Saturday, February 29, 2020

Oshkosh arena owner offers plan to settle debts, but many creditors would get little cash right away

The arena's debts come to $28.8 million, but the facility has started to earn more cash, according to court papers.

By Miles Maguire

The owner of the Menominee Nation Arena has proposed a way to get out of bankruptcy, but its plan would provide little in the way of immediate cash relief for its creditors.

In a court filing late Friday, Fox Valley Pro Basketball Inc. said it hoped to net at least $4.3 million from a private lender in Minneapolis called Dougherty Funding LLC. But much of this money, $1.5 million, would be reserved for working capital, leaving just $2.8 million available for creditors in the short term.

The claims against the arena owner are almost $29 million.

The plan “provides for the only way to pay creditors anything on account of their claims,” said Jerome R. Kerkman, a bankruptcy lawyer working for Fox Valley Pro Basketball. The arena owner is proposing “the plan because its management believes it is in the best interests of all parties,” Kerkman said.

The working capital in the plan has been described as a critical part of running the arena since it is needed to book performers, who in turn drive ticket and refreshment sales.

Creditors will have an opportunity to vote on the plan, and “the debtor requests that creditors vote in favor of the plan,” Kerkman said. 

If the proposal is rejected by creditors, one alternative would be a cramdown, the plan notes. In a cramdown the bankruptcy court restructures debts and forces creditors to go along.

City Manager Mark Rohloff said Saturday he had not yet seen the plan.

The arena’s largest single creditor, Bayland Buildings Inc., would receive no immediate payment under the proposal but would instead continue as a mortgage holder for up to 30 years. Bayland, the general contractor on the project, is owed $13.2 million and would receive $65,000 a month under the proposed plan, according to court documents.

Bayland asked the Winnebago County Circuit Court to appoint a receiver to take control of the arena in August. This action prompted Fox Valley to seek bankruptcy protection, which it said would be better for all creditors.

Bayland officials were not immediately available for comment. 

The arena opened in late 2017 and serves as the home of the Wisconsin Herd, which is the minor-league affiliate of the Milwaukee Bucks and is owned by an entity called Future Bucks LLC. The arena owner owes Future Bucks about $570,000, which would be paid upon the effective date of the plan if it is approved, according to court documents.

Unsecured creditors that are owed a total of $13.5 million would be asked to divvy up $500,000 as a downpayment on what they are owed, which works out to less than 4 cents on the dollar.

They would then be offered a promissory note paying a 3% interest rate for 20% of the outstanding balance owed them. The rest of their debt would be converted into stock with a payout equal to 75% of any profits that are generated until the balances are paid.

The plan calls for canceling $10 million in common stock. The investors who hold that stock would then be issued a new class of stock that would pay out 10% of any profits, according to court documents.

Certain creditors, who are identified as trade creditors, would receive 100% satisfaction on their debt, totaling about $850,000. Trade creditors are those that have been supplying goods and services without a written instrument documenting a loan.

The city and the arena’s bankruptcy lawyers would also receive 100% of the amount owed to them.

The new cash that would come into the deal from Dougherty Funding would be paid in exchange for a promise to receive future payments from the city under a tax incremental financing agreement. These payments, worth a face value of $5.2 million, will amount to about $10 million once interest is factored in.

In addition to winning the acceptance of creditors, the plan hinges on the financial success of the arena, which is trying to expand its activities beyond sports and to sponsor more musical concerts and other events.

According to court papers, the arena is on its way this year to making $2.1 million on operations, a figure that does not take into account payments that would be due under the plan.

Next year profit before plan payments is projected at $3.6 million. 

The payments under the plan are shown as $1.1 million on an annual basis.

Sunday, February 16, 2020

Hundreds of Oshkosh tech jobs go unfilled even as factories look to next wave of automation

Photo by Joseph Shulz
Fox Valley Metrology uses this inspection lab in its Oshkosh facility for making spherical measurements.
By Joseph Schulz
The high-wage, low-skill factory jobs that have shaped Northeast Wisconsin are being replaced by high-wage, high-skill jobs, but it isn’t clear that either workers or employers are ready for the shift.

Local companies currently have 1,500 tech jobs that they cannot fill, according to the Oshkosh Chamber of Commerce’s 2019 Economic Report. A new wave of automation, known as Industry 4.0, is emerging, but 88% of local manufacturers either have no plan or only a partial plan for implementing this technology.

Some of today’s high demand jobs include process engineers, data management analysts, cybersecurity officers, industrial computer programmers, data engineers, data architects and application developers. These jobs and the lack of employer preparation were shown in a 2019 survey of 104 manufacturers conducted by the NEW Manufacturing Alliance (NMA), an organization that promotes the industrial sector in Northeast Wisconsin.

The need for a new type of worker is likely to increase as more businesses begin to adopt Industry 4.0, which combines production and operations methods with smart technology, creating an autonomous and interconnected digital business, according to NMA.

