April 4, 2023 – The Debtor notified the Court that its Third Amended Plan of Reorganization had become effective as of April 4, 2023 [Docket No. 382]. The Court had previously confirmed the Debtor's Plan on January 31, 2023 [Docket No. 352].
The Debtor was represented by: (i) Weil, Gotshal & Manges LLP as bankruptcy counsel, (ii) CFGI as financial advisor, (iii) Meridian Capital Group LLC as real estate finance broker and (iv) Donlin, Recano & Co., Inc. as administrative agent.
The deadline to file professional fee claims has been set at May 19, 2023.
Case Evolution
On December 14, 2021, All Year Holdings Limited (“All Year” or the “Debtor”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn. At filing, the Debtor, which primarily operates residential real estate properties in Brooklyn, New York, noted that “[T]he ongoing COVID-19 pandemic severely impacted the Parent Debtor because it derives its revenues primarily from residential rental income streams. As a result, the Parent Debtor began struggling to service its debt…"
On February 22, 2021, Evergreen Gardens Mezz LLC (“EGM”) filed Chapter 11 cases. On September 14, 2021, Evergreen Gardens I LLC (“EG I”) and Evergreen Gardens II LLC (“EG II”, and together with EG I and EGM, the “Evergreen Debtors”) each filed Chapter 11 cases. Each of the Evergreen Debtors is a wholly owned, indirect subsidiary of the Parent Debtor. The Parent Debtor’s Chapter 11 case is being separately administered from the Evergreen Debtors’ chapter 11 cases.
On September 23, 2022, the Court was informed that mediation had “resulted in a resolution being reached between the Debtor, the Notes Trustee and the Plan Sponsor* concerning disputes with respect to the Debtor’s proposed plan of reorganization and the Mortgage Loan Purchase and Sale Agreement” [Docket No. 230].
* The Plan Sponsor is Paragraph Partners LLC, an acquisition entity controlled by Brooklyn developer Avi Philipson. Mr. Philipson and his father Bent Philipson are currently the target of a lawsuit filed by New York Attorney General Letitia James relating to a Long Island nursing, with the pair "allegedly diverting government funds, resulting in severe understaffing and neglect of residents."
That resolution of disputes quickly unraveled with the Debtor and the Plan Sponsor accusing each other of breaches and the heart of bankruptcy, a sale of the Debtor's Brooklyn real estate portfolio to the Plan Sponsor, briefly left hanging.
The parties ultimately agreed a "Revised Settlement" which considerably dropped the purchase price; from $60.0mn, comprised of $40.0mn in cash and a $20.0mn note, to $43.5mn in cash…with the terms of that settlement filed with the Court on December 9, 2022 (see, "Mediation and Revised Settlement," below).
Plan Overview
In a September 16th (ie before mediation was concluded) brief in support of Plan confirmation [Docket No. 224], the Debtors provide: "The Debtor seeks confirmation of the Plan that will (i) reorganize the Debtor’s vast real estate portfolio, (ii) maximize value for the Debtor’s creditors, and (iii) provide material recoveries to the holders of Claims in Class 4 (Remaining Unsecured Claims), the only Impaired Class of Claims entitled to a recovery under the Plan. The Debtor has worked tirelessly to position itself to confirm the Plan including careful coordination with the various parties and their respective professionals across parallel insolvency proceedings in three separate jurisdictions.
The cornerstone of the Plan is the Investment Agreement, dated March 11, 2022 (as amended on April 21, 2022 and May 27, 2022, and as may be further amended, modified, or supplemented from time to time, and together with all schedules and exhibits thereto, 'Investment Agreement'), among the Debtor, Paragraph Partners LLC (the 'Sponsor') and, with respect to certain provisions, Mishmeret Trust Company Ltd. (the 'Notes Trustee'), as trustee for the holders of the Debtor’s Israeli-issued notes (the 'Notes' and the holders of the Notes, the 'Noteholders'). The Debtor entered into the Investment Agreement following a comprehensive marketing process to solicit offers from potential third-party investors to recapitalize or purchase the Debtor.
