GVS Portfolio I B, LLC – Following Stipulation Amongst Debtors and Natin Paul-Controlled Entities, Court Confirms Debtors’ Plan; With Good Behavior, Mr. Paul Set for Return As Debtors’ Sole Officer

March 16, 2022 – At a March 16th hearing, the Court hearing the GVS Portfolio I B cases confirmed the Debtors' Fourth Amended Plan of Reorganization. An order has yet to be filed by the Court, but the Debtors did file a revised proposed order (and blackline) on March 16th [Docket No. 855] which reflects the perhaps surprising developments of the day before, ie the Stipulation and Agreed Order with World Class Holdings I, LLC (the “WCH Order”) [Docket No. 852] which could see the the once much maligned Natin Paul* "as the sole officer and director of the Debtors." 

* Mr. Paul is the founder and ultimate equity owner of the Debtors’ corporate parent GVS Portfolio I C, LLC (“TopCo Debtor”), see the structure chart below.

That eventuality hinges on the outcome of an ongoing investigation of Mr. Paul (the "549 Investigation" which continues at the direction of the Court) relating to alleged post-petition improprieties that ultimately led to a November 2021 "Governance Order" that saw Mr. Paul removed entirely from any involvement with, or management of, the Debtors in favor of Robert Albergotti as sole director.

The fact of the Governance Order pretty much summed up the universally shared (and low) opinion of Mr. Paul and followed multiple calls for the Debtors' cases to be converted to Chapter 7. Perhaps, that opinion has not changed much, with the receiver in respect of several affiliated non-Debtors noting in a March 16th filing [Docket No. 853] as to any attempt to re-install Mr. Paul at the helm of the Debtors: "Putting Mr. Paul in charge would be akin to putting the fox in charge of the henhouse."

What has changed, however, and what may very well pave the way for Mr. Paul's return to the henhouse, is money; ie asset sale proceeds that are comfortable more than enough to pay off everyone and effectively make Mr. Paul's accumulated shade (at least as to these Debtors) go away. If Mr. Paul can overcome the 549 Investigation and behave himself for 120 days, in all likelihood he will soon be comfortably reinconced as the Debtors' sole officer (albeit minus his sold business). More importantly for him, he may also be in control of almost $100.0mn (even after accounting for reserves, see table below).

Looking at the two key recent documents (ie the WCH Order and the proposed confirmation order):

From the WCH Order:

"The 549 Investigation shall be completed within 120 days following the entry of the order approving this Stipulation so long as World Class and all their affiliated enities, managers, and members cooperate reasonably with the the 549 Investigation. The Debtors may seek Court approval to extend the 120-day deadline if cooperation is not coming.

Upon the conclusion of the Claim resolution process and the 549 Investigation, subject to final Bankruptcy Court order, Mr. Paul shall be reinstated as the sole officer of the Debtors."

From the revised (proposed) confirmation order:

"When all Disputed Claims have become Allowed or Disallowed and all remaining Cash has been distributed in accordance with the Plan, the Disbursing Agent or Natin Paul ('Paul'), to the extent Paul is restored as the sole officer and director of the Debtors in accordance with the Stipulation and Agreed Order with World Class Holdings I, LLC (the 'WCH Order'), shall seek authority from the Bankruptcy Court to close the Chapter 11 Case of the Debtors in accordance with the Bankruptcy Code and the Bankruptcy Rules."

On March 9th, after completion of an auction held on February 28th, the Debtors notified the Court that stalking horse CBRE WWG Storage Partners JV III, LLC (the "Stalking Horser" or "Purchaser," an acquisition entity created by CBRE Investment Management, "a leading global real assets investment management firm with $133.1 billion in assets under management as of September 30, 2021) had been designated as their successful bidder with a bid of $588.25mn ($580.0mn cash). 

That result was a substantial improvement on the Stalking Horse's $450.0mn opening bid and dramatically changed things for the Debtors…and Mr. Paul.