“Even Oshkosh Corp. says, ‘We’re a tech company that builds trucks,’” said Rob Kleman, the Chamber of Commerce’s vice president of economic development.

Ann Franz, director of NMA, said the organization is working to increase awareness about Industry 4.0 because she expects it to take three years for supply chains to begin implementing it.

“By helping [businesses] be proactive now, we'll be able to, hopefully, make them successful three years from now,” she said.

NMA’s survey found that automation-robotics and cyber security were the two areas that companies plan to invest the most heavily in over the next two to three years, with 62% planning to invest in automation and 56% planning to invest in cybersecurity.

Locally, the state Department of Workforce Development’s 2019 Workforce Profile for Winnebago County says 61% of the job tasks in the Fox Valley have the potential to be automated.

Wednesday, February 12, 2020

UW Oshkosh saga comes to a close as legislative committee says state can drop its civil lawsuit

A civil suit against two former UW Oshkosh officials has been pending in Dane County since 2017.
By Miles Maguire
A legislative committee agreed Wednesday to drop a civil lawsuit against two former top officials of UW Oshkosh who entered guilty pleas last month in a criminal case for their role in shifting funds between the school and its fundraising arm.

The approval of the Joint Finance Committee is required under a 2018 law that was passed during a lame duck session of the Wisconsin legislature. The panel’s OK will bring the curtain down on a legal battle that started in January 2017 and was close to resolution last summer.

The civil case, brought in Dane County Circuit Court, accused former Oshkosh Chancellor Richard Wells and former Vice Chancellor of Administrative Services Thomas Sonnleitner of illegally transferring funds from the school and making promises that the state would stand behind loans taken out by the UW Oshkosh Foundation.

“The resulting potential liability led to numerous court cases, including cases by the commercial lenders against [the University of Wisconsin System] and claims by the foundation in its eventual bankruptcy filing,” according to a memo from the Department of Justice requesting the committee to let the case drop.

Most of the legal rulings in the various cases have gone against the UW System, and it is unclear what financial damages were actually suffered by the state. At one time the exposure was estimated at $18 million, but the system ended up paying out only about $4.6 million and as part of that agreement took control of two facilities that were valued at a higher amount.

The system has also collected on a $1.5 million insurance policy to cover the actions of Wells and Sonnleitner.

Ultimately the state was able to convince Wells and Sonnleitner to plead guilty, pay a fine and make restitution. The two men, both retired and widely admired within the local community and among influential alumni, faced what would likely have been a long and costly legal battle.

They were never accused of personally profiting from the transactions but only making agreements that exceeded their legal authority.

In their defense the Oshkosh officials said they were acting at a time when the state was cutting support for higher education and when public institutions were being encouraged to act more like private businesses in assuming risk and pursuing new opportunities.

They have also said that higher officials in the UW System, including some members of the Board of Regents, were aware of their activities. Although the system initially argued that the transfer of funds from the university to an affiliated organization was illegal, an internal audit later found that such transfers had happened more than 2,000 times over a seven-year period at more than a dozen UW schools.

Wells has already paid the state $75,455 to settle his fine and restitution obligation. Sonnleitner has paid a $5,000 fine and still owes $70,455.

Legislators were told that if they did not agree to have the civil case dropped, Wells and Sonnleitner could reopen their criminal cases and amend their restitution agreements.

The finance committee agreed to close the case, and two others, without debate over the specifics of the settlement agreements.

The only criticism came from Rep. Chris Taylor, a Dane County Democrat, who objected to the fact that the legislature has taken a role in settling legal disputes that historically were left to the executive branch.

“This approval is an abuse of power,” she said. “It’s totally unprecedented.”

Last July, the Justice Department told the legislature it was ready to settle with Wells and Sonnleitner but needed the committee’s OK. When no approval was given, the parties went back to court and traded arguments during the fall in the criminal case, which was heard in Winnebago County.

Friday, February 7, 2020

Oshkosh arena lawyers say financial reorganization is coming together even as short-term losses mount

The Menominee Nation Arena is described as being in a "ramp-up" phase as it moves toward financial stability
By Miles Maguire
Although losses continue to mount at the Menominee Nation Arena, lawyers for its owner say they are optimistic about the prospects for exiting bankruptcy.

At a court hearing last month, attorney Jerome R. Kerkman said the owner, Fox Valley Pro Basketball Inc., has received a “term sheet for some exit financing” related to tax incentives from the city. A term sheet is a nonbinding document that outlines the key points of an investment agreement.

Additional financing is also being negotiated, Kerkman said, although he declined to go into details at the hearing.

He said he has “a fair amount of confidence” that Fox Valley will be able to submit a plan of reorganization by the end of the month.

New financing would be central to the plan because it would allow the developer to reduce its debt and lower the sky-high interest rates it has been charged.

The arena’s losses in December came to almost $314,000, compared to $287,000 in November. Its net worth continued to drop, to a negative $5.8 million at the end of last year.

