December 16, 2021 – In advance of their December 20th confirmation hearing, the Debtors have filed (i) a modified First Amended Plan which attaches a blackline showing changes to the version filed on November 1, 2021 [Docket No. 1851], (ii) a memorandum of law in support of Plan confirmation (the "Memorandum") [Docket No. 1840], (iii) Plan voting results [Docket No. 1846] and (iv) a proposed confirmation order [Docket No. 1857]. The amended Plan does not include amendments to the treatments of classes and claims which are otherwise summarized (unchanged) below.
The Memorandum makes for a good read, both in providing an excellent summary of the where the Debtors' Plan stands on the cusp of their confirmation hearing and a clear summary of the bitter battle between the Debtors and their former principals Taylor Woods and Howard Wu…whose objection to the Plan remains the last real barrier to Plan confirmation.
The Memorandum is a plea to the Court to extrapolate its already voiced characterization of Woods and Wu as "fraudsters," within the limited context of their misappropriation of $2.4mn of PPP loans, into to a broader view that Woods and Wu's objection is devoid of merit on legal and ethical arguments.
Woods and Wu, who claim that the Debtors owe them $250.0mn, want the Court to stay confirmation proceedings pending an appeal of orders issued earlier by the bankruptcy Court (including in respect of the PPP loan), but any stay, the Debtors argue, would be an existential threat to the Plan that not only needs to be confirmed this week but must actually go effective (and make distributions) by December 31st.
The nature of the Woods and Wu objection, and its request for a stay, is problematic for the Court in that it not only relates to an extremely complicated business and bankruptcy pitting the Debtors against their former principals…it also directly impugns the conduct of the Court itself. Woods and Wu argue that orders of the Court, issued while they did not have counsel to represent them* have denied them due process. On August 12th, the Court gave the pair 28 days to find replacement lawyers and on September 17th the Court rejected a request for more time to continue their search. As a result of "[T]his shocking denial resulted in the following substantial and catastrophic events in the proceedings, which denied Appellants their due process. None of Appellants substantial claims were heard by the Bankruptcy Court on their merits."
* The pairsr Delaware counsel suddenly withdrawing on August 12th [the Debtors suggesting due to a failure to pay fees] and Woods and Wu apparently unable to find anyone in the State of Delaware to represent them until September 15th).
The Debtors' Memorandum, lists a laundry list of legal arguments as to why the Court should deny the request for a stay of Plan confirmation before falling back on its "dirty hands" argument as to objectors "lacking any ethical or moral compass" and reminding the Court that "The Court has already recognized Woods and Wu for what they are: ‘fraudsters.’ The Court should not now let them delay (let alone block) the successful resolution of these chapter 11 cases when no legitimate reason exists to do so."
What is not entirely clear is whether the Plan does in fact turn into a pumpkin at the stroke of midnight on December 31st as the Memorandum posits in bold italics: "The Plan Settlement, however, is conditioned upon the Plans going effective, and material distributions being made to creditors (e.g., over $360 million to the Prepetition Lenders) by December 31, 2021. Moreover, requiring the Liquidating Debtors to reserve for the amount of the disallowed Woods and Wu claims would trigger a termination event under the PSA, thereby causing the Plans to fail entirely. If Woods and Wu have their way and confirmation is delayed or the Liquidating Debtors were required to reserve for their disallowed claims, the Plan Settlement will be lost and creditors would be materially harmed."
Plan Overview
The Memorandum notes, “The Debtors commenced these chapter 11 cases less than one year ago amidst a perfect storm of business calamities, caused initially by the misconduct of their former principals, Taylor Woods (‘Woods’) and Howard Wu (‘Wu’), and then exacerbated by the global pandemic. For more than a year before these cases, Woods and Wu, plagued by pervasive conflicts of interest, used the Master Lessee entities they owned and controlled to enrich themselves at the expense of the Debtors, their lenders, creditors, and other stakeholders (including by, among other things, failing to pay taxes the Master Lessees were obligated to pay at the hotels, causing the taxing authorities to assert millions of dollars of claims against the Debtors), while simultaneously defaulting on their obligation to pay rent under their lease agreements with the Debtors, which directly resulted in defaults under, and the acceleration of, the Debtors’ Prepetition Credit Facility. This, in turn, led to the Debtors’ cash accounts either being frozen or only accessible under forbearance agreements with the Prepetition Agent (on behalf of the Prepetition Lenders). The Debtors attempted to right the ship through the appointment of the CRO and the retention of independent professionals in April 2020, whose efforts culminated in an attempted out-of-court restructuring in December 2020. When that out-of-court restructuring failed because it was not supported by sufficient number of EH REIT’s unitholders, the Debtors were left with no alternative but to commence these chapter 11 cases on January 18, 2021.
