June 28, 2021 – The Debtor filed a supplemental motion seeking Court authority (i) to replace its existing, Court-approved, stalking horse (Monarch Alternative Capital LP, or “Monarch”) with DIP lender JMB Capital Partners Lending, LLC (“JMB” or the “Stalking Horse Bidder”), (ii) approve bidder protections for JMB and (iii) amend its auction/sale timetable to schedule an auction for August 10, 2021 and a sale hearing for August 12, 2021 [Docket No. 544]. The JMB stalking horse asset purchase agreement (the “APA”), memorializing mixed credit/cash consideration the Debtor values at $43.5mn, is attached to the supplemental motion as Exhibit A.
The Debtor's switch in stalking horses follows a breakdown in negotiations amongst the Debtor, Monarch, the Port Authority, and New York City Regional Center LLC, ("NYCRC") relating to Monarch's insistence on amendments to the ground lease for the George Washington Bridge Bus Station; with JMB (as DIP lender listening in as the negotiations stumbled) willing to proceed without Monarch's ground lease requirements.
On June 23rd, the Debtor informed Monarch that it was exercising its right to terminate that APA "as the Debtor had determined that proceeding with the transactions contemplated therein would be inconsistent with its fiduciary duties under applicable law…" That letter followed communications from Monarch that reserved Monarch's right to exit their APA; although whether those communications reflected Monarch's desire to exit their transaction or were part of negotiations is not entirely clear (see below). Monarch's bidder protections included a break-up fee of $600k and an expense reimbursement of up to $400k should their transaction not close by June 30th, although the parties had agreed that if that deadline was not met "because the form of the Required Ground Lease Amendment is not reasonably acceptable to Purchaser, then Purchaser will only be entitled to receive the Expense Reimbursement."
The Debtor had valued the Monarch transaction at $92.0mn, including $18.0mn of cash to repay the JMB DIP and the assumption of $72.0mn of prepetition debt.
The Debtor's motion provides as to the JMB transaction: "Pursuant to the Stalking Horse APA, JMB will acquire substantially all of the Debtor’s assets in exchange for consideration of approximately $43,500,000 in aggregate value to the Debtor’s estate. The proposed transaction (the 'Stalking Horse Bid') provides significant benefits, including (i) the continuation of the Debtor’s business as a going concern, (ii) the credit bid of the Indebtedness in satisfaction of all amounts outstanding under the $18,000,000 DIP facility, (iii) the provision of cash proceeds sufficient to satisfy the administrative expense claims in this chapter 11 case, in each case as contemplated by the Stalking Horse APA, and (iv) no less than a $17 million escrow (in a final amount to be agreed to by the Purchaser and the Port Authority) to provide the Port Authority with adequate assurance of future performance to ensure that any non-monetary defaults would be cured promptly after assumption and the leased premises would be brought into compliance with law, if necessary, and maintained in compliance therewith."
Key Terms of the Stalking Horse APA:
Pursuant to the Stalking Horse APA, JMB will acquire substantially all of the Debtor’s assets in exchange for consideration of approximately $43,500,000 in aggregate value to the Debtor’s estate.
- Stalking Horse Bidder: JMB Capital Partners Lending, LLC
- Consideration: The consideration for the Assets shall be (i) a sum in the amount set forth on Schedule 3 to the Stalking Horse APA at Closing (the “Closing Payment”) provided, however, the Closing Payment shall not exceed $8.5mn, (ii) a credit bid in an amount equal to 100% of the the Debtor’s DIP Indebtedness (ie $18.0mn, the “Credit Bid"); (iii) no less than $17.0mn (the “Ground Lease Escrow”) to be funded to an escrow account, in a final amount to be agreed to by the Purchaser and the Port Authority, to be used solely in connection with curing any non-monetary defaults under the Ground Lease, including bringing the Property into compliance with law, if necessary, and maintaining it in compliance therewith; and (iv) the assumption of the Assumed Liabilities
- Bid Protections: If Seller’s sale process generates an all cash bid of at least Forty Five Million and 00/100 Dollars ($45,000,000.00) (such bid, an “Alternative Bid”), then Seller shall have the right to pursue such Alternative Bid; provided, however, that if Seller closes on such Alternative Bid, then the Deposit shall be promptly refunded to Purchaser and Seller shall pay to Purchaser, as a breakup fee, an amount equal to 3.0% of the Closing Payment, the Credit Bid, and the Ground Lease Escrow (the “Breakup Fee”) and reimburse Purchaser for its expenses in an amount not to exceed Three Hundred Fifty Thousand and 00/100 Dollars ($350,000.00) (the “Expense Reimbursement,” and with the Breakup Fee shall be referred to herein collectively as, the “Bid Protections”).
The Purchaser may credit bid the Bid Protections in the event the Seller conducts an auction for the Purchased Assets.