“This was a company that was fairly far, I would say, underwater on many fronts,” Kerkman said. “I’m not that surprised that it’s taking us some time to stabilize the debtor’s business operations.”

He said the arena is currently in a “ramp-up” phase that involves “a lot of working capital expended.”

The goal is “booking events, having events and then getting revenue,” he said. There is necessarily a lag between paying to schedule performers and then receiving income from ticket and related sales, he said.

“There are losses,” the lawyer said. But “we’re not concerned with those. From a business plan side, the debtor continues to get to where it wants to get.”

With a big gain in food and beverage sales, the arena’s December income rose to $259,000, from $148,000 in November. But performer payouts jumped from $10,000 to more than $113,000 during the month, helping to push the cost of goods sold to $314,000, compared to $168,000 the previous month.

Kerkman noted that Fox Valley was able to pay the first installment of its property taxes on time this year. The $113,128 payment keeps the developer eligible to receive a rebate later this year from the city.

The rebates that the city has agreed to send to Fox Valley, known as tax increment financing or TIF, have always been part of the developer’s business plan. Fox Valley hopes to sell the promise of future payments at a discount to an investor that can provide an immediate infusion of cash.

The developer has now lined up a third financing broker, Nauth Advisory Group, to help it raise capital.  

Nauth was founded by Geoff Nauth, who has worked in commercial real estate for M&I Bank, Bank One Wisconsin, LaSalle National Bank and Northwestern Mutual.

"Geoff Nauth has experience with TIFs, in obtaining financing based on that," said Evan P. Schmit, an attorney for Fox Valley.

According to court papers, Nauth recently helped secure TIF financing for The Rock, a sports complex in Franklin.

Meanwhile the state has filed another tax warrant against Greg Pierce, the president and principal owner of Fox Valley. This time the Department of Workforce Development says that Pierce owes $8,529 for unpaid unemployment coverage.

The agency said it could not provide additional details because unemployment insurance records are confidential under state and federal law.

Schmit said the state's claim is based on debts incurred before the company went into bankruptcy and cannot be settled while the court process is ongoing. The money is expected to be paid as soon as Fox Valley's financial reorganization plan is approved, he said.

Oshkosh's Fourth of July fireworks are moving back to Menominee Park. Here's why.

Watch as City Manager Mark Rohloff explains why the fireworks show is heading back to Menominee Park. (It's because Pioneer Island isn't available due to planned development.)

Tuesday, February 4, 2020

City website returns; officials say cyberliability insurance should offset costs of outage, recovery

This post is updated with a statement from the city.

By Miles Maguire
Oshkosh officials are hoping a relatively new cyberliability insurance policy will help them deal with the costs of the malware attack that knocked city computers offline in late January.

“I didn’t think we’d ever have to use it. But we are going to have to use it,” said Assistant City Manager John Fitzpatrick. He said it will take a while for the city to total up the costs of the cyberattack, but “it’s going to be very big, I’m sure.”

The main city website and the Oshkosh Police Department website were back online Tuesday. Even though the websites are back online, some of their functions may not be available right away, Fitzpatrick said.

The cyberattack hit Jan. 28. A Facebook post from the city last week provided an outline of the situation, saying that officials were investigating the cause as well as working to rebuild the computer network and recover data. State and federal law enforcement agencies have also been involved in the investigation

"Information stored in databases, such as payroll and billing information, has not been compromised," the city said on Facebook. "No personal credit card information is stored in city systems."

City services were continuing to operate, including 911, garbage pickup and the bus system. Boards and commissions were also continuing to meet. “It’s business as usual,” Fitzpatrick said.

As of Monday financial data had been restored, and city employees were able to use email through mobile devices. Additional services were expected to be fixed during the coming days.

“It’s a matter of, ‘Please be patient,’” said Mayor Lori Palmeri. “We’re confident that we’re resilient in having the backup,” she said. “However it does take time to make sure everything is clean” as systems are brought back online. 

City officials say they are working through how to deal with disruptions caused by the outage, such as delays in automated bill payments or the inability to obtain overnight parking permits over the internet.

The city issued this statement Wednesday afternoon:

Following the discovery of a ransomware attack last Tuesday, January 28, the City of Oshkosh continues to recover.  All City department websites have been restored and are operational.  For those who are enrolled in monthly auto-withdrawal for utility bills, the withdrawals scheduled for January 30, 2020 and February 6, 2020 did not take place due to the network outage. These withdrawals will take place on February 13, along with the previously scheduled February 13th withdrawal. No late fees will be incurred for the payments which were delayed.  Customers are now able to pay bills on the City website. Please be aware the balances on the City website for utility bills and tax payments may not be current. Finance staff is working to update and record payments received during the computer outage. City staff are working as quickly as possible to recover and post the financial transactions that were manually received during the outage.  The City still encourages residents to mail payments to City Hall at P.O. Box 1128, Oshkosh, WI 54903.  All other City services continue to be operational.  The City thanks the public for their continued patience.