From the outset of these cases, the Debtors’ sole focus has been to maximize value to all stakeholders. The Debtors have explored all options, including an extensive and thorough marketing and sale process. After the Debtors obtained a stalking horse bid from an affiliate of Monarch Alternative Capital LP (which was also the Debtors’ DIP Lender) for substantially all their assets, the Debtors sought (and obtained) Court approval of bidding procedures for the sale of all their hotel properties. Importantly, as part of this process, the Debtors continued to seek proposals to reorganize and emerge from chapter 11 as a viable, reorganized business. Ultimately, however, no recapitalization proposal was proffered that was feasible and/or superior to the sale of substantially all of the assets of the Liquidating Debtors. Accordingly, the Debtors’ sale and marketing process culminated in an auction on May 18, 2021 and the Court’s approval of a series of sales of the Liquidating Debtors’ hotel properties, generating more than $480 million in gross proceeds. These proceeds will deliver significant value to the Liquidating Debtors’ creditors, including general unsecured creditors.
Since completing their asset sales in June 2021, the Liquidating Debtors have continued negotiations with their stakeholders, and, in October 2021, reached agreement with the Committee, certain members of the Committee in their individual capacity, the Prepetition Agent, and the Prepetition Lenders on a global settlement of numerous inter-Debtor, Debtor creditor, and intercreditor issues, including issues regarding substantive consolidation, the validity and enforceability of Intercompany Claims, the allocation of Administrative Expense Claims, and the treatment of claims held by entities that do not have contractual privity with the Liquidating Debtors. Not only are the Committee and the Prepetition Agent co-proponents of the Plans, but the Liquidating Debtors have been able to negotiate what is a fully consensual plan that is supported by virtually all their creditors and meets each element necessary for confirmation under the Bankruptcy Code. In fact, all Classes entitled to vote on the Plans (and for which ballots were received) overwhelmingly voted to accept the Plans. In other words, no Class entitled to vote on the Plans voted to reject the Plans. In fact, out of the 265 ballots received, only four (4) creditors (with aggregate claim amount of less than $25,000 and which fall within the Convenience Class) voted to reject the Plans.
The Woods and Wu Objection
On the other side of this overwhelming support stand the only parties opposing confirmation: Woods and Wu. Due to their extensive conflicts of interest and lack of any ethical or moral compass, Woods and Wu have stopped at nothing—including outright fraud and theft—to advance their own personal interests at the expense of the Debtors and their creditors. Indeed, the Court has already entered a judgment of more than $2.4 million against Woods and Wu in connection their fraudulent PPP loan and has observed that Woods and Wu may be engaging in additional fraudulent conduct to avoid compliance with this Court’s preliminary injunction order. The Debtors have also sued Woods and Wu and their companies for millions of dollars in damages in connection with additional fraudulent conduct and prepetition breaches of contract.
Against this backdrop, it is remarkable that Woods and Wu—the individuals almost singlehandedly responsible for the financial destruction of the Debtors and harm to creditors—now paint themselves as innocent victims who were not treated fairly in these cases and ask the Court to undo the extensively negotiated Plan Settlement and delay confirmation while they pursue appeals of the Courts’ orders disallowing the claims that the Woods and Wuowned and controlled Master Lessees filed against the Debtors’ estates. By advancing this argument, Woods and Wu, yet again, seek to further their own personal interests to the detriment of the Debtors and their other stakeholders. Their objection should be overruled. The Court properly disallowed the Master Lessees’ claim in full when they failed—despite multiple chances spanning more than two and a half months—to engage new counsel following the withdrawal of their former counsel due to Woods and Wu’s own conduct in failing to pay their legal fees. Because their claims have been disallowed, neither the Master Lessees nor Woods and Wu have standing to oppose confirmation—nor do they have any argument that the Plans do not satisfy the requirements for confirmation under the Bankruptcy Code in any event.
