Ice Edge Holdings, a group of U.S. and Canadian businessmen, has dropped out of the auction set to start later this week for the National Hockey League's Phoenix Coyotes, leaving Canadian billionaire James Balsillie and the NHL as the only bidders for the bankrupt team.

Ice Edge, which includes Coyotes coach and part-owner Wayne Gretzky, hockey's all-time leading scorer, told NHL Commissioner Gary Bettman it does not currently intend to participate in the auction, according to documents filed late on Tuesday in federal bankruptcy court in Phoenix.

Unfortunately, despite the best intentions on both the part of Ice Edge Holdings and the City of Glendale, we have been unable to finalize the details of the amended lease for the arena, Ice Edge said in a statement, referring to the Coyotes' home arena in Glendale, a Phoenix suburb.

Still, Ice Edge could potentially revive its bid, depending on the outcome of the auction, a spokesman for the group said.

Balsillie, co-CEO of BlackBerry maker Research in Motion Ltd, wants to relocate the team to Hamilton, Ontario.

The NHL, keen to expand in the U.S. market, would prefer that it stays put.

Balsillie raised his bid to $242.5 million on Monday. He had originally bid $212.5 million for the money-losing Coyotes when they filed for bankruptcy in May.

In August, the NHL submitted its own $140 million offer for the Coyotes to control the team and remove its sale from the bankruptcy process.

Bankruptcy court Judge Redfield Baum still has to decide whether to include Balsillie's bid in the two-day auction, which begins Thursday, over the wishes of the NHL and team owners, who voted unanimously in July to reject Balsillie as a potential owner.

The NHL told the court at a hearing last week that it would appeal any decision awarding the Coyotes to Balsillie.

The case is in Re: Dewey Ranch Hockey LLC, U.S. Bankruptcy Court, District of Arizona, No. 09-09488.

(Reporting by Phil Wahba in New York; additional reporting by Ben Klayman in Chicago; Editing by Ted Kerr)