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Times Square JV LLC – Ahead of February 1st Hearing, Creditors’ Committee Objects to Disclosure Statement as a Rushed Effort to Enable Andrew Penson’s Argent Ventures to Buy the Debtors at a Steep Discount

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January 25, 2023 – The Debtors’ Officials Committee of Unsecured Creditors (the “Committee”) objected to the adequacy of the Debtors' Disclosure Statement, arguing that it fails to adequately inform creditors in respect of what is otherwise an unconfirmable Plan, admonishing the Debtors with words that may (or may not be) Moliere's: “Unreasonable haste is the direct road to error” [Docket No. 140]. 

That road, the Committee argues, is being paved by the Debtors solely to benefit Andrew Penson's Argent Ventures (the Debtors' prepetition-turned-DIP lender), with the Committee's counsel, (sticking with its French-themed objection) summing up: "As the coup de grace in a calculated, three-year effort, Argent has caused the Debtors to file these Chapter 11 Cases in order to acquire the Debtors’ business at a steep discount [see below on Argent's December 2020 purchase of the Debtors' mortgage "at a significant discount], with minimal competition, to the detriment of unsecured creditors.”

The Committee's objection focuses on four areas where it argues that the Disclosure Statement is deficient…and the underlying Plan unconfirmable: 

  • Inadequate information as to treatment: "Unsecured creditors no means of knowing: (i) in which class their claim will sit; (ii) how or when the Debtors will decide in which class their claim will be placed; (iii) what the treatment will actually be for that class; and (iv) what the expected recovery will be."
  • Failure to justify bifurcation of trade creditors into "ongoing" and "other" trade creditors: " In its ‘equitization’ iteration, the Plan proposes to make a substantial distribution to ‘ongoing trade creditors’ in Class 4, while making no distribution at all to the remainder of the Debtors’ ‘other’ unsecured creditors in Class 5." 
  • Failure to note the application of a "heightened scrutiny" standard necessitated by the role of insider Argent: "Nor does the Disclosure Statement anywhere acknowledge that confirmation of the Plan will be subject to a ‘heightened scrutiny’ standard. The Plan seeks to implement significant insider transactions that, if consummated, will enable the Debtors’ prepetition secured lender, under the control of Argent Ventures, LLC (‘Argent’)…"The Debtors must acknowledge and disclose that this standard will apply to the Plan."
  • Failure to disclose potential causes of action, including against Argent: "The Disclosure Statement also fails to include necessary disclosures regarding potential causes of action that may be retained (or released without explanation) by the Debtors’ estates, including potential causes of action against the Debtors’ secured lender."

A hearing to consider the motion is scheduled for February 1, 2023.

Case Status

On December 28, 2022, Times Square JV LLC and three affiliated Debtors (“Times Square JV” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. At filing, the Debtors, owners and operators of a mixed-use property in central Times Square, which houses, among other things, the Crowne Plaza Times Square Manhattan Hotel, cited the pandemic and its pronounced impact in New York City as ultimately forcing them to seek bankruptcy shelter.

On January 19th, the Court hearing the Times Square JV LLC cases issued an order: (i) approving bidding procedures in relation to the sale of the substantially all of the Debtors’ assets, (ii) authorizing the Debtors to enter into one or more stalking horse agreements and offer bid protections to any selected stalking horse (none selected yet), including a 2% break-up fee and a $100k expense reimbursement, and (iii) adopting a proposed auction/sale timetable culminating in an auction on March 1, 2023 and a sale hearing on March 16, 2023 [Docket No. 110]. NB: The bidding procedures motion was filed on December 28th.

The bidding procedures are part of a "toggle" Plan announced by the Debtors at filing, with a sale path to be pursued if the Debtors determine that there is more value to their estates from a sale than from an "Equitization Restructuring" (NB: the prepetition, and now DIP, lender (an affiliate of Argent Ventures*) is to receive 100% of the emerged Debtors' equity in an Equitization Restructuring).  In the event that a sale path is chosen, the sale would "ultimately be subject to entry of an order confirming the Plan…[and]…would close contemporaneously with the effective date of the Plan."