Left with no alternative, Woods and Wu effectively ask the Court to (prematurely) grant them a stay of the confirmation order pending appeal. This argument fails for a number of reasons. If Woods and Wu had wanted to obtain a stay pending appeal, they should have done so at the time they initiated their appeals of this Court’s orders disallowing their claims, but they did not do so and cannot now complain of the consequences. Even if Woods and Wu were entitled to seek a stay pending appeal (and even if such a request were procedurally proper at this time), the factors that courts consider in assessing such a stay weigh overwhelmingly in the Debtors’ favor. This is so because (i) Woods and Wu have virtually no chance of prevailing on appeal; (ii) they will not be prejudiced by the lack of a stay pending appeal because their claims against the Debtors lack merit for the reasons set forth in the Debtors’ claim objection (and were improperly advanced as set forth in the Prepetition Agent’s claim objections), and Woods and Wu have provided no arguments or evidence to the contrary; (iii) the public interest strongly favors not allowing established bad actors such as Woods and Wu to delay the confirmation process; and (iv) the Debtors and their creditors will suffer great harm if a stay is granted. On this last point, it must be emphasized that the carefully negotiated Plan Settlement provides millions of dollars for distributions to general unsecured creditors, the funding of a litigation trust, and the funding of wind-down expenses in Singapore. The Plan Settlement, however, is conditioned upon the Plans going effective, and material distributions being made to creditors (e.g., over $360 million to the Prepetition Lenders) by December 31, 2021. Moreover, requiring the Liquidating Debtors to reserve for the amount of the disallowed Woods and Wu claims would trigger a termination event under the PSA, thereby causing the Plans to fail entirely. If Woods and Wu have their way and confirmation is delayed or the Liquidating Debtors were required to reserve for their disallowed claims, the Plan Settlement will be lost and creditors would be materially harmed.
The Court has already recognized Woods and Wu for what they are: ‘fraudsters.’ The Court should not now let them delay (let alone block) the successful resolution of these chapter 11 cases when no legitimate reason exists to do so. For all these reasons, and as further detailed below, the Liquidating Debtors respectfully submit that the Plans should be confirmed.”
Plan Overview
The Amended [staid in comparison] Disclosure Statement [Docket No. 1528] adds: “Following the closing of the sale of the Debtor Propcos’ 14 Hotel Assets in June 2021, the Liquidating Debtors, the Committee, and the Prepetition Agent engaged in discussions to formulate a chapter 11 plan of liquidation for the distribution of net sale proceeds to the Debtors’ creditors and other stakeholders.
The negotiations ultimately resulted in the Plans that incorporate the Plan Settlement reflected in a Plan Support Agreement (‘Plan Support Agreement’ [approved by the Court on November 2nd, Docket No. 1564]) among the Liquidating Debtors, the Committee, the Prepetition Agent, certain members of the Committee (in their individual capacities), and certain Holders of Prepetition Lender Claims (collectively, the ‘PSA Parties’). The Plan Settlement reflects a good faith compromise and settlement of numerous inter-Debtor, Debtor-creditor, and intercreditor issues, including issues regarding substantive consolidation, the allocation of sale proceeds among the Liquidating Debtors, the validity and enforceability of Intercompany Claims, the allocation of Administrative Expense Claims, the funding of the wind-down of the Singapore Debtors, and the treatment of Claims held by Entities that do not have contractual privity with the Liquidating Debtors.
Among other things, the Plan Settlement is designed to achieve a reasonable economic settlement of disputed Claims against the Liquidating Debtors and an efficient resolution of the Chapter 11 Cases.
The Plan Settlement – which is conditioned upon the Plans going effective on or before December 31, 2021 – provides for certain guaranteed minimum distributions on the Effective Date to (i) the Prepetition Agent on behalf of the Prepetition Lenders and (ii) Holders of Other General Unsecured Claims (e.g., general unsecured creditors other than the Prepetition Lenders) and Convenience Claims against the Debtor Propcos. There is the potential for additional recoveries post-Effective Date as well.