The Investment Agreement provides that, in exchange for one hundred percent (100%) of the new equity of the Reorganized Debtor, the Sponsor will contribute $60,000,000 to the Debtor, comprised of $40,000,000 in cash, and promissory notes aggregating $20,000,000*. Importantly, as part of the Investment Agreement, the Sponsor agreed to assume all unsecured claims against the Debtor other than limited categories of unsecured claims that comprise Class 4 Remaining Unsecured Claims under the Plan [NB: Pursuant to the Investment Agreement, the Sponsor is not assuming any Class 6 Subordinated Securities Claims, however, as set forth herein, as subordinated claims under section 510(b) of the Bankruptcy Code, those claims are not entitled to any recovery since Class 4 Remaining Unsecured Claims are not being paid in full under the Plan].
* The Revised Settlement Agreement considerably amends the Sponsor Contribution which is now $43.5mn in cash (less $4.5mn of escrowed cash).
To implement the Plan and the Investment Agreement, the BVI Court (as defined below) authorized the Debtor, subject to the occurrence of the Plan Effective Date, to implement a plan of arrangement (the 'BVI Plan of Arrangement') pursuant to which (i) the existing Interests in the Debtor will be cancelled, and (ii) the Sponsor will hold one hundred percent of the equity in the Reorganized Debtor. In addition, following confirmation of the Plan by this Court, the Debtor intends to seek recognition of the Plan and the Confirmation Order as part of the Israeli Recognition Proceeding (as defined below) in accordance with the timeline and milestones agreed to under the Investment Agreement."
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; see also Liquidation analysis below):
- Class 1 (“Priority Non-Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“Remaining Unsecured Claims”) is impaired and entitled to vote on the Plan. The expected recovery is 11%-17%. Each Holder will receive (i) on the Effective Date, from the Disbursing Agent (on behalf of the Debtor), its Pro Rata Share of the Class 4 ED Distribution and (ii) on such other date(s) as determined from time to time by the Plan Administrator, from Wind-Down Co, the amounts recovered, if any, from the Excluded Assets (including, but without limitation, from the prosecution of Avoidance Actions and other Causes of Action) and any remaining Wind Down Cash Funding. The right to the foregoing distributions will be nontransferable except by will, intestate succession or operation of law.
- Class 5 (“Subordinated Securities Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 6 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
Voting Results
On January 17, 2023, the claims agent notified the Court of the Plan voting results [Docket No. 329] which were as follows.
- Class 4 (“Remaining Unsecured Claims”): 118 claim holders, representing $271,390,077.12 (96.09%) in amount and 92.19% in number, voted in favor of the Plan. 10 claims holders, representing $11,029,580.78 (3.19%) in amount and 7.81% in number, rejected the Plan.
Key Documents
The Disclosure Statement attaches the following exhibits:
- Exhibit A: Plan of Reorganization
- Exhibit B: Investment Agreement
- Exhibit C: Organizational Chart
- Exhibit D: Israeli Disclosure Tables
- Exhibit D-1: Prior Year Income Report
- Exhibit D-2: Prior Year Property Report
- Exhibit D-3: Five Year Operating Plan
- Exhibit E: Appraisal Reports
- Exhibit E-1: LV Appraisal Report
- Exhibit E-2: Additional Appraisal Reports
- Exhibit F: CVs for Directors of Reorganized Debtor
- Exhibit G: Financial Projections
- Exhibit H: Liquidation Analysis
On January 3, 2023, the Debtors filed a Plan Supplement [Docket No. 312] which attaches the below Exhibits.
- Exhibit A: Form of Plan Administration Agreement
- Exhibit B: Identification of Plan Administrator
- Exhibit C: Organizational Documents for Reorganized Debtor
- Exhibit D: Wind-Down Budget for Wind-Down Co
- Exhibit E: Schedule of Retained Claims, Rights and Causes of Actions
- Exhibit F: Schedule of Assumed Contracts
- Exhibit G: Amended and Restated Limited Liability Company Agreement of YG WV LLC
- Exhibit H: Summary of Wind-Down Co Indemnity of Authorized Managers
Mediation and Revised Settlement
The third Disclosure Statement Supplement [Docket No. 290] provides, “…following a discussion with the Bankruptcy Court at a case management conference on September 1, 2022, the Debtor, the Sponsor, the Notes Trustee, Mr. Weiss, and the Sole Shareholder agreed to submit to mediation regarding the outstanding disputes between and among the mediation parties that impacted the Debtor’s proposed chapter 11 plan (the ‘Mediation’). The mediation parties participated in the Mediation before Judge Lisa G. Beckerman from September 19-23, 2022, as a result of which, the Debtor, the Sponsor, and the Notes Trustee, on behalf of the Noteholders (collectively, the ‘Settlement Parties’), reached a settlement and resolution of their current disputes (the ‘Original Settlement’) relating to the Plan, the Plan Investment Agreement, the MLPSA, and the Settlement Parties’ respective disputes, claims and obligations thereunder. The terms of the Original Settlement were confirmed via email on September 23, 2022 and read into the record at a status conference before the Bankruptcy Court on September 29, 2022.
