When Donald Sterling dissolved the Sterling Family Trust, the entity that ran the Clippers, he was trying to prevent the sale of the team to Steve Ballmer. It's pretty simple: if the trust did not exist, it couldn't sell anything to anyone. Only, it might not be that simple. According to testimony from Darren Schield, the chief financial officer of the Family Trust, the dissolution could cause several banks to find the trust in default on up to $500 million in loans, which Sterling could not repay without selling the team. Oops.
Schield testified Monday during the probate proceeding to determine whether the $2 billion sale orchestrated by Sterling's estranged wife Shelly was authorized under the family trust. Without the sale of the Clippers, Sterling's company would not be able to pay off the loans and would have to sell huge chunks of real estate to cover the costs.
"I told him a revocation of the trust would be a breach of the loan covenants and would result in defaults," Schield said.
He said he also discussed it with Sterling's lawyer, Bobby Samini.
"I told him this revocation would open up a Pandora's box and trigger defaults," Schield said.
"Does the company have $500 million to pay off the loans?" asked O'Donnell.
"We do not," Schield answered.
Asked what the recourse would be, he said, "We would have to start selling real estate. If we have to sell $500 million in apartment buildings, it would have an impact on the Los Angeles real estate market. "
Sterling and his representatives next claimed he could take the company public to pay off the debts, but Schield shot that down. "There's huge reputation issues," he said. "I don't know if anyone would want to go into partnership with him."
It's hardly a surprise, then, that Sterling and Steve Ballmer had a meeting Monday to discuss the pending sale that was described as a "friendly conversation." The two men did not figure out any settlement just yet, but they met for 90 minutes in Sterling's house and it wasn't a total disaster, so that's something.
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