Bankruptcy judge has no patience for drawn-out cases

SMART MONEY IS ON A QUICK ORIOLES SALE

June 26, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- As this week's bidding frenzy for the Baltimore Orioles made clear, U.S. Bankruptcy Court can be as much a source of deal making as are the player trades that seem to dominate pro sports.

But while the turmoil makes it nearly impossible to predict who will buy the team, several signs indicate that the team's Odyssey through the courts should end before the World Series begins.

Both sides in bankruptcy court say cooperation has been good. In addition, the case is being decided by a judge with a reputation for no-nonsense pragmatism. And creditors, both secured and unsecured, are pushing for a quick settlement so they can recoup some of the millions owed to them by the Orioles owner, Eli S. Jacobs.

The team's fate has been left to bankruptcy court because Mr. Jacobs entered personal bankruptcy in April. Thus, most of his assets will be divvied up among his creditors. The Orioles, his biggest asset by far, will be sold to a new owner, and the proceeds will be used to cover some of Mr. Jacobs' personal and business debts, which exceed $320 million.

Mr. Jacobs has proposed selling the team to a Cincinnati-based investment group led by William O. DeWitt Jr. for $141.3 million. On Tuesday, the DeWitt group raised its offer to $146.25; a counteroffer from a group led by Peter G. Angelos, a Baltimore lawyer, was $148.1 million. Three other groups have expressed interest in the team.

The bidding caught many off guard -- bids were not due until a hearing Aug. 2, and no player needed to show his cards beforehand. The action illustrated that bidding for the team in bankruptcy court will not be straightforward.

The premature round of bidding, for example, was designed to impress the judge and creditors that the DeWitt and Angelos groups were the main contenders. The idea was to scare away the competition and avoid disruptive last-minute bidding wars, said George Putnam, editor of the Bankruptcy DataSource, an industry newsletter.

The reason impressions are so crucial is that the judge and creditors want a buyer who can deliver the promised money without any hassles, Mr. Putnam said. With the creditors already due to lose about $100 million owed to them by Mr. Jacobs if the Orioles sell for around $150 million, none wants to risk selling to someone who can't pay.

"Bankruptcy court is a funny place," Mr. Putnam said. "Although there are rules and regulations, the judge is hard-pressed to ignore them if a better bid comes in."

On Tuesday, for example, most action took place in the courtroom hallway, as attorneys figured how high their clients were prepared to go. Then, they quickly readied proposals to show Judge Cornelius Blackshear, who is presiding over the case in the U.S. Bankruptcy Court for the Southern District of New York.

So although the two groups came in bidding $141.3 and $145 million, they left with their bids between $5 million and $3 million higher. Similar jousting is likely to take place at the Aug. 2 hearing, although in theory all bids are supposed to be in beforehand.

In countless bankruptcy cases, this flexible bidding process has led to long delays as the judge and creditors have sought higher prices and debtors have taken advantage of provisions in the oft-criticized bankruptcy law to avoid closing or losing their business.

The LTV case

When the bankrupt LTV Corp. decided to sell its profitable aerospace and missile businesses to a new company formed by Lockheed Corp. and Martin Marietta Corp. last year, it launched a dizzying series of bids and counterbids that ended six months later with the contract being awarded to another company for $125 million more than the original bid. In fact, much of the bidding occurred after the court's initial cutoff date, illustrating the great flexibility a bankruptcy judge has in playing for the highest bid.

"Bids can be increased at any time -- even after the hearing date," said Martin Klein, a New York bankruptcy lawyer.

Besides the quirks of bankruptcy court, another wild card is that the sale must be approved by major league baseball owners. Although they are thought to be in contact with the creditors and might approve any reasonable choice made by the court, they do have rules that could come into play.

The owners, for example, have a loose policy of local ownership -- buying a house near the team has been considered sufficient in the past. It is unclear whether that fact favors or hurts any of the five groups vying for the Orioles. Mr. Klein said he is sure that Judge Blackshear would take the community into account. "He's going to be very sensitive to the needs of the city," Mr. Klein said.

A cash deal

Despite these potential knots, several factors work in favor of a quick sale. Unlike many sales between companies in bankruptcy court, this one involves no swapping of stocks or bonds. All bidders have agreed to pay cash, largely to appease the creditors, who want to get some of their money back as quickly as possible.

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