In addition, as part of the Plan Settlement, the Plan provides, among other things, that
- As part of the Plan Settlement, the Prepetition Lender Claims will be Allowed in each Plan, on a joint and several basis against each Liquidating Debtor, in an aggregate amount of no less than $380,513,355 (which is calculated as the sum of principal, accrued prepetition interest, prepetition charges, Swap obligations (but not post-petition interest), gross-up obligations, agent fees, and professional fees, after taking into account the reduction of such amounts as a result of the exercise of the Lender Setoff Rights);
- On the Effective Date, the Prepetition Agent will receive, on account of the Prepetition Lender Claims, (a) the Guaranteed Prepetition Agent Distribution in the amount of $360.161 million on account of the Prepetition Lender Claims, (b) beneficial interests in the Liquidating Trust which entitle the Prepetition Agent, on account of the Prepetition Lender Claims, to additional Distributions on account of both Liquidating Trust Interests (Propcos) and Liquidating Trust Interests (Non-Propcos) in accordance with the Plans, including, but not limited to, the Prepetition Agent Fee Payment in the amount of $2.64 million, and (c) postpetition default interest and Postpetition Charges (to the extent not included in the $380,513,355) to the extent entitled thereto under applicable law and in accordance with the Plans;
- Holders of Other General Unsecured Claims against the Debtor Propcos will receive (a) their pro rata share of the Guaranteed Other GUC Distribution in the amount of $15.083 million and (b) beneficial interests in the Liquidating Trust that entitle such Holders to additional Distributions from the Liquidating Trust Propco Assets (i.e., the Other GUC Distribution) in accordance with the predetermined formula under the Plans. In particular, under that formula, the Distributions on account of Liquidating Trust Propco Assets and the proceeds thereof shall be allocated as follows (in each case, to the extent there is sufficient cash available): first, a one-time payment of $2.64 million to the Prepetition Agent, on behalf of the Prepetition Lenders, on account of the Prepetition Lender Claims; second, with respect to the next $12.5 million of available cash (i.e., the Tier 1 Value Range), the Prepetition Agent, on behalf of the Prepetition Lenders, will receive 75% of such cash and Class 5 creditors will receive 25% of such cash; and third, with respect to any further available cash (i.e., the Tier 2 Value Range), the Prepetition Agent, on behalf of the Prepetition Lenders, will receive 25% of such cash and Class 5 creditors will receive 75% of such cash. These distributions were heavily negotiated as part of the Plan Settlement (all as further detailed in Section V.A below and in Sections 6.2 and 6.3 of the Plans). To be clear, no assurances can be given at this time as to the extent, if any, of any distributions from the Liquidating Trust Propco Assets which will depend upon various factors including (i) available Cash after payment of all Allowed Administrative Expense Claims, Priority Claims and Secured Claims and (ii) proceeds from the liquidation of any remaining assets which may largely consist of future litigation recoveries (if any); and
- Holders of Convenience Claims against the Debtor Propcos will receive a pro rata share of the Convenience Class Distribution in the aggregate amount of $1.601 million.
Importantly, the allocation of Distributions may be modified from time to time with retroactive effect to the extent necessary to normalize the percentage recoveries of Allowed Other General Unsecured Claims and to ensure that no Holder of an Allowed Other General Unsecured Claim against a Debtor Propco will receive a lower percentage recovery on account of such Claim as a result of the Plan Settlement Allocation than they otherwise would have received in the absence of the Plan Settlement (i.e., under a ‘pure’ waterfall scenario on a Debtor-by-Debtor basis, without any reallocations of distributions) nor shall any Holders of Allowed Other General Unsecured Claims against any Debtor Propco receive a greater percentage recovery on account of such Claims than the aggregate percentage recovery on account of Prepetition Lender Claims.
In addition to providing for certain guaranteed recoveries, the Plan Settlement also resolves and settles potential defenses that might otherwise have been raised to certain types of Claims; specifically Claims held by parties that had provided goods and/or services to a Debtor Propco Hotel but at the time had no contract with such Debtor Propco in its legal name. In particular, the Plans provide that the Settled Vendor Claims will be entitled to a Distribution as Other General Unsecured Claims, notwithstanding the Liquidating Debtors’ belief that such parties lack contractual privity with the Liquidating Debtors (while preserving the Liquidating Trustee’s ability to object to such Claims on any other basis). This settlement does not address all potentially disputed Claims and, consistent with the Plan Settlement, the Debtors have already filed objections against the Claims of certain sophisticated creditors who specifically contracted with the Master Lessees but not the Debtor Propcos. To date, and as further detailed in Sections IV.M below, the Debtors have reached agreements in principle to settle the Non-Privity Claims of one Hotel Manager and one Franchisor by granting such claimants Allowed Other General Unsecured Claims in amounts of less than 10% of the asserted Claim amounts.
