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Published October 31 2012

Arena sheds $16 million in debt on backs of banks, donors

FARGO – After a year of wrangling, the operators of Scheels Arena finalized a deal this week to slash the facility’s debt load by more than two-thirds – a move they say will make the cash-strapped arena profitable again.

The agreement, struck between a consortium of more than a dozen banks and other backers, cuts the arena’s debt from $23 million to $6.8 million, said Bruce Furness, the treasurer for the nonprofit Metro Sports Foundation that runs the arena.

The dramatic reduction was made possible in large part by an anonymous donor who gave $8.5 million to the foundation.

The banks also agreed to reduce their share of the debt, and a number of private lenders forgave loans they made to finance the arena’s construction, Furness said.

He would not say how much the banks or the private lenders gave up. In its most recent publicly available tax forms, the foundation said it owed at least $4.7 million to three people with ties to the foundation, including $4.5 million to a company co-owned by former board president Al Hintz, Kinetic Leasing.

The board was restructured recently as one of the anonymous donor’s conditions for the deal.

Furness said the deal has been in the works for about a year and largely in place since early summer, but required final approval from all of the stakeholders.

“It was everybody or it wasn’t going to work,” he said.

Jon Kram, general manager of the arena, said the deal shifts the focus of day-to-day operations from making ends meet to planning for the future.

“It allows a lot more forward thinking,” he said. “There’s no reason why we should have financial struggles going forward.”

He said the arena will turn a modest profit after the deal kicks in at the end of this year, though he would not say how much.

Past tax forms showed the arena consistently making about $1.7 million in operating revenue against $3.5 million to $4 million in expenses.

Those expenses included at least $1.4 million in annual interest payments, tax forms show. It’s unclear how much the foundation paid its creditors in total each year, but that total will be greatly reduced, though Furness and Kram didn’t say by how much.

Furness said the arena’s creditors still view it as an asset to the community, and wanted to keep it from failing.

“They just want it to be profitable,” he said.

If the deal works as intended, it will put to rest a financial narrative for the arena that has been rocky from the start.

The arena’s original financier, an East Coast investment firm, pulled out after construction began and after a major international youth tournament – not to mention the Fargo Force junior hockey team – were already set to come to town.

The foundation rushed to cobble together its current assortment of creditors, a move Furness has said was likely a mistake bred from a drive to get a deal done quickly.

The arena has not been profitable since then. And its struggles have been compounded by worries the Fargo Park District, which technically owns the arena as part of an arrangement to shield it from hundreds of thousands of dollars in property taxes, would wind up haggling with creditors over a foreclosed facility.

The park district recently approved a deal that gives Metro Sports the option to buy back the arena for a nominal sum, though the foundation is unlikely to do so.

With its finances stabilized, the foundation now will turn its attention to what was originally meant to be the second phase of its construction: the addition of four more ice rinks to support youth hockey programs.

It’s not clear when that might happen. The foundation says it’s actively seeking donations.

Furness said he’d like construction to begin next spring, but “we won’t start until we have the funding.”

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Readers can reach Forum reporter Marino Eccher at (701) 241-5502