Revised Key Dates:
- Deadline to File Objections to the Sale, the Stalking Horse Bidder, and the Sale Order: August 5, 2021
- Bid Deadline: August 6, 2021
- Auction (if required): August 10, 2021
- Sale Hearing August 12, 2021
The supplemental motion states, “In the nearly three months since the Monarch APA was signed, the Debtor has worked tirelessly with the Monarch Purchaser, the Port Authority, and New York City Regional Center LLC, on behalf of itself and its managed funds George Washington Bridge Bus Station and Infrastructure Development Fund, LLC and George Washington Bridge Bus Station and Infrastructure Fund, Phase II, LLC (‘NYCRC’) to negotiate the documents ancillary to the Monarch APA, including the Required Ground Lease Amendment, which would modify the economics of the Ground Lease in certain respects, and the Ground Lease Estoppel, which Monarch Purchaser insisted could only reference certain defaults. Throughout these negotiations, the Monarch Purchaser insisted that it was unwilling to close on a sale pursuant to the terms of the Monarch APA unless the Required Ground Lease Amendment and clean Ground Lease Estoppel were delivered. At the same time, the Port Authority held to its position that it was not obligated to modify the Ground Lease and that the leased premises needed to be brought into compliance with law at the time of assumption, if necessary, and maintained in compliance with law thereafter. The Port Authority also provided information regarding potentially acceptable forms of adequate assurance in connection with the assumption of the Ground Lease that had not been contemplated in the Monarch APA.
In the meantime, in late May 2021, JMB, in its capacity as the Debtor’s DIP lender, learned that the Monarch Purchaser’s insistence on the Required Ground Lease Amendment and clean Ground Lease Estoppel and the Port Authority’s adequate assurance request had become stumbling blocks in the negotiations among the Debtor, the Monarch Purchaser, the Port Authority, and NYCRC. Thereafter, JMB approached the Debtor and indicated that it would be willing to serve as a stalking horse bidder in lieu of the Monarch Purchaser by, among other things, credit bidding 100% of the Debtor’s Indebtedness to it under that certain Superpriority Senior Secured Debtor-in-Possession Loan Agreement by and among the Debtor and JMB dated August 15, 2020. JMB advised the Debtor that it would not condition any sale on the closing conditions that made the Monarch Purchaser unlikely to close on the Monarch APA and that it would be able to demonstrate adequate assurance in a manner acceptable to the Port Authority. Specifically, JMB agreed that it would bring the leased premises in compliance with law, if necessary, and would thereafter maintain it in compliance therewith and would establish an escrow to fund any such obligations and any other remediations necessary to cure any other non-monetary defaults under the Ground Lease.
JMB reiterated its interest in serving as a stalking horse bidder on several occasions in late May and early June 2021 as the negotiations between the Debtor, the Monarch Purchaser, the Port Authority, and NYCRC continued to stall. Indeed, by early June, it was increasingly evident to the Debtor and JMB that there was no clear path to closing on the Monarch APA in light of the ongoing disputes as described above.
On June 14, 2021, JMB presented the Debtor with a non-binding term sheet for the purchase of substantially all of the Debtor’s assets. JMB’s term sheet did not require the Debtor to provide a Ground Lease amendment, did not require the Port Authority to deliver a clean estoppel, and contemplated an escrow of no less than $17 million to be used to cure any non-monetary defaults under the Ground Lease, bring the leased premises in compliance with law, if necessary, and maintain it in compliance therewith. Thereafter, the Debtor and JMB negotiated the Stalking Horse APA in good faith and at arm’s length.
On June 17, 2021, the Monarch Purchaser sent the Debtor a Notice of Reservation of Purchaser’s Rights (the ‘ROR Letter’) in which it alleged that it was entitled to terminate the APA in light of the fact that the Debtor had failed to (i) deliver the Required Ground Lease Amendment within the timeframe prescribed in the APA, as set forth in Section 5(c)(vi) thereof, and (ii) satisfy the Plan Milestone requiring it to secure a confirmation order by June 4, 2021, subject to the Court’s availability, with the Court having been available for a hearing on June 16, 2021 but no confirmation hearing having taken place and no Order having been entered, as set forth in more detail in Section 5(c)(x) of the APA. The Monarch Purchaser concluded the ROR Letter with the following: ‘at this time Purchaser intends to continue working with [the Debtor], the Senior Secured Lender and the Port Authority to try to find a mutually agreeable resolution to the issues that have arisen with respect to the transactions contemplated by the APA.’ Thereafter, on June 23, 2021, the Debtor received an email from counsel to the Monarch Purchaser (the ‘June 23rd Email’) informing the Debtor that ‘[the Purchaser] is not currently willing to agree to Debtor’s proposed extension of the deadlines under the APA or the bankruptcy case’ and concluding that although ‘Monarch [Purchaser] remains committed to the original deal that was struck in the [Monarch] APA . . . it is difficult to see how that deal can move forward.’
At this time, having reviewed the Monarch APA, the ROR Letter, the June 23rd Email, and the Stalking Horse APA, the Debtor has determined that the Stalking Horse APA represents the highest and best offer for the Debtor’s assets in light of the fact that it does not present the closing risks that the Monarch APA presented. Accordingly, on June 23, 2021, the Debtor sent the Monarch Purchaser a letter exercising its right, pursuant to Article 11 of the Monarch APA, to terminate the Monarch APA as the Debtor had determined that proceeding with the transactions contemplated therein would be inconsistent with its fiduciary duties under applicable law. Thereafter, on June 25, 2021, the Debtor and JMB signed the Stalking Horse APA."
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