While negotiating the documents to implement the Original Settlement, several new disputes among the Settlement Parties arose regarding the parties’ respective commitments and agreements under the Original Settlement and Investment Agreement. As a result of these disputes, the Settlement Parties were unable to finalize the documents and agreements necessary to implement the Original Settlement. Specifically, disputes arose between the Settlement Parties regarding, among other things, the following: (a) the enforceability of the Investment Agreement, (b) the Settlement Parties’ agreement to reasonably extend the date for the Confirmation Hearing, the outside date for the Closing under the Investment Agreement, and the corresponding Maturity Date for the DIP Loan, (c) the Debtor’s ability to use its cash during the Chapter 11 Case, including with respect to certain cash proceeds received in connection with the Grand Living Settlement, and (d) the Series C Noteholders’ support for the Plan. The Debtor and the Sponsor each asserted, among other things, the other party had breached the Investment Agreement and various letters and notices were filed by the Debtor [ECF Nos. 264, 276] and the Sponsor [ECF No. 269] in connection with such asserted breach claims.
Following numerous discussions, the Settlement Parties reached a revised settlement and resolution of all of their disputes (the ‘Revised Settlement’) relating to the Plan, the Investment Agreement, the MLPSA, and the Settlement Parties’ respective disputes, claims and obligations thereunder. The terms of the Revised Settlement, which supersede the terms of the Original Settlement in their entirety, are as follows:
- The YGWV interests will be Excluded Assets under the Plan and the Investment Agreement and the Debtor has no obligation to include the YGWV interests as part of the Reorganized Debtor or to transfer such interests to the Sponsor.
- Pursuant to and subject to the terms of that Settlement Agreement with regard to the MLPSA (the ‘MLPSA Settlement Agreement’) to be entered into simultaneously with the amendment to the Investment Agreement, on the Closing Date, (i) the Sponsor shall receive $2.5 million in cash from the MLPSA deposit in full and final settlement and release of all claims arising under or relating to the MLPSA, (ii) the $2.5 million payable to the Sponsor from the MLPSA deposit (the ‘MLPSA Settlement Amount’) shall be directed to the Debtor and credited against the Revised Sponsor Contribution (defined below) on the Closing Date, (iii) the remaining $5.0 million from the MLPSA deposit shall be released to the Notes Trustee, for the benefit of the Series C Noteholders, on the Closing Date, in full and final settlement and release of all claims arising under or relating to the MLPSA, (iv) until the foregoing payments are made, all parties’ rights and claims under the MLPSA will be reserved and the litigation in Israel with respect to the MLPSA will be held in abeyance and (v) upon receipt of each of the foregoing payments, the litigation in Israel with respect to the MLPSA shall be dismissed promptly thereafter.
- The Settlement Parties commit to moving forward and closing under the Plan and the Investment Agreement, which Investment Agreement is binding and enforceable on the Settlement Parties in accordance with its revised terms and with no further adjustments or changes to the terms (other than as set forth in settlement paragraph numbers iv through xiii below) or the provisions relating to assumed claims and liabilities, including all subsidiary liabilities, under the Plan and the Investment Agreement.
- The Plan shall be revised to reduce the Sponsor Contribution to $43.5 million (the ‘Revised Sponsor Contribution’), which shall be paid in full in cash on the Closing Date (less the initial $4.5 million Escrowed Funds, the Additional Escrowed Funds (defined below), the MLPSA Settlement Amount, and an amount equal to any Grand Living Settlement Proceeds (defined below) utilized by the Debtor or any of its non-Debtor subsidiaries prior to the Closing Date, if any). No New Notes shall be issued as part of the Revised Sponsor Contribution, and there shall be no Purchase Price Adjustment under the Plan or the Investment Agreement. The Additional Escrowed Funds are in addition to the Escrowed Funds and the Guaranty, which remain in full force and effect under the Investment Agreement.
- The Sponsor shall pay $4.5 million in cash to the Escrow Agent as an additional deposit amount (the ‘Additional Escrowed Funds’) within two business days of Bankruptcy Court approval of the 9019 Motion (defined below). The Additional Escrowed Funds shall be treated for all purposes as Escrowed Funds under the Investment Agreement.
