the university and its fundraising arm, the UW Oshkosh Foundation.

The foundation prevailed in its legal battle with the University of Wisconsin System after two judges ruled that the UW System had misinterpreted the state constitution and other laws.

The defendants’ lawyers in this case argue that those legal rulings cut the legs out from under the criminal charges.

“Because the factual basis for the felony criminal charges against Wells and Sonnleitner are limited to and based upon an alleged constitutional violation, and no such violation exists as a matter of law, all of the charges against both them should be dismissed as a matter of law,” the lawyers said.

Wells is represented by Raymond Dall’Osto, a prominent Milwaukee-based defense lawyer. Sonnleitner’s lawyer is Steven Biskupic, a former U.S. attorney for the Eastern District of Wisconsin. They filed the latest brief jointly on Oct. 1.

Even if the defendants have violated state law, prosecutors also have to show that Wells and Sonnleitner knew that they were exceeding their legal authority as top university officials when they were working on the foundation’s real estate deals.

Specific facts “showing that the defendants' actually knew that their conduct was unlawful at the time they committed the alleged acts is required,” their lawyers said. “The criminal complaints against both defendants are devoid of such essential facts establishing the requisite knowledge on the part of each defendant.”

The state has until next month to reply.

The case is before Winnebago County Circuit Court Judge John A. Jorgensen, who said he expects to issue an oral ruling Jan. 15.

Thursday, October 3, 2019

Oshkosh arena owner gets some breathing space

By Miles Maguire
The developer of the Menominee Nation Arena has lived to fight another day in its bankruptcy case as it has secured the OK to move ahead with $500,000 in temporary financing.

But two major hurdles remain: finding a way to monetize a promised string of city incentive payments and booking acts that will turn a profit for the facility.

“We are very pleased with the efforts of all parties involved to work toward resolving Fox Valley Pro Basketball’s financial issues,” said Jerome R. Kerkman, a lawyer for the developer and owner of the arena, in a press announcement issued Wednesday evening.

Earlier in the day Kerkman had outlined in a bankruptcy court hearing how his client hopes to move forward with a goal of clearing the decks by the middle of January.

Aside from legal bills, which Kerkman said would be substantial, the arena should be close to breaking even in January and February.

Up until now, he said, the cash-strapped arena did not have enough money to book artists who could draw big crowds and generate profits. “We just didn’t have the cash that artists require to make a deposit,” Kerkman said. “That is going to change,” he said.

Kerkman told the court how Fox Valley had worked to satisfy the concerns of creditors, especially the largest one, Bayland Buildings Inc., which is owed more than $13 million. A key step will be providing payments to Bayland based on certain leases and sponsorship agreements for advertising at the arena over the next few months.

“Both sides have agreed to stand down and try to get to a plan” of financial reorganization, Kerkman said. Wednesday’s agreement is “basically to give us breathing space with an opportunity to get to a plan.”

As the debtor in a Chaper 11 case, Fox Valley has the exclusive right to propose a reorganization plan for 120 days, which would run to mid-December. Kerkman said the parties have agreed to extend this period to the middle of January because of the end-of-year holidays.

One factor that seems to be motivating the creditors is the recognition that the project could go into liquidation, which would be handled under Chapter 7 of the bankruptcy code. Some creditors have had to rethink their positions because “parties are concerned if this case tanks into a 7,” Kerkman said. “If this goes into a 7, the sponsorships may dry up, and there may not be any funds.”

A big question mark is how much money that developer can raise by selling off the future stream of city payments promised under a tax increment financing (TIF) agreement. The goal is to raise $4 million to $5 million.

Those funds would serve as “seed money for payments on the effective date of the plan,” Kerkman said. Expanded bookings would then provide revenue “to fund any kind of payment stream under the plan.”

The city had resisted making the initial installment of TIF funds but decided in late September to release most of the money, close to $400,000, so that the arena can continue to operate.

Fox Valley says it is close to hiring a broker who specializes in securitizing TIF payments, which involves selling off the future payments at a discount in exchange for an immediate lump sum of cash.

The ability of the broker to find a willing investor to pay enough cash is critical to the reorganization plan, which Kerkman said could be in place by early next year.

“The only thing that will sort of change that is really whether we need more money with the TIF,” he said.

City Manager Mark Rohloff said he had no comment on the court agreement but added there has been no discussion about increasing the amount of money in the tax incentive agreement.