The WCH Order notes as to the sales proceeds distribution/waterfall and "revised reserves":

Closing Statement

Revised Reserves (NB: the WCH Order reduces the "buffer" or "contingency reserve" from almost $15.0mn to $7.0mn): 

Asset Sale

On March 9, 2022, further to a February 1st revised bidding procedures order and completion of an auction held on February 28th, the Debtors filed a notice naming stalking horse CBRE WWG Storage Partners JV III, LLC (the "Stalking Horser" or "Purchaser") as their successful bidder (purchase price $588.25mn*) in respect of the sale of substantially all of their assets [Docket No. 788 as revised by Docket No. 789 to correct a typo in FN3 as to purchase price]. Public Storage was named as the backup bidder.

 * The total cash purchase price is $580.0mn, which is comprised of the $588.25mn successful bid less a $8.25mn credit in respect of the Stalking Horse bid protections.

Plan Overview

On June 17, 2021, GVS Texas Holdings I, LLC and 13 affiliated Debtors (“GVS” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Northern District of Texas, lead case number 21-31121 (Judge Jernigan). At filing, the Debtors, a holding company for a chain of storage unit businesses that spreads 10 states and over 60 locations, noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn.

The Fourth Amended Disclosure Statement [Docket No. 619] provides the following overview:

Key components of the Plan:

• Plan Overview. To ensure the Plan transactions contemplated herein maximize value for all stakeholders, the Debtors have obtained approval of the Original Bidding Procedures for the marketing and sale of their assets. The Original Bidding Procedures and, as may be ordered by the Court, the Revised Bidding Procedures, are incorporated into the Plan and will be implemented to effectuate the Sale, with the Net Sale Proceeds used to satisfy Claims and Interests in accordance with the Distribution Waterfall. Based on the Stalking Horse Bid, the Net Sale Proceeds are expected to be sufficient to satisfy the Allowed Claims of all creditors in full.
• Sale… The Debtors, in conjunction with their investment banker, Houlihan Lokey Capital, Inc. (‘Houlihan’), have been engaged in a robust marketing process for the sale of the Debtors’ Assets. As part of the Sale process, Houlihan contacted 229 potential investors, approximately 74 of whom executed non-disclosure agreements allowing them to gain access to the Debtors’ virtual data room. Several of those parties engaged with the Debtors about the possibility of serving as a stalking horse bidder, with the remainder indicating continued interest if and when the Assets went to auction. Ultimately, the Debtors selected CBRE WWG Storage Partners JV III, LLC (the ‘Stalking Horse Bidder’) as their stalking horse bidder, determining that such bid best served the purpose of promoting a competitive sale process and maximizing the value achieved by the Sale process. The Debtors and the Stalking Horse Bidder negotiated an arms’-length baseline bid for the aggregate total cash consideration of $450 million (the ‘Stalking Horse Bid’), which will be sufficient to pay all Allowed Claims of the creditors in full. The Debtors approved the selection of the Stalking Horse Bidder during a board meeting and the terms of the Stalking Horse Bid, as set forth in the Stalking Horse APA.
• The Stalking Horse Bid and Transition Services Agreement. At a hearing on January 31, 2022, the Debtors will seek Court approval of the Stalking Horse Bid. In sum, the Stalking Horse Bid provides for a baseline aggregate cash consideration of $450 million (the ‘Base Amount’) subject to certain holdbacks and/or deductions for contingency reserve and transition services. Further, certain bid protections are being sought for the Stalking Horse Bidder in the form of a 1.5% break-up fee and a $1,500,000 capped expense reimbursement (the break-up fee together with the capped expense reimbursement, the ‘Bid Protections’). Subject to Court approval of the Revised Bidding Procedures, the Auction will be moved from February 28, 2022 to February 21, 2022, with any overbids submitted at Auction equal to or in excess of the Stalking Horse Bid plus the Bidding Protections and $4,500,000 (i.e., $462,750,000). The Debtors have also filed the Debtors’ Motion for Entry of an Order (i) Authorizing the Sale of the Assets of the Debtors Free and Clear of All Liens, Claims, Encumbrances, and Other Interests; (ii) Authorizing the Assumption and Assignment of Executory Contracts and Unexpired Leases; and (iii) Granting Related Relief [Docket No. 574] (the ‘Sale Motion’). Among other things, the Sale Motion seeks authority to sell the Debtors’ Assets free and clear pursuant to section 363(f) of the Bankruptcy Code in accordance with the terms of the APA, approval of which remains subject to higher or otherwise better offer for the Assets at the Auction.
  • Additional material terms to the Stalking Horse Bid include (i) limited termination rights for the Stalking Horse Bidder; (ii) no due diligence contingency; (iii) limited conditions precedent to the Stalking Horse Bidder’s obligations to close, including but not limited to Court approval of the Revised Bidding Procedures, the entry of an order approving the Sale to the Stalking Horse Bidder, the requirement that there not be total events of loss between signing and Closing to one or more facilities of 5% of the Base Amount (approximately $22 million) and the delivery of closing deliverables as required by Article 8 of the Stalking Horse APA.
  • The Stalking Horse Bid also contains a proposed transition services agreement (the ‘Transition Services Agreement’), which, upon execution, will require the Property Manager to continue to provide certain property management services to the Stalking Horse Bidder through and until two Business Days after Closing of the Sale. Pursuant to the Transition Services Agreement, upon the completion of certain milestones set forth in the contract (the ‘Transition Milestones’), the Stalking Horse Bidder will release an additional $20 million (the ‘Transition Services Amount’) from escrow to the TopCo to be distributed for the benefit of Claim and Interest Holders.
• The Transition Services Agreement additionally provides that the Stalking Horse Bidder will be able to continue to use trademarks and selected related intellectual property for a period of up to nine months post-Closing. Successful execution and consummation of the Transition Services Agreement is not a condition to Closing nor will it directly impede the Closing of the APA. Rather, the Transition Services Agreement was designed to ensure an orderly transition of services from the Property Manager to the party that prevails at the Auction (as defined herein) The Stalking Horse Bid and the Transition Services Agreement allow the Debtors to maximize the value of their Assets and recoveries to the Estates, and to facilitate an orderly transition post-Sale to the Purchaser, which will allow for minimal disruption to the business. If the Stalking Horse Bid is approved, the Debtors expect that the Assets will generate Sale Proceeds sufficient to clear the secured debt and pay all of the Allowed Claims in full. To the extent an overbid is received at Auction, the excess amounts will increase the recovery to the Estates as contemplated in the Plan. Thus, the Stalking Horse Bid will facilitate a value-maximizing Auction and Sale process that inures to the benefit of the Debtors, their creditors, their interest holder and all other parties in interest.
• Claim Estimation Procedures. Pursuant to the Claim Estimation Procedures, the Debtors filed the Amended Supplement to the Debtors’ Motion for Order Determining Procedures for Estimating Claim Pursuant to 11 U.S.C. §§ 105(a) and 502(c) [Docket No. 453] (the ‘Estimation Supplement’). Thereafter, the Debtors filed the Certification of No Objection Regarding Estimation of Uncontested Claims in the Debtors’ Estimation Supplement and Notice of Revised Proposed Order [Docket No. 551] (and as may be further amended, supplemented, or revised, the ‘Revised Estimation Order’). Attached as Schedule 1 to the Revised Estimation Order are the proposed estimated claim amounts.
  • Pursuant to the Revised Estimation Order, with the exception of the claims identified below, each claim subject to the Revised Estimation Order is estimated at zero ($0.00). Claims estimated with a value greater than zero ($0.00) under the Revised Estimation Order are:
    • The claim of Princeton shall be estimated at $10,000,000.
    • The claim of American Builders & Contractor Supply shall be estimated at $118,918.
    • The claim of Melvin Van Brookshire shall be estimated at $487,977.32.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $2.4mn and expected recovery is 100%.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Senior Lender Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $127.2mn and expected recovery is 100%. 
• Class 4 (“PropCo Debtor Administrative Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 5 (“PropCo Debtor Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $13.0mn and expected recovery is 100%. The revised Disclosure Statement notes that claim holders are set to receive postpetition interest at the Federal Judgment Rate or contract rate.
• Class 6 (“PropCo Debtor General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $125.8mn and expected recovery is 100%.
• Class 7 (“Senior Mezz Lender Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 8 (“Senior Mezz Debtor Administrative Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The revised Disclosure Statement notes that claim holders are set to receive postpetition interest at the Federal Judgment Rate or contract rate.
• Class 9 (“Senior Mezz Debtor Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $124.6mn and expected recovery is 100%.
• Class 10 (“Senior Mezz Debtor General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 11 (“Junior Mezz Lender Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The revised Disclosure Statement notes that claim holders are set to receive postpetition interest at the Federal Judgment Rate or contract rate.
• Class 12 (“Junior Mezz Debtor General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 13 (“Junior Mezz Debtor Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 14 (“TopCo Debtor Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.