Furthermore, the Plans will distribute beneficial interests in the Liquidating Trust to creditors of the Debtor Non-Propcos (including the Prepetition Lenders and, for the avoidance of doubt, creditors of EH REIT) and equityholders of EH REIT, which will entitle such creditors and equityholders to a Distribution to the extent there is sufficient value available at the corresponding Debtor Non-Propco level (in accordance with their relative priorities, and as further detailed in the Plans). However, no assurance can be provided that Holders of Other General Unsecured Claims against EH-REIT, EH REIT Equity Interests, or EH REIT Section 510(b) Claims will receive any Distribution on account of such beneficial interests.
Finally, the Plan Settlement resolves disputes among the Plan Proponents concerning the funding request relating to the wind-down of the Singapore Debtors. Under the Plan Settlement, the Plan Proponents have agreed to make available certain additional Cash to the Singapore Debtors to fund the orderly wind-down of the Singapore Debtors under Singapore law. The REIT Trustee will have authority over the wind-down of the Singapore Debtors. Furthermore, the REIT Trustee will have standing and be entitled to investigate, and, if appropriate, pursue certain potential Causes of Action that EH REIT may have, including against the former REIT Manager and/or its directors and/or officers. The net proceeds of any such litigation recoveries (after first making certain payments to the Debtor Propcos in consideration for the provision of funding for the wind-down of the Singapore Debtors and the investigation of EH REIT Causes of Action, if any) would be distributed to Holders of Allowed Claims against EH REIT, and, if such Claims are paid in full, to Holders of EH REIT Equity Interests. Notably, the Liquidating Trustee shall investigate and prosecute any Causes of Action belonging to the Estates other than the EH REIT Causes of Action.”
The Committee’s response in support adds the following useful summary (especially as to the treatment of general unsecureds): “The Committee would like to highlight just a few of the many negotiated benefits that the Plan Settlement and Plan provides to general unsecured creditors of the Liquidating Debtors:
- Guaranteed minimum distributions on the Effective Date in the amount of (i) $15,083,000 to Holders of Other General Unsecured Claims (with a separate allocation of $1,601,000 for Holders of Convenience Claims equal to or under $50,000) and (ii) $360,161,000 to the Prepetition Agent on behalf of the Prepetition Lenders.
- There is also the potential for additional recoveries for unsecured creditors of the Liquidating Debtors after the Effective Date through a mechanism that allocates value among the Holders of Prepetition Lender Claims and Holders of Other General Unsecured Claims according to a negotiated formula based on the amount of the available funds that may be distributed. Such funds would come from any Cash available (i) after the payment of Allowed Administrative Expense, Priority or Secured Claims and (ii) after the liquidation of any remaining assets of the Liquidating Debtors, which would largely consist of proceeds of litigation (if any) brought by the Liquidating Trustee (under the supervision of the Oversight Committee). As with all aspects of the Plan Settlement, the sharing percentages and ‘tiers’ were heavily negotiated by the Committee, initially, with the Prepetition Agent and, thereafter, the Liquidating Debtors.
- The Plan Settlement also settles numerous potential controversies as described in the Disclosure Statement, including the funding of the estates of the Liquidating Debtors and the Singapore Debtors. The Plan Settlement also provides for the waiver of certain claims including preference claims against Holders of Settled Vendor Claims that actually provided goods and services for the Hotels and who do not vote to reject the Plan.”
The following is an unchanged summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):
- Class 1 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $2.0mn and expected recovery is 100%.
- Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $0.5mn and expected recovery is 100%.
- Class 4 (“Prepetition Lender Claims against Debtor Propcos”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $380.5mn and expected recovery is 97.4%. On the Effective Date, the Prepetition Agent shall receive on account of the Prepetition Lender Claims (a) the Guaranteed Prepetition Agent Distribution [ie $360.2mn] and (b) Liquidating Trust Interests (Propco) which entitle the Prepetition Agent, on account of the Prepetition Lender Claims, to the Prepetition Agent Fee Payment, net sale proceeds from sale of real property owned by Non-Debtor Dallas to the extent set forth in the definition of Liquidating Trust Propco Assets, and the Prepetition Lender Trust Distribution until such Claims are paid in full (including any postpetition default interest and Postpetition Charges to the extent entitled thereto under applicable law). The Prepetition Agent, on behalf of the Prepetition Lenders, shall receive Liquidating Trust Interests (Propco) evidencing the right to receive any Distributions that cannot be made as of the Effective Date.
