Pittsburgh Riverhounds Owners Spar Over Loan Promise

A Pittsburgh-area man who owns a piece of the Pittsburgh Riverhounds soccer team says majority owner Terrance “Tuffy” Shallenberger Jr. broke his promise to help the team pay off the debt on its overbudget Highmark Stadium.

In court papers, minority owner David Wilke accused Mr. Shallenberger of failing to pursue a $4.6 million loan—a promise that he allegedly made when he bought a 51% ownership stake in the team last year.

Mr. Wilke’s lawyers will ask a bankruptcy judge Thursday to put an outside financial professional in charge of the bankruptcy cases for the team and its stadium, which are owned by partnerships. An outsider might consider suing Mr. Shallenberger for breaking his promise and contributing to the team’s struggles, but that lawsuit likely wouldn’t be brought while he calls the shots in the case, Mr. Wilke’s lawyers said in documents filed in U.S. Bankruptcy Court in Pittsburgh.

“Shallenberger is the very reason the [partnerships] are now in bankruptcy,” Mr. Wilke’s attorneys said in court papers.

Mr. Shallenberger’s lawyer said that he is “committed to the team” and that the request is “without merit.”

Mr. Wilke is an accountant who supports local recreational sports and decided to invest in the team in 2007. He helped push for the construction of a 3,500-seat venue in Pittsburgh’s South Side, which opened last year. Before that, the team played at local high schools.

But the project suffered from cost overruns, according to court papers. As Mr. Wilke and other minority owners struggled to pay back more than $8 million in debt last year, they approached Mr. Shallenberger, a local businessman whose construction businesses have profited from region’s natural gas drilling boom.

For 51% ownership interest in both the team and the stadium, Mr. Shallenberger said he would pursue a $4.6 million borrowing deal, according to court papers. Specifically, the contract said that Mr. Shallenberger or one of his businesses “commits to immediately seek” $4.6 million in new credit facilities, according to a copy of the deal that was filed to papers.

The loan deal was never finalized. Without the new money, the partnerships that own both the team and the stadium filed for Chapter 11 bankruptcy on March 26—several days before the season opener. The team’s schedule hasn’t been affected so far.

Mr. Wilke’s lawyers said that Mr. Shallenberger’s decision to put the team into bankruptcy might be part of a plot to take over the team’s entire ownership and wipe out smaller minority owners.

Team Chief Executive Jason Kutney owns about 10%, according to court papers, though he appeared to support the bankruptcy when he spoke with the Pittsburgh Post-Gazette.

The bankruptcy could straighten out the team’s finances to better court Major League Soccer, the highest level of professional soccer in the country, he told the newspaper. The team, founded in 1999, plays in USL Pro, the third-tier of U.S. professional soccer below MLS and the North American Soccer League.

In bankruptcy, a company’s debts can be repaid with cash or ownership of the business. Mr. Shallenberger has offered to extend a $400,000 bankruptcy loan and he said he’s owed more than $2.5 million, creating a debt that could later be repaid with the entire ownership of the company.

That move would, in effect, wipe out other minority owners like Mr. Wilke, who owns 26% of the team, according to court papers.

Write to Katy Stech at [email protected]. Follow her on Twitter at @KatyStech.