*Argent Ventures provides as to their December 2020 acquisition of the Debtors' mortgage: "Argent Ventures acquired the senior mortgage secured by the partial fee and partial leasehold interest in 1605 Broadway. Located in the heart of Times Square, 1605 Broadway is a prominent mixed-use asset featuring: 795 hotel rooms (The Crowne Plaza Times Square), 196,300 square feet of office space, 17,800 square feet of ground floor retail including a new flagship Krispy Kreme location, 31,800 square feet of fitness space, Times Square signage, and a 159-space parking garage. Due to the circumstances of the pandemic beginning in 2020, Argent was able to purchase the mortgage at a significant discount to the remaining unpaid balance, representing a low acquisition basis at a fraction of replacement cost." As described further below, Argent also purchased the Debtors' mezzanine loan from Apollo.

The Committee Objection

The objection [Docket No. 140] provides: ”Unreasonable haste is the direct road to error. Seeking to rush these Chapter 11 Cases to conclusion at the behest of their secured creditor, the Debtors have proposed a Disclosure Statement that fails to provide adequate disclosures and cannot be approved in its current form.

The Debtors seek to solicit a plan that gives unsecured creditors no means of knowing: (i) in which class their claim will sit; (ii) how or when the Debtors will decide in which class their claim will be placed; (iii) what the treatment will actually be for that class; and (iv) what the expected recovery will be. The Debtors apparently expect creditors to vote blindly and hope that their claims will be treated fairly. This is not adequate information under the Bankruptcy Code.

Just as problematically, the Debtors entirely fail to explain how they expect to confirm a plan that discriminates, unfairly and unapologetically, against the overwhelming majority of the Debtors’ unsecured creditors. In its ‘equitization’ iteration, the Plan proposes to make a substantial distribution to ‘ongoing trade creditors’ in Class 4, while making no distribution at all to the remainder of the Debtors’ ‘other’ unsecured creditors in Class 5. Plans affording greater recoveries to ‘ongoing trade claims’ have been confirmed, but only upon a ‘compelling’ showing that such ongoing trade creditors are ‘vital’ to the debtors’ ongoing, post emergence business. The Debtors have not explained how they intend to make the requisite showing here, and, plainly, they cannot even try to make that showing without identifying which creditors will be ‘ongoing’ and which will not, which they have not done to date.

Nor does the Disclosure Statement anywhere acknowledge that confirmation of the Plan will be subject to a ‘heightened scrutiny’ standard. The Plan seeks to implement significant insider transactions that, if consummated, will enable the Debtors’ prepetition secured lender, under the control of Argent Ventures, LLC (‘Argent’), who is also the DIP Lender and exercises equity control of the Debtors, to acquire substantially all of the Debtors’ assets, either through a sale or an equitization, with little to no benefit flowing to any other stakeholder, including general unsecured creditors. Under such circumstances, bankruptcy courts apply a ‘heightened scrutiny’ standard in determining whether to confirm the relevant plan. The Debtors must acknowledge and disclose that this standard will apply to the Plan.

The Disclosure Statement also fails to include necessary disclosures regarding potential causes of action that may be retained (or released without explanation) by the Debtors’ estates, including potential causes of action against the Debtors’ secured lender. This is especially important here, where Argent appears to have used its equity control position to compel the Debtors to incur additional secured debt to consolidate the real property underlying the Hotel in a way that will benefit Argent and Argent alone, while leaving the Debtors saddled with more than $121 million of incremental debt. As the coup de grace in a calculated, three-year effort, Argent has caused the Debtors to file these Chapter 11 Cases in order to acquire the Debtors’ business at a steep discount, with minimal competition, to the detriment of unsecured creditors.

Prepetition Indebtedness

As of the Petition Date, the Debtors’ consolidated debt obligations totaled approximately $525,960,020, consisting of $521,722,926 in secured debt obligations and $4,237,094.46 in unsecured debt obligations. The following is a summary of the Debtors’ debt obligations as of the Petition Date:

15 The direct parent entities of the Debtors, CIF Times Square Mezz 1 LLC and CPTS Hotel Lessee Mezz 1 LLC, are parties to the Mezzanine Loan (defined below) in the total amount of $102,250,626.00 and, under the RSA, CIF Times Square Mezz 1 LLC and CPTS Hotel Lessee Mezz 1 LLC have reserved the right to commence chapter 11 proceedings.
16 The Debtors reserve all their rights with respect to the validity and priority of the alleged mechanics liens.

