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Cranmer won't OK deal with Pens

Friday, August 06, 1999

By Ann Belser, Post-Gazette Staff Writer

On the same day Mario Lemieux received an extension to buy the financially ailing Penguins, county Commissioner Bob Cranmer informed Lemieux's lawyers that he would not go along with the county's deal to help the team.

The Public Auditorium Authority had agreed that the city and the county would pick up the amounts the team and SMG still owed on $37.5 million worth of bonds dating as far back as 1978.

Cranmer, whose vote is crucial to making the deal happen, said he could not go along with it because it would require taking money from the county's general fund to cover the team's debts. He said he was willing to renegotiate the county's concessions to the team but that the county could not afford the current arrangement worked out by Stephen G. Leeper, executive director of the Public Auditorium Authority, who negotiated the county's concessions with Lemieux's lawyers.

Cranmer also said he could not approve the portion of the agreement that calls for the city and the county to have the financing in place by 2002 for a new arena to replace the Civic Arena.

"I'm not going to commit a future government to do that," he said.

The structure of county government will change next year when a new county executive and a County Council will replace the present government of three commissioners.

"I can't commit another government to come up with a plan in 2002 when I'm not going to be a part of it," he said.

Cranmer's vote on the Board of Commissioners is crucial. While Mike Dawida said the issues that remain could be worked out, Larry Dunn has consistently opposed any financial help for professional sports teams. That leaves Cranmer the deciding vote on the issue.

Cranmer said that while the money for the two new stadiums and the new convention center would come from the hotel/motel taxes and the Regional Asset District sales tax, the money to pay off the Penguins debt was supposed to come out of the county's general fund.

County budget Director Carmen Torockio said the Penguins still owed $14.5 million and SMG about $1.5 million. SMG's share of the bonds were absorbed in the negotiations as part of the company's deal to lower the team's rent from $6 million to $1.8 million a year. SMG's yearly rent payment of $300,000 to the authority was also canceled as part of the deal.

If the team had to continue paying what it now pays, it would cost the Penguins about $1 million a year.

Lawyers involved in the case who did not want to be identified said the loss of county support for the bonds and the new arena could kill the whole deal. But Dawida downplayed the seriousness of the issue Cranmer was raising.

"It shouldn't cost us a lot of money," Dawida said. "We're working on it."

However, he said he was also upset with Leeper. He said he didn't find out what Leeper had promised until three weeks ago, which gave the commissioners little time to work out details with which they didn't agree.

Cranmer said it took Torockio a full week to understand the deal Leeper had made and that when he ran the numbers, he found that Leeper's version of what would happen did not add up to a good deal for the county.

In a meeting with City Council on July 28, Leeper explained that the Public Auditorium Authority would refinance the bonds for the renovations.

When that is done, the new bonds are to be sold at a lower interest rate, so that while the city and county each pay $800,000 a year on those bonds and the team pays $1 million toward the debt, the new bonds will call for the city and county to be able to assume the Penguins' share for a total of $800,000 a year, which is what they are now paying.

City Council approved the measure Monday.

Under the current bond issues, Torockio said, the county and city are each slated to pay $565,000 in 2000 with another $1.6 million coming in from the regional asset tax.

He said the new plan called for the payments to be lower in earlier years but higher in later years and would cost the governments more in interest as the city and the county took on an additional $16 million in debt from the Penguins and SMG.

"It would be very difficult for us to take this money out of the general fund," Torockio said.

John Brabender, a spokesman for Lemieux, said Lemieux and his attorneys understood Cranmer's concerns.

"Bob's frustration is not with Team Lemieux. His frustration is with some of the people in the city/county partnership," Brabender said. "We intend to make sure he's comfortable and signs off on this deal. . . . This is one of those deals where there's one thing after another, and they seem like major problems, but everything gets worked out."

Cranmer said he had told Leeper about his concerns over the financing by the county last week, but that when he phoned lawyers for Lemieux and SMG to express those concerns yesterday morning, they replied that it was the first they had heard of them.

"We were very surprised by this," said Daniel Shapira, the attorney for SMG.

Lemieux lawyer Doug Campbell referred questions to Brabender. Leeper was on vacation and could not be reached for comment.

Greg Yesko, the spokesman for the authority, said that "initially, when we were in a crisis and everyone was negotiating, everyone was making concessions." Since that time, he said, "some issues have arisen that we hope to work out with the county."

Yesko said any revisions in the deal would have to be made between the authority and the county commissioners.

"We hope we can address the issues that the county is concerned about. In practicality, it would be very difficult to renegotiate the entire deal."

If the team were to fold in bankruptcy, the city and the county would be liable for the entire bond debt, Cranmer said. Yet the deal negotiated didn't lessen at all the economic burden the county would have to assume, he said.

Cranmer's comments came in the wake of a hearing yesterday in which U.S. Bankruptcy Judge Bernard Markovitz gave Lemieux an indefinite extension to work out the terms of his takeover of the team.

Lemieux lawyer David Salzman said, "This request should not be read by anyone to mean there are serious problems with consummating the plan. There are not."

After granting the extension, the judge urged Salzman to finish quickly and close on the team.

"I don't think there's any danger to the arrangement," Markovitz said about the extension, but he added, "It's time to get it done."

Lemieux's plan to put $50 million into the Penguins from investors to reorganize the team financially was approved by Markovitz on June 24. Lemieux was originally supposed to close the deal July 16, but that had already been extended to yesterday.

Markovitz also gave his approval to allowing the financing to continue through Societe Generale, the French bank that has been covering the team's losses since it went into bankruptcy in October with more than $120 million in debt. The new arrangement calls for the financing to continue through Aug. 20.

During the hearing the Penguins' attorney, Robert G. Sable, explained to the judge that the team had received a payment of $2.7 million from the National Hockey League that was put into its account at Societe Generale and used by the bank to pay down the line of credit. Sable said the bank had agreed to free up $800,000 for the team to use during the off-season. He also said that if the Penguins needed more money, the team would borrow more.

Also yesterday Bernie Reilly, the president of Madison Realty Group of Oakland, which was one of Lemieux's investors and had signed on for at least $2 million, said his company had taken its money back.

At first, Reilly said, the investment "looked like a good thing to do," but then "the team changed a thousand times" so the company withdrew from the group and put its money into a 300,000-square-foot mall the company bought in Iowa.

"We had to move," Reilly said.

Staff writers Dan Fitzpatrick, Timothy McNulty and Mark Belko contributed to this report.

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