- Class 5 (“Other General Unsecured Claims against Propcos”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $31.1mn and expected recovery is 55.7%. Each Holder shall receive (i) its pro rata share of the Guaranteed Other GUC Distribution [ie $15.1mn] and (ii) Liquidating Trust Interests (Propco) which entitle such Holder to receive on account of its Allowed and unpaid Other General Unsecured Claim, its pro rata share of the Other GUC Trust Distribution until such Allowed Other General Unsecured Claim is paid in full (including any postpetition interest to the extent entitled thereto under applicable law), in each case subject to the Plan Settlement. Holders of Allowed Other General Unsecured Claims against the Debtor Propcos shall receive Liquidating Trust Interests (Propco) evidencing the right to receive any such Distributions that cannot be made as of the Effective Date. To the extent necessary to effectuate Distributions, Holders of Other General Unsecured Claims are the beneficiaries of the Plan Settlement Allocation. To the extent that any portion of the Guaranteed Other GUC Distribution cannot be made to Other General Unsecured Claims on the Effective Date, such portion of the Guaranteed Other GUC Distribution shall be made to the Liquidating Trust, for the benefit of Holders of Other General Unsecured Claims, and such Distributions to Holders of Other General Unsecured Claims shall be made as soon as reasonably practicable after the Effective Date and in any event no later than March 31, 2022 unless further extended by the Liquidating Trustee with the consent of the Oversight Committee.
- Class 6 (“Convenience Claims against Propcos”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $2.3mn and expected recovery is 68.8%. Each Holder shall receive its pro rata share, not to exceed the amount of the Allowed Convenience Claim, of the Convenience Class Distribution on the later of (i) the Effective Date of the Plan or (ii) ten (10) business days after the date on which such Convenience Claim becomes an Allowed Convenience Claim, or as soon as reasonably practicable thereafter as determined by the Liquidating Trustee; provided, however, that in no event shall the recovery percentage on account of a Convenience Claim be less than 50%. To the extent necessary to effect Distributions to Holders of Convenience Claims, such Holders shall also be deemed beneficiaries of the Plan Settlement Allocation.
- Class 7 (“Secured Prepetition Lender Non-Propco Claims against Debtor Non-Propcos”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 8 (“Prepetition Lender Claims against Debtor Non-Propco”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $380.5mn and expected recovery is not applicable. After payment in full of all A/P/S Claims (to the extent required) and Secured Prepetition Lender Non-Propco Claims, any remaining Cash at each Debtor Non-Propco shall be distributed on a pro rata basis to the Prepetition Agent (on account of the Prepetition Lender Claims) until the Prepetition Lender Claims are paid in full (including any postpetition interest to the extent entitled thereto under applicable law) and Holders of Allowed Other General Unsecured Claims, subject to (a) all third party contractual rights of subordination and pay-over available to the Prepetition Agent and/or the Prepetition Lenders and (b) with respect to the Plan for EHT US1, the subordination and pay-over rights of the Prepetition Agent and the Prepetition Lenders under the EHT Cayman Subordination Agreement for any Distributions on account of the EHT Cayman Loan, to the extent provided in such document and subject to applicable law. Such pro rata share shall be a fraction where the numerator shall be the aggregate amount of Prepetition Lender Claims and the denominator the sum of the aggregate amount of Prepetition Lender Claims (to the extent such Prepetition Lender Claims are not Secured Prepetition Lender Non-Propco Claims) and all Allowed Other General Unsecured Claims against such Debtor Non-Propco. Holders of Prepetition Lender Claims shall receive Liquidating Trust Interests (Non-Propco) evidencing the right to receive any such Distributions that cannot be made as of the Effective Date.
