At 2 a.m. on Saturday, Dec. 28, Rod Bryden thought he had a deal.

He had spent two years working on a complicated deal to refinance the Ottawa Senators, whom he controls. Finally, with three days to go before the deal had to close for tax reasons, everything appeared to be falling into place. Nearly $235-million had been raised from investors, the club's biggest creditor was on side and the National Hockey League was convinced nothing could go wrong.

Then Bryden received an indication from Brian McDonough, a vice-president of the Canadian Imperial Bank of Commerce, that the bank might come onside as well.

Under the refinancing, the CIBC and FleetBoston Financial Corp. had to rearrange about $60-million in loans to the club. Both had been refusing to do so for weeks, but Bryden was so excited by McDonough's comments that he immediately telephoned several associates at home and woke them up with the news. "I think we've got McDonough," he told them.

Over the weekend, a team of lawyers, investment advisers and federal tax officials worked feverishly to close the deal. Fleet was still balking, but most of the other creditors had agreed to a plan to pitch in enough cash to pay off Fleet's $20-million loan. That left the CIBC as the only holdout.

Many of those working that weekend were still worried about the CIBC. The bank still hadn't agreed to close the deal, and its lawyer had gone away for two days and was unreachable.

Bryden called Finance Minister John Manley at home for help. Manley promised to call John Hunkin, the CIBC's chief executive officer, the next day. On Monday morning, Manley called Bryden back, saying he'd spoken to Hunkin. Bryden was thrilled and told his associates that Hunkin had talked to McDonough and the bank was onside.

That evening, 24 hours before the deal had to close, Bryden was the host of a telephone conference call involving all the participants, including the NHL, Fleet and CIBC. They went over the transaction and the proposal to buy out Fleet. But McDonough said the bank couldn't agree. "I think it's too late," he said.

Bryden wouldn't give up. The next morning, he made a flurry of phone calls, and the NHL told its lawyer to keep working. The league couldn't believe the deal would not close. After all, it would inject $42-million into the club and give Bryden time to complete a restructuring that involved selling a stake in the franchise to U.S. billionaire Nelson Peltz and arranging a $60-million loan from Lehman Bros.

But the efforts failed. About noon on Dec. 31, Norfolk Capital Partners, the Toronto-based firm co-ordinating the refinancing, told investors the deal was dead. "We feel that all of the solutions that we proposed were workable for all parties concerned and are extremely frustrated that certain lenders did not share this view," Norfolk said in a note to investors.

Bryden, Norfolk and the CIBC have declined to comment on the refinancing, and Fleet has said only that it was not the sole creditor to block the deal.

The Senators are expected to file for bankruptcy protection and face the real prospect of being sold and moved out of Ottawa. The club has $166.2-million in debt and hasn't made rent payments for months. Players haven't been paid for one pay period, and sources say loans are in default.

The Globe and Mail reviewed hundreds of documents filed in court and interviewed several sources close to the club to piece together the story of how the franchise's finances crumbled. What's clear is that the club has faced financial problems for years. "Generally," one Norfolk document says, "the entities that have owned the team have operated at a loss."

The Senators' financial woes began in 1994 when the club's owners struck a deal with a subsidiary of New Jersey-based Covanta Energy Corp. (called Ogden at the time) to build a new arena.

The franchise was barely three years old and playing in the small Ottawa Civic Centre. Covanta agreed to help finance construction of a new arena and run it for 30 years. In January of 1996, the 18,500-seat Corel Centre was opened.

At first, the arena looked like a huge success. The club's revenue jumped to more than $50-million from $38.7-million. But construction costs had soared and Covanta's obligations mounted.

In 1997, Bryden obtained a tax ruling allowing him to convert $138-million of loans into distressed preferred shares, a financing strategy used by companies in trouble. Two years later, he employed the same technique with the help of the CIBC and Fleet to refinance $90-million of debt.

About the same time, Bryden went on a public relations offensive and urged the federal government to provide tax relief to Canada's six professional hockey clubs. Manley, the Industry Minister at the time, agreed. In January of 2000, he announced an assistance package worth $20-million a year. But he faced a storm of public anger and the government backed off.

In December of 2000, Bryden met with officials at Norfolk to find a solution to the club's financial problems. Norfolk spent most of the next year working out the details of a complicated transaction that involved a series of tax breaks for investors.

Meanwhile, the club's financial troubles continued. In 2001, the Senators failed to make a $1.4-million loan payment and Covanta was forced to cover the shortfall. By then, Covanta had decided to sell its interest in the Senators and the Corel Centre, along with other entertainment assets, because they were losing too much money.

As the 2000-01 season ended, the Senators recorded an $8-million loss, even though they had one of the smallest player payrolls in the NHL: $45.3-million. The Corel Centre fared better, reporting an $18-million profit.

In January of 2002, Norfolk completed its plan. It called for Bryden to sell the club to a Norfolk limited partnership for $186.7-million. The partnership would pay for the transaction by selling units to investors who would receive tax breaks. Bryden would then use the money he received from the sale to buy a controlling stake in the partnership.

Once the deal closed, Bryden would also take full control of the Corel Centre from Covanta and the club would get improved revenue sharing with the arena.

On Jan. 2, 2002, Bryden officially sold the club to the partnership, which immediately began selling units. Three months later, the deal collapsed.

Covanta, faced with a loan obligation involving the Senators that it couldn't meet, filed for bankruptcy protection in New York. Within weeks, the company, along with the CIBC and Fleet, hired Game Plan LLC to sell the Senators and the arena.

Bryden and Norfolk revised their partnership structure and submitted it to Game Plan. It was the only bid filed. Covanta agreed, and in October, Norfolk started selling the units again.

The units moved quickly, but the CIBC was concerned that the deal wouldn't fly. It demanded daily reports on unit sales. On Nov. 26, Norfolk sold all 13,580 units for up to $18,355 each, raising $234.6-million, after expenses.

Norfolk was ready to close the transaction with Bryden, but the CIBC and Fleet had to agree to reorganize the security on their loans. In early December, the CIBC said its approval was conditional on Bryden's succeeding in his plans to restructure the club with Peltz and Lehman. But those two wouldn't commit unless the refinancing proceeded.

By mid-December, sources say, the banks were raising more and more concerns about the refinancing. At one point, a lawyer for the NHL privately said he believed the banks didn't want the refinancing to proceed, but wanted the club sold. The refinancing would have given the CIBC and Fleet about $12-million, reducing their debt to $48-million. But if the club were sold, the banks stood to make more money because they would be paid before most other creditors.

Sources say the CIBC believes it did the best it could to save the club, but that financial issues were insurmountable.

But several investors in the refinancing say the banks are clearly to blame for blocking the deal and pushing the club into bankruptcy protection.

"It's a tragedy," one investor said. "[The banks] probably have lost us the last opportunity to keep this franchise in Ottawa."