February 14, 2023 – The Court hearing the PWM Property Management cases has extended (for a fourth time) the periods during which the 181 West Madison Debtors have an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including (in respect of both periods) February 28, 2023 [Docket No. 1226]. Absent the requested relief, the Plan filing period were scheduled to expire on December 30, 2022.
In making this (fourth) request for extra exclusive time on December 29th, the Debtors noted that ongoing negotiations with SLG Member, HNAGNA, and the West Madison Mortgage Lender have not progressed (“the discussions have been slow and the parties are not yet close to a consensual resolution”). This impasse has compelled the Debtors “to explore an alternative path to an exit from these chapter 11 cases,” namely the re-booting of an earlier (failed, see below) sale process in respect of their Chicago skyscraper.
At a November 30, 2022, hearing, Judge Walrath, who had earlier taken the unusual step of denying confirmation of the Debtors' Plan, was not shy in sharing her exasperation with these cases and the parties, querying why mediation should not begin sooner rather than later, an approach not then shared by those in her courtroom. The lack of advancement as to negotiations and the Debtors' late in the day decision to restart a failed sales process (whether genuine or a negotiation tactic) will not have soothed her frayed nerves.
At a January 4th hearing, Judge Walrath's mood was improved, perhaps because the hearing opened with a statement by Debtors' counsel that the parties had agreed on mediation. That was the good news. The bad news for the cash-strapped Debtors, who expressed a strong preference for the appointment of a judicial…as opposed to private…mediator, was that there was little availability amongst Judge Walrath's Delaware colleagues at least until the end of January. Promising to check outside of her district and to double-check with her colleagues (who had clearly flagged to Judge Walrath their lack of interest in playing an arbitration role in theses cases), the hearing quickly wrapped up.
The one increasingly concerned voice in the (virtual) room was that of counsel for the West Madison Trustee, who expresed his heightened concern that these cases were "languishing.*" Faced with an agreement as to mediation, the West Madison Trustee, who has threatened to object to any further exclusivity extensions for months, was clearly placed in an awkward position by the news of mediation without a mediator, ie of a process that looks set to drag (even further) on, ultimately acquiesced to investigating the availability of a mediator.
With no official comment on the appointment of a mediator to date…and a January 23rd hearing on most substantive matters adjourned until February 24th and then again until March 7th…his "languishing case" concerns seem increasingly prescient.
*The West Madison Trustee has argued now for months (and has threatened to object to further exclsuivity extensions) that it is being held "hostage" to the acrimonious dispute amongst the Debtors and SLG (relating to the Debtors' New York property; the West Madison Trustee, whose involvement is in respect of the Debtors' Chicago skyscraper, a "stranger" to that property and dispute but for a guarantee given by the West Madison Owner's "grandparent") that it has little (or nothing) to do with.
On October 31, 2021, PWM Property Management LLC and eight affiliated debtors (“PWM” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 21-11445 (Judge Walrath). At filing, the Debtors, who with non-debtors own 245 Park Avenue in Manhattan and 181 West Madison in Chicago, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($2.17bn of funded debt).
On September 12th, the Debtors notified the Court that the Park Avenue Debtors** Amended Chapter 11 Plan of Reorganization had become effective as of September 9th [Docket No. 1002]. The Court had previously confirmed the Park Avenue Debtors Plan on August 31, 2022 [Docket No. 979].
** The August 31st confirmation order provides: “For the avoidance of doubt and notwithstanding any provision to the contrary in this Confirmation Order, this Confirmation Order, including the findings of fact and conclusions of law set forth herein, shall apply only to the Park Avenue Debtors and shall not apply with respect to PWM Property Management LLC or 181 West Madison Property LLC (the ‘West Madison Debtors’)….The West Madison Debtors are authorized to seek confirmation of the Plan, as it may be modified, supplemented or amended, in their chapter 11 cases at a future time.”
On September 20th, the Debtors announced that they had reached an agreement with the mortgage lenders for the 181 West Madison Debtors further to which the "West Madison Mortgage Lender" agreed to vote for the Plan. The Debtors provide as to that settlement: "The West Madison Debtors have reached a value-maximizing settlement with the West Madison Mortgage Lender, providing for consensual reinstatement of the West Madison Mortgage Loan Claim subject to certain loan amendments and the payment of $3.5 million plus certain special servicer and professional fees to the West Madison Mortgage Lender, in full and final resolution of its objection to confirmation of the Plan with respect to the West Madison Debtors."
At a November 2nd/3rd confirmation hearing, Judge Mary F. Walrath denied confirmation of the 181 West Madison Debtors Plan.