- Class 9 (“Other General Unsecured Claims against Debtor Non- Propcos”) is impaired and entitled to vote on the Plan (Plans of Debtor Non-Propcos other than EH REIT) / Deemed to Reject (Plan of EH REIT). The aggregate amount of claims is $137.2mn and expected recovery is 0.0%. After payment in full of all A/P/S Claims (to the extent required) and Secured Prepetition Lender Non-Propco Claims, any remaining Cash at each Debtor Non-Propco shall be distributed on a pro rata basis to the Prepetition Agent (on account of the Prepetition Lender Claims) and Holders of Allowed Other General Unsecured Claims until such Allowed Other General Unsecured Claim are paid in full (including any postpetition interest to the extent entitled thereto under applicable law), subject to (a) all third party contractual rights of subordination and pay-over available to the Prepetition Agent and/or the Prepetition Lenders and (b) with respect to the Plan for EHT US1, the subordination and pay-over rights of the Prepetition Agent and the Prepetition Lenders under the EHT Cayman Subordination Agreement for any Distributions on account of the EHT Cayman Loan, to the extent provided in such document and subject to applicable law. Such pro rata share shall be a fraction where the numerator shall be the amount of the Allowed Other General Unsecured Claim and the denominator the sum of the aggregate amount of Prepetition Lender Claims (to the extent such Prepetition Lender Claims are not Secured Prepetition Lender Non-Propco Claims) and all Allowed Other General Unsecured Claims against such Debtor Non-Propco. Holders of Other General Unsecured Claims against the Debtor Non-Propcos shall receive Liquidating Trust Interests (Non-Propco) evidencing the right to receive any such distributions that cannot be made as of the Effective Date.
- Class 10 (“Intercompany Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 11 (“Liquidating Debtors Intercompany Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 12 (“EH REIT Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 13 (“EH REIT Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
Voting Results
On December 15, 2021, the Debtors’ claims agent notified the Court of the Plan voting result which were as follows [Docket No. 1846]:
- Class 4 (“Prepetition Lender Claims against Debtor Propcos”), Class 5 (“Other General Unsecured Claims against each Debtor Propco”), Class 6 (“Convenience Claims against each Debtor Propco”): Did not vote
- Class 8 (“Prepetition Lender Claims against each Debtor Non-Propco”): 8 claim holders, representing $359,283,031 in amount and 100% in number, accepted the Plan.
- Class 9 (“Other General Unsecured Claims against each Debtor Non-Propco” (other than Eagle Hospitality Real Estate Investment Trust): Abstained
Asset Sales
In June of 2021 the Debtors completes an asset sale process which saw the sle of their hotels generate $481.9mn of gross proceeds.
Sale Proceeds
On May 28, 2021, the Court hearing the EHT US1 cases issued orders approving asset purchase agreements and sales of the Debtors’ assets [Docket Nos. 793. 794, 795 and 797]. The APAs in respect of the sales are attached to their respective orders.
As previously reported, on May 20, 2021 the Debtors notified the Court of the successful bids for their non-auctioned assets and for five auctioned hotel properties [Docket No. 734].
The non-auctioned properties will be sold to stalking horse bidder Madison Phoenix LLC for a total purchase price of $326.5mn and include Holiday Inn Resort Orlando Suites Waterpark, Holiday Inn Denver East Stapleton, Renaissance Denver Stapleton Hotel, Holiday Inn Hotel & Suites Anaheim Disneyland, Holiday Inn & Suites San Mateo, Sheraton Pasadena Hotel, Crowne Plaza Danbury, Westin Sacramento and Embassy Suites Palm Desert, which accounts for $17.5mn of the total purchase price.
Meanwhile, the following chart lists the successful and back-up bids for the five auctioned properties:
The notice also points out that "As of the date hereof, there is no purchaser for the Queen Mary Hotel."
On March 24, 202, the Court hearing the EHT US1 cases issued an order approving (i) bidding procedures for the sale of substantially all of the Debtors’ assets, (ii) the selection of Madison Phoenix LLC as stalking horse (the “Stalking Horse Bidder,” $470.0mn opening bid comprised of cash less amounts outstanding under DIP financing arrangements) and (ii) a proposed timetable culminating in a May 20th auction (if necessary) and a May 28th sale hearing [Docket No. 503]. The executed March 7th stalking horse asset purchase agreement is attached to the order at Exhibit 4.
The Stalking Horse Bidder is an affiliate of Monarch Alternative Capital LP.