- The Settlement Parties agree that, prior to the Closing Date, the Debtor shall be entitled to utilize the $5,251,200 in proceeds from the MY 2011 Grand LLC (the ‘Grand Living Settlement Proceeds’) to fund its operations, the operations of its non-Debtor subsidiaries, and to administer the Chapter 11 Case and the Ancillary Proceedings. The Debtor agrees to a dollar-for-dollar reduction to the Revised Sponsor Contribution paid by the Sponsor on the Closing Date, in accordance with the Investment Agreement and the Plan, for any such Grand Living Settlement Proceeds utilized by the Debtor or its non-Debtor subsidiaries prior to the Closing Date. The Debtor shall separately account for any Grand Living Settlement Proceeds utilized prior to the Closing Date and shall make such accounting available to the Sponsor, on reasonable advanced request, prior to the Closing Date.
- The Settlement Parties agree that the Notes Trustee and the Noteholders shall not have any Class 3 General Unsecured Claims under the Plan.
- The Settlement Parties agree to reasonably extend the applicable deadlines and milestones under the Investment Agreement and the DIP Documents to allow for the documenting of this Revised Settlement, amending of the Plan and Investment Agreement, and voting on the Plan and Investment Agreement. For the avoidance of doubt, the Sponsor agrees to extend the Outside Date for Closing under the Investment Agreement and the Maturity Date for the DIP Loan to March 31, 2023. The Investment Agreement shall be revised to provide, at the option of either party, the Closing may be deferred to no later than the Outside Date.
- The Debtor shall consult with the Sponsor regarding notices and other filings in the Chapter 11 Case consistent with its existing commitments under the Investment Agreement.
- The foregoing settlement paragraph number ii is subject to a favorable vote by the Series C Bondholders.
- The Settlement Parties shall seek approval from the Bankruptcy Court of the terms of this Revised Settlement (but for the avoidance doubt, not the provisions of settlement paragraph number ii above, which shall be subject to the MLPSA Settlement Agreement) pursuant to Bankruptcy Rule 9019 (the ‘9019 Motion’) reasonably promptly following written confirmation of the terms of the Revised Settlement from each of the Settlement Parties (which confirmation may be in the form of a confirmatory email).
- Except as otherwise provided in the Revised Settlement, the Revised Settlement shall not constitute a waiver of any Settlement Party’s rights under the Investment Agreement. The Settlement Parties’ respective rights, including with respect to any asserted breaches, remain reserved pending Bankruptcy Court approval of the Revised Settlement pursuant to the 9019 Motion.
- This Revised Settlement supersedes the Original Settlement in its entirety
The Revised Settlement resolves costly and uncertain litigation relating to, among other things, the Plan, the Investment Agreement, and the MLPSA, including with respect to the recent breach claims asserted by the Debtor and the Sponsor and the litigation between the Sponsor and the Notes Trustee in Israel regarding a dispute relating to the parties’ failure to close on the MLPSA and the related Notice of Termination sent by the Notes Trustee. The Debtor believes the transactions contemplated under the Plan and the Investment Agreement, as modified by the Revised Settlement, represent the maximum recoveries available for holders of Allowed Remaining Unsecured Claims. The Revised Settlement will allow the Debtor to continue towards confirmation of the Proposed Plan and avoid wasting further time and resources searching for replacement sponsors or negotiating alternative chapter 11 plans that would likely result in diminished recoveries for impaired creditors. Moreover, the Debtor can avoid expending estate resources litigating with the Sponsor over, among other things, the Escrowed Funds, the Guaranty, and the Break-Up Fee. Accordingly, the Debtor and the Notes Trustee believe the Revised Settlement is in the best interests of the Estate and its creditors, including the Noteholders.”
Petition Date Perspective
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Ravid Declaration”), Assaf Ravid, the Debtor’s chief executive officer and chief restructuring officer, detailed the events leading to All Year’s Chapter 11 filing. The Ravid Declaration provides: “[T]he ongoing COVID-19 pandemic severely impacted the Parent Debtor because it derives its revenues primarily from residential rental income streams. As a result, the Parent Debtor began struggling to service its debt, which necessitated discussions with third parties regarding a path forward to prevent any additional leakage of value.
