The court battles swirling around the owner of the Baltimore Orioles intensified late yesterday when seven banks filed in New York to place Eli S. Jacobs into involuntary bankruptcy.
The action is not expected to derail negotiations surrounding the sale of the team.
Mr. Jacobs has 20 days to respond to the filing, at which time he could contest the action by demonstrating he is paying his debts. But that is regarded as unlikely as creditors have filed numerous lawsuits seeking repayment of overdue loans and personal guarantees.
Yesterday's filing effectively freezes Mr. Jacobs' assets for 20 days, during which creditors may not file lawsuits against him, according to a bankruptcy attorney not involved in these proceedings. During that time, negotiations for the sale of the team are expected to continue.
However, if the sale is not completed within the 20-day period, or if an agreement among Mr. Jacobs and his numerous creditors cannot be reached, the future of the team could fall under the direction of a bankruptcy court judge.
Investors led by Cincinnati businessman William O. DeWitt Jr. have been holding talks with Mr. Jacobs, who owns 87 percent of the team, for more than six months on the purchase of the team.
"From what I understand, this has no impact on the sale of the team whatsoever," Mr. Jacobs' spokesman, Jeffrey Taufield, told the Associated Press last night.
"Mr. Jacobs is obviously disappointed that this matter could not be resolved out of court," he said. "He is confident that under the court's protection, he and his creditors will come to an amiable agreement as soon as possible."
The banks filing the involuntary Chapter 11 suit include Union Bank of Switzerland, Bank of New York and Barclays Bank, according to banking sources familiar with the action. Those banks are among unsecured creditors who have been attempting to negotiate a comprehensive workout with Mr. Jacobs of his crushing financial problems.
Mr. Jacobs could not be reached for comment last night.
The suit, filed in the Southern District Court of New York, was made hours before a deadline that would have allowed another unsecured lender, Manufacturers & Traders Trust Co., to seize part of Mr. Jacobs' assets under a court order.
The filing blocked that effort and keeps the group of unsecured lenders on an equal footing in their attempt to recoup tens of millions of dollars in overdue loans of the New York investor.
For the filing of an involuntary bankruptcy petition, federal law requires there be three creditors with claims totaling more than $5,000. The filing, made against Mr. Jacobs personally, was made on behalf of seven banks believed to be among the largest unsecured creditors. The names of all seven banks could not be obtained last night.
Despite the filing, talks surrounding the team's sale are making progress, sources said. A deal to sell the team is not likely before Opening Day Monday, but could come early in the season, they added.
Mr. Jacobs has agreed to sell the team to the group led by Mr. DeWitt for about $140 million. The deal has been on hold as Mr. Jacobs' creditors evaluate the deal.
The first hint of trouble for Mr. Jacobs came in 1991 when his biggest deal began to unravel. Memorex Telex Corp., a computer peripherals maker created out of a number of Jacobs-led leveraged buyouts, landed bankruptcy court after being squeezed between an industry slowdown and high debt.
His financial troubles surfaced publicly a year ago when Manufacturers & Traders filed two suits seeking what it claimed was nearly $5 million in unpaid loans.
In July 1992, Mr. Jacobs sent a letter to some lenders saying the economy had "stunted" some investments and that his portfolio was not generating enough cash to meet all his obligations. He said at the time he would stop making interest payments on some loans and asked for patience while he restructured.
Since that date, however, three more banks -- including Baltimore's Mercantile-Safe Deposit and Trust Co. -- have filed suit. In all, creditors have filed suits against the team owner seeking nearly $45 million.