At a November 30th hearing, the Debtors provided the Court with an update as to the impasse with SLG; with Debtors' counsel stating that he wanted to give discussions with SLG a few more weeks. Failing an ability to reach an agreement on a consensual path forward, Debtors' counsel anticipated that the Debtors would then look to have a mediator appointed. Pushed by Judge Walrath, who had declined to confirm the 181 West Madison Debtors' Plan at the beginning of November, as to why mediation should wait; the consensus view in the Courtroom seemed to be that mediation NOW would be premature. Judge Walrath acquiesced to that view but noted that the parties were now fully aware of the view (and the attendant risks) of the West Madison Trustee that it would object to any further extensions past the end of the year. The West Madison Trustee has argued that it is being held "hostage" to the acrimonious dispute amongst the Debtors and SLG (relating to the Debtors' New York property; the West Madison Trustee, whose involvement is in repect of the Debtors' Chicago skyscraper, a "stranger" to that property and dispute but for a guarantee given by the West Madison Owner's "grandparent") that it has little (or nothing) to do with.
The Extension Motion
The motion [Docket No. 1189] explains, “Following the confirmation hearing on the West Madison Debtors’ chapter 11 plan at which the Court denied confirmation, the West Madison Debtors have been engaged in negotiations with 245 Park Member LLC (‘SLG Member’), the West Madison Debtors’ mortgage lender (the ‘West Madison Mortgage Lender’) and HNA Group North America, LLC (‘HNAGNA’) in an effort to resolve SLG Member’s limited objection to confirmation and move forward with a consensual chapter 11 plan for the West Madison Debtors.
Although the West Madison Debtors have made some progress in the settlement negotiations, the discussions have been slow and the parties are not yet close to a consensual resolution. The West Madison Debtors are hopeful that the parties will be able to come to an agreement on the path forward, and will continue to diligently facilitate negotiations among SLG Member, HNAGNA, and the West Madison Mortgage Lender. Nevertheless, in their reasonable business judgment, the West Madison Debtors have determined that it would be prudent to explore an alternative path to an exit from these chapter 11 cases.
…the West Madison Debtors have filed a motion to modify the bid procedures the Court previously approved to allow the West Madison Debtors to solicit potential bids for the 181 West Madison property. The West Madison Debtors intend to relaunch the marketing process for the 181 West Madison property and solicit all potential bids, so that the West Madison Debtors can swiftly pivot to a sale process if the negotiations towards a consensual resolution of SLG Member’s limited objection prove to be unsuccessful."
The motion adds: "On November 2, 2022, the Court held a confirmation hearing to consider the Plan with respect to the West Madison Debtors. The Court denied confirmation of the Plan and directed the West Madison Debtors to continue the negotiations with SLG Member and other relevant parties. The West Madison Debtors have since been engaged in continuing negotiations with SLG Member, the West Madison Mortgage Lender, and HNAGNA in an effort to resolve SLG Member’s limited objection. However, despite the progress that has been made amongst the parties, a settlement is not imminent.
While the West Madison Debtors continue to facilitate discussions among the relevant parties, they are also considering all other available alternatives to confirm a chapter 11 plan.
Earlier in 2022, West Madison Debtors’ investment banker, Houlihan Lokey, conducted a comprehensive marketing process with respect to potential transactions involving the 245 Park Avenue property and/or the 181 West Madison property….The Court-supervised marketing process, however, did not result in any actionable bids for 181 West Madison. Following the bid deadline, the Debtors cancelled the auction for the 181 West Madison property and sought to confirm the Plan. [Docket No. 829].
As the West Madison Debtors continue to facilitate negotiations with SLG Member, the West Madison Mortgage Lender, and HNAGNA, the West Madison Debtors propose to concurrently relaunch the marketing process for the 181 West Madison property for a limited period of time in order to explore potential restructuring alternatives.”
About the Debtors
According to the Meghji Declaration, “The Debtors constitute a business enterprise that owns premium commercial real estate properties and related assets. Specifically, the Debtors own commercial office towers located at: (a) 245 Park Avenue in New York City (‘245 Park Avenue’); and (b) 181 West Madison Street in Chicago, Illinois (‘181 West Madison,’ and, together with 245 Park Avenue, collectively, the ‘Properties’). The Properties are managed by third-party property managers (the ‘Property Managers’). Most of the Properties’ corporate functions are provided by the Property Managers, who supply the on-site personnel and engage the majority of the vendors and thirdparty contractors at the Properties. Consequently, the Debtors do not have any employees of their own and have a limited number of trade creditors.”
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