The Debtors' DIP motion adds: "Debtor TSJV and Debtor CPTS are the original borrowers (the 'Mortgage Borrowers') under that certain amended and restated mortgage loan agreement dated as of April 19, 2018 with Deutsche Bank AG, New York Branch, Morgan Stanley Bank, N.A., and others as lender (collectively, the “Original Lenders”), as amended and restated (the 'Mortgage Loan Agreement' and the loan thereunder, the 'Mortgage Loan'). The Mortgage Loan Agreement had an original principal amount of $250 million.

On December 23, 2020, the Prepetition Secured Party purchased the Mortgage Loan from the Original Lenders, at which time the principal balance due under the Mortgage Loan was $195 million in addition to accrued interest of approximately $7.6 million. In April and May of 2022, the Prepetition Secured Party advanced an additional $121,333,753.37 under the Mortgage Loan to enable Debtor TSJV to pay a deposit and thereafter to consummate the purchase of the Walber Fee Parcel (the 'Walber Purchase Advances'). Thereafter, the Mortgage Loan Agreement was amended to reflect the Walber Purchase Advances and to add Debtor 1601 Broadway Owner, the direct owner of the Walber Parcel, as a borrower solely with respect to the Walber Purchase Advances.

Additionally, since December of 2021, the Prepetition Secured Party has made a series of additional advances under the Mortgage Loan given the Debtors’ inability to meet the monthly operating expenses of the Premises. Specifically, the Mortgage Lender funded a total of $7,241,728.09 from December 23, 2021 through October 31, 2022.

The obligations under the Mortgage Loan Agreement are secured by first priority liens on and security interests in the 'Collateral' under and as defined in the Mortgage Loan Agreement (such liens and security interests, collectively, the 'Prepetition Liens', and the collateral securing the Prepetition Liens, the 'Prepetition Collatera'). As of the Petition Date, approximately $418,726,016 in principal, accrued interest and fees is outstanding under the Mortgage Loan Agreement".

On the Mezzanine Loan, the Debtors add: "The original principal amount of the Mezzanine Loan was $80 million. On April 23, 2018, Original Mezzanine Lender sold the entire Mezzanine Loan to a group of affiliated lenders (collectively, 'Apollo'). The obligations under the Mezzanine Loan Agreement are secured by first priority, continuing security interest in and lien on the equity interests, and certain voting rights, claims, powers, privileges, benefits, options and rights that the Mezz Borrowers hold in Debtor TSJV and Debtor CPTS, which security interests are reflected in that certain Pledge and Security Agreement dated April 19, 2018 (the 'Mezzanine Security Agreement'). Like the Mortgage Loan, the Mezzanine Loan originally went into default on April 24, 2020, as the borrowers thereunder did not make scheduled principal and interest payments. The parties entered into an amendment to the Mezzanine Loan Agreement, which, among other things, extended the maturity of the Mezzanine Loan to July 9, 2020. The Mezz Borrowers were unable to repay the principal balance of the Mezzanine Loan upon maturity on July 9, 2020, triggering a further automatic event of default. On March 18, 2021, despite the defaults under the Mezzanine Loan, an affiliate of Argent, the Mezzanine Lender, purchased the Mezzanine Loan from Apollo and assumed the rights and obligations of Apollo as lender thereunder. As a result of the defaults under the Mezzanine Loan Agreement, on September 1, 2021, the Mezzanine Lender exercised its rights pursuant to the Mezzanine Security Agreement to exercise the voting rights the Mezz Borrowers held with respect to Debtors TSJV and CPTS.
17 As noted earlier and again below, these actions involved the Original Lenders, pre-dating the involvement of current lenders affiliated with Argent".

About the Debtors

According to the Debtors: “Certain of the Debtors own and operate a building (the 'Premises') located at 1605 Broadway, New York, NY 10019 in central Times Square (between West 48th and 49th Streets). The Premises is a mixed-use real estate asset consisting, among other things, of certain hotel space on the 15th through 46th floors, currently branded as the Crowne Plaza Times Square Manhattan Hotel (the 'Hotel'); 196,300 square feet of commercial office space (the 'Office Space'), portions of which are currently leased to three third-party tenants; 17,800 square feet of ground floor retail space (the 'Retail Space'); certain billboard spaces (the 'Signage Component'); and a parking garage (the 'Parking Garage')."

Corporate Structure Chart

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The post Times Square JV LLC – Ahead of February 1st Hearing, Creditors’ Committee Objects to Disclosure Statement as a Rushed Effort to Enable Andrew Penson’s Argent Ventures to Buy the Debtors at a Steep Discount appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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