Following the Parent Debtor’s suspension of interest payments on the Series B and Series D Bonds, the Parent Debtor entered into an agreement with the Trustee, dated December 10, 2020, whereby the Parent Debtor, among other things, agreed to appoint Mr. Joel Biran as CEO and CRO and Mr. Ephraim Diamond as ARO. The Board approved these retentions on December 30, 2020. On February 19, 2021, Mr. Biran provided notice to the Parent Debtor that he would be resigning his positions as CEO and CRO, effective as of February 28, 2021. On March 4, 2021, I was appointed by the Board of Directors as the CEO and CRO of the Parent Debtor.
Upon the CRO and ARO appointments, the Parent Debtor, with the assistance of its advisors, quickly moved to engage with the Bondholders and other stakeholders in a cooperative process to explore potential restructuring alternatives for the Parent Debtor and its subsidiaries. This has included a robust and wide-ranging public process to solicit interest and offers from potential third-party investors to either recapitalize the Parent Debtor or undertake an outright purchase of the Parent Debtor. The Parent Debtor has garnered substantial interest from potential investors and, with the consent of the Bondholders, is advanced in selecting and finalizing an exit transaction for the purchase of the equity of the Parent Debtor.
Nevertheless, the Parent Debtor is faced with potential litigation in multiple jurisdictions in light of its insolvency and defaulted Bonds. The commencement of cross-border litigation subject to differing legal regimes would undermine the Parent Debtor’s ability to effectuate a holistic, value-maximizing restructuring transaction in an orderly manner. On December 13, 2021, the Parent Debtor became aware of a $37 million judgment entered against it in New York State Supreme Court on December 9, 2021, resulting from outstanding confessions of judgment that the Sole Shareholder unilaterally entered into on behalf of the Parent Debtor without consultation of the Board. The existence of this judgment poses a threat that the judgment creditor may attempt to attach a lien on the Company’s assets, including its cash, thereby divesting the Company of its ability to continue its ongoing operations and to support the operations of the PropCos.
In addition, following a prior attempt by the Sole Shareholder to take control of the Parent Debtor’s Board, the Parent Debtor issued a single Class A voting share (the ‘Class A Share’) to myself and the ARO entitling us to vote on the appointment or removal of the directors of the Parent Debtor, as the owner of each of its direct and indirect subsidiaries, but conferring no other voting rights. These voting rights are set to expire at 11:59 pm (British Virgin Islands Time) on January 4, 2022 unless the Sole Shareholder agrees to amend the organizational documents of the Parent Debtor to extend the voting rights associated with the Class A Share.
The expiration of these voting rights would deprive the Bondholders and other parties in interest of their ability to continue their discussions and finalize an exit transaction for the Parent Debtor. To preserve the integrity of its restructuring process, the Parent Debtor was forced to commence this Chapter 11 Case to safeguard its assets for the benefit of its creditors and other parties in interest.
In light of the above, the Parent Debtor is also considering filing an application with the Courts in the British Virgin Islands to assist in the implementation of a transaction through the Chapter 11 Case. In addition, as the deeds of trust and other documents governing the Parent Debtor’s relationship with its Bondholders are governed by Israeli law, it may also become necessary for the Parent Debtor to commence a recognition proceeding in Israel to assist in the implementation of the Parent Debtor’s overall restructuring.
As set forth above, the Parent Debtor is not seeking any first day relief. The Parent Debtor is focused on continuing its discussions with its Bondholders and promptly presenting to the Court a restructuring solution that maximizes value for its creditors and estate.”
Prepetition Indebtedness
As of the Petition Date, the Company has approximately $1.6 billion of outstanding funded debt obligations comprised of (i) approximately $800 million in bonds issued by the Parent Debtor and (ii) approximately $760 million in property-level mortgage debt.
Significant Prepition Shareholders
- Yoel Goldman owned 100% of the Debtor’s common equity.
- Assaf Ravid and Ephraim Diamond, Chief Restructuring Officer and Associate Restructuring Officer, owned 100% of the Debtor’s Class A equity.
Liquidation Analysis (See Exhibit H to Disclosure Statement for notes)
About the Debtor
According to the Debtor: “All Year Holdings Limited primarily operates residential real estate properties in Brooklyn, New York. It is involved in the acquisition, construction, improvement, development, rental and management of residential apartments
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The post All Year Holdings Limited – Following Sale of Brooklyn Property Portfolio to Controversial Developer Avi Philipson at Knock Down Price of $43.5mn, Former Brooklyn Residential Property Manager/Operator Notifies Court of April 4th Plan Effectiveness Date appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.