Key Documents

The following exhibits were attached to the Disclosure Statement:

• Exhibit A:Fourth Amended Joint Chapter 11 Plan of GVS Texas Holdings I, LLC and its Debtors Affiliates, dated February 1, 2022
• Exhibit B: Debtors’ Organizational Chart
• Exhibit C: Liquidation Analysis

The Debtors filed Plan Supplements at Docket Nos. 778, 796 and 797, attaching the following:

• Exhibit 1: Assumption Notice [Docket No. 778]
• Exhibit 2: APA [Docket No. 778]
• Exhibit 3: the payoff letter relating to the Mortgage Loan [Docket No. 778]
• Exhibit 1: Reserve Proposal [Docket No. 796 and amended at Docket No. 807]
• Exhibit 2: Estimated Payoff Amounts for the Loans [Docket No. 796]
• Exhibit 3: Section 1129(a)(5) Disclosures [Docket No. 796]
• Exhibit 1: Second Amendment to the APA [Docket No. 797]

Events Leading to Chapter 11 Filing

According to the Fourth Amended Disclosure Statement, "The TIAA State Court Action GVS Portfolio Holdings I B, LLC initiated an action against Teachers Insurance Annuity Association of America ('TIAA'), as Junior Mezz Lender, in the New York State Supreme Court (the 'NY Court') on August 27, 2020, styled as GVS Portfolio I B, LLC v. Teachers Ins. Annuity Assoc. of Am., No. 654095/2020 (N.Y. Sup. Ct. Oct. 5, 2020 (the 'TIAA State Court Action').

The TIAA State Court Action sought to enjoin TIAA from pursuing a UCC foreclosure sale. The NY Court initially granted the motion and enjoined TIAA from foreclosing. The NY Court ordered the parties to meet and confer as to the terms of the foreclosure auction, which resulted in the entry of a stipulation (the 'Stipulation') memorializing the terms of the sale. Approximately two days prior to the rescheduled foreclosure auction, TIAA sold the Junior Mezz Loan to RREF without prior notice to the Junior Mezz Debtor.

Subsequently thereafter, the Junior Mezz Debtor obtained a temporary restraining order grounded on the argument that the sale to RREF violated the terms of the Stipulation and did not provide adequate notice as required under the Junior Mezz Loan documents. On March 30, 2021, the NY Court concluded that the sale process was presumptively reasonable, denied the Junior Mezz Debtor’s request for a preliminary injunction, and ordered the foreclosure sale to go forward.

The Delaware Bankruptcy On April 12, 2021, GVS Portfolio Holdings I B, LLC filed for bankruptcy styled In re GVS Portfolio Holdings I B, LLC, Case No. 21-10690 (C. S.) (the 'GVS Portfolio Case') in the Case 21-31121-mvl11 Doc 619 Filed 02/01/22 Entered 02/01/22 13:40:57 Page 30 of 96 20 District of Delaware Bankruptcy Court (the “Delaware Court”). Shortly thereafter, RREF commenced an action in the NY Court against the Junior Mezz Loan guarantor, Natin Paul, seeking payment in full of the outstanding principal due under the Junior Mezz Loan. The Junior Mezz Debtor was the sole debtor in the GVS Portfolio Case, making RREF the only secured creditor.

On April 26, 2021, RREF filed a motion seeking dismissal of the GVS Portfolio Case, arguing the GVS Portfolio Case was not filed in good faith, and was in reality a two-party dispute. Following a hearing on May 26, 2021, the Delaware Bankruptcy Court concluded that the Junior Mezz Debtor had failed to meet its burden to demonstrate that the bankruptcy petition served a valid bankruptcy purpose and, as a result, the case was not filed in good faith. On June 4, 2021, the case was dismissed.