Petition Date Perspective
The Debtors are subsidiaries of Singapore's Eagle Hospitality Trust (“EHT”), with lead Debtor EHTUS1 created in 2019 to hold EHT's interest in US, hospitality-based real estate assets. In a 2019 prospectus, EHT described itself as: "Eagle Hospitality Trust ('EHT') is a hospitality stapled group comprising Eagle Hospitality Real Estate Investment Trust ('EH-REIT') and Eagle Hospitality Business Trust ('EH-BT'). EH-REIT is established with the principal investment strategy of investing on a long-term basis, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for hospitality and/or hospitality-related purposes, as well as real estate-related assets in connection with the foregoing, with an initial focus on the United States."
On January 8th, Singapore-based media reported on the resignation of 3 EHT board members, noting: "THREE Eagle Hospitality Trust (EHT) independent directors – Tarun Kataria, Lau Chun Wah and Kelvin Tan – who were among those previously arrested and released on bail, have resigned from the firm's board."
Those arrested included CEO Salvatore Takoushian and five other top executives of EHT as part of an ongoing investigation by Singapore police and the Monetary Authority of Singapore into alleged breaches of disclosure requirements.
On December 30, 2020, EHT, whose securities have been voluntarily suspended from trading on the SGX since March 2020 (following a default in respect of a $341.0mn loan facility), failed to win shareholder support for a change in REIT manager.
Amongst properties owned by the Debtors is the iconic ocean liner "Queen Mary," now docked in Long Beach, California
Debtors' Properties
Prepetition Capital Structure
As of the Petition date, the Debtors were liable in connection with funded indebtedness in an aggregate outstanding principal amount of approximately $509.9mn consisting of: (i) the $341.0mn in principal amount owed under Prepetition Credit Agreement secured, among things, by a pledge of the equity interests in fifteen Debtor Propcos, but not secured by mortgages on the Hotels owned by the Debtor Propcos; (ii) approximately $18.3mn of obligations incurred by Debtor USHIL Holdco in connection with a the Swap Agreement with Bank of the West, which shares in the collateral securing the obligations under the Prepetition Credit Agreement; (iii) approximately $61.6mn of loans secured by mortgages on the Hotels owned by the Non-Debtor Propcos; and (iv) an $89.0mn unsecured loan provided by Lodging USA Lendco, LLC (“Lendco”) to Debtor EHT US1, as borrowed thereunder.
FN18 Amounts are approximate principal amount outstanding as of the Petition date.
Key Documents
The following documents were attached to the Disclosure Statement:
- Exhibit A: Joint Plan of Liquidation
- Exhibit B: Disclosure Statement Order (Without Exhibits)
- Exhibit C: Corporate Structure
- Exhibit D: Liquidation Analysis
Liquidation Analysis (see Exhibit D of Disclosure Statement [Docket No. 1352] for Debtor-by-Debtor breakdown)
About the Debtors
The Debtors are subsidiaries of Singapore’s Eagle Hospitality Trust (“EHT”), with lead Debtor EHTUS1 created in 2019 to hold EHT’s interest in US, hospitality-based real estate assets. In a 2019 prospectus, EHT described itself as: “Eagle Hospitality Trust (‘EHT’) is a hospitality stapled group comprising Eagle Hospitality Real Estate Investment Trust (‘EH-REIT’) and Eagle Hospitality Business Trust (‘EH-BT’). EH-REIT is established with the principal investment strategy of investing on a long-term basis, directly or indirectly, in a diversified portfolio of income-producing real estate which is used primarily for hospitality and/or hospitality-related purposes, as well as real estate-related assets in connection with the foregoing, with an initial focus on the United States.”
On January 8th, Singapore-based media reported on the resignation of 3 EHT board members, noting: “THREE Eagle Hospitality Trust (EHT) independent directors – Tarun Kataria, Lau Chun Wah and Kelvin Tan – who were among those previously arrested and released on bail, have resigned from the firm’s board.”
Those arrested included CEO Salvatore Takoushian and five other top executives of EHT as part of an ongoing investigation by Singapore police and the Monetary Authority of Singapore into alleged breaches of disclosure requirements.
On December 30, 2020, EHT, whose securities have been voluntarily suspended from trading on the SGX since March 2020 (following a default in respect of a $341.0mn loan facility), failed to win shareholder support for a change in REIT manager.
Amongst properties owned by the Debtors is the iconic ocean liner “Queen Mary,” now docked in Long Beach, California.
Corporate Structure (see Exhibit C of Disclosure Statement [Docket No. 1352])
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