The Current Bankruptcy

1. Debtors’ Need For Chapter 11 Relief The Debtors’ circumstances changed materially since the dismissal of the GVS Portfolio Case, namely: (i) the Mortgage Loan Lender and the Senior Mezz Lender each declared defaults under their respective loan documents, and (ii) RREF re-noticed its UCC foreclosure sale of the Junior Mezz Debtor’s interests.

Considering these circumstances, and guided by goals of preserving value and protecting the Debtors and their respective storage facilities until the disruption of the business from the pandemic can be remedied, the Debtors filed these Chapter 11 Cases to: (i) obtain time to determine whether a refinance of the capital structure or a sale of the underlying properties best preserves value for all stakeholders; (ii) explore strategic alternatives to maximize the Debtors’ value on a go-forward basis; and (iii) preserve the equity value above the debt to turn the Debtors toward profitability upon emergence.

Since the Petition Date, the Debtors have determined that a sale of either the Debtors’ equity or of substantially all of the Debtors’ assets best maximizes value for the benefit of the Estates and all stakeholders.

2. Negotiations with Constituents The Debtors and their advisors have engaged in negotiations with the Lenders, Mr. Paul, and the Property Manager regarding the Bidding Procedures (including the Revised Bidding Procedures), the Sale, and the timeline for approval of the Sale through Confirmation. The results of those negotiations are incorporated into the Plan."

About the Debtors

According to the Debtors: “Great Value Storage offers secure storage units with 24-hour security systems, both climate controlled and non-climate controlled, RV, car and boat parking, moving and storage supplies and moving truck rental. It caters to personal and business storage needs. The GVS Portfolio consists of 64 facilities in Colorado, Illinois, Indiana, Mississippi, Missouri, Nevada, New York, Ohio, Tennessee and Texas. The GVS Portfolio, which includes more than just self-storage facilities, took ten years to amass at a cost of approximately $300 million.”

The Debtor is an indirect subsidiary of World Class Holding Company, LLC (“World Class”) and is the indirect owner of 64 self-storage facilities — branded as Great Value Storage, or GVS — located throughout the United States.

Prepetition Indebtedness

• Mortgage Loan On or around November 30, 2018, the PropCo Debtors entered into that certain Loan Agreement by and between UBS AG, as original lender (the "Original Lender"), and PropCos, as borrowers, in the principal amount of $110 million (the "Mortgage Loan"). The Original Lender perfected its security interest in the Mortgage Loan Collateral prior to the securitization of the Mortgage Loan and transfer of the right to enforce the debt from Original Lender to Wells Fargo Bank, National Association, as Trustee.
• Mezzanine Loans On or around November 30, 2018, the Senior Mezz Debtor and the Junior Mezz Debtor entered into the following facilities: (a) a $103 million mezzanine loan made by the Original Lender to the Senior Mezz Debtor (the “Senior Mezz Loan”), which is now held by ESS-GV Holdings LLC (“ESS-GV” or “Senior Mezz Lender,” and collectively with the Senior Lender and the Junior Mezz Lender, the “Lenders”); and (b) a consolidated $82 million mezzanine facility made by the Original Lender to Junior Mezz Debtor, and successor-in-interest TIAA (as defined below), (the “Junior Mezz Loan,” and collectively with the Mortgage Loan and the Senior Mezz Loan, the “Loans”), which is now held by RREF.

About World Class Holding Company, LLC 

World Class is based in Austin, Texas and describes itself as one of the largest private real estate owners in the United States. According to its website, World Class is in the business of acquiring undervalued businesses and assets located in 17 states for the purpose of owning, operating and developing properties. In addition to GVS, World Class purports to own (a) World Class Property Company, a real estate investment company that owns, operates and develops office, retail, multifamily, industrial, mixed-use, hospitality and self-storage assets; (b) NowSpace, a provider of co-working office space; (c) World Class Technologies, a software development company; (d) World Class Mortgage Capital, a private commercial real estate lender; and (e) Westlake Industries, a commercial construction, industrial and energy infrastructure and property services company.

Organizational Chart at Filing (See Exhibit B to Disclosure Statement)

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