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October 18, 2022 – The Court hearing the GT Real Estate Holdings case has extended (for a first time) the periods during which the Debtor has an exclusive right to file a Chapter 11 Plan, and solicit acceptances thereof, through and including January 27, 2023, and March 28, 2023, respectively [Docket No. 537]. Absent the requested relief, the Plan filing, and solicitation periods were scheduled to expire on September 29, 2022, and November 28, 2022, respectively.
As discussed further below, the Debtor's biggest obstacle to advancing their Plan confirmation aspirations is "the various litigation proceedings involving the City and the County."
In letters addressed to Judge Karen B. Owens in advance of an October 18th hearing to discuss ongoing discovery related to the Debtor’s Plan, counsel for each of the City and the County [Docket Nos. 526 and 528, respectively] took the Debtor to task for failing to cooperate in those efforts. In asking the Court to "compel the Debtor to meaningfully participate in the meet and confer process and make satisfactory concessions with respect to discovery scope," the City (in a view largely echoed by the County) noted that "the Debtor has yet to produce a single document" which rendered the discovery timeline "no longer workable…[and] materially prejudiced the City’s ability to meaningfully participate in those depositions and object to the Plan."
At the October 18th hearing, counsel to County commented as to the Debtors' aspirations for a November 16th Plan confirmation hearing: "I can’t envision a scenario where we would still be having a Plan confirmation hearing on November 16th."
Replying to the County's counsel, Judge Owens stated: "I understand your concerns….Things will be tight, I’ve seen tighter, you’ve seen tighter…at this point in time I am not prepared to adjourn the confirmation hearing.” Continuing with some frustration in her voice, Judge Owens, who had already noted that “I am the one that is not in the know clearly in this case” commented as to the possibility of her changing her mind as to a delay: “I don’t want these discovery disputes to truncate my time to consider Plan objections and the confirmation brief…that is the one thing that should not be truncated…your problems should not become my problems…especially on briefing."
The Exclusivity Extension Motion [Docket No. 445]
After summarizing the ground that has been covered to date (ie, (i) DIP financing from parent DT Sports Holding, LLC, (ii) a plan sponorship agreement with that same parent (now Court approved), (iii) a plan support agreement with general contractor and largest trade creditor Mascaro/Barton Marlow ("MBM," now Court approved), (iv) the September 28th conditional approval of its Disclosure Statement and (v) the engagement of real estate professionals), the Debtors noted that "more remains to be done" including addressing "the various litigation proceedings involving the City and the County."*
* The "City" is Rock Hill, South Carolina and the "County" is York County, South Carolina.
The Debtor's now approved Disclosure Statement details the acrimonious relationship between the Debtor and its former municipal partners, a deterioration which led to a comprehensive rewrite of its initial August 11th Plan and Disclosure Statement: "The version of the Plan filed by the Debtor on August 11 has been modified with respect to the treatment of the City, the County, and the Affiliate Unsecured Claims. These modifications are based on further discussions with the Debtor’s stakeholders and events in the Chapter 11 Case. In short, the Debtor hoped, and in fact expected, that the treatment included in the August 11 Plan, which provided clear paths to recoveries for the City and the County (totaling over $40 million in cash and future property proceeds) despite each holding Disputed Claims, would be met with receptiveness or at least a willingness to negotiate further regarding a fair and reasonable resolution to the failed Project. The Plan Sponsor was putting forth significant value and making significant concessions that would benefit the County and the City. But this attempt by the Debtor and the Plan Sponsor to lead all parties to a near-term, consensual outcome was instead followed by exorbitant counter-demands and unreasonable conduct from both the County and the City:
- From the County, this included (a) seeking over $80 million in its proof of claim (including amounts for $3 million of interest, $43 million claim for damages related to Mt. Gallant Road that were duplicative of the $21 million payment that it is also seeking to recover, and $38 million of forecasted lost tax revenue) and (b) continuing and aggressive violations of the automatic stay through further pursuit of civil litigation in South Carolina and other actions; and
- From the City, this included (a) continued pursuit of a 2004 motion for examination of the Debtor, (b) a separate filing of a venue transfer motion, and (c) the filing of the City Adversary Proceeding, which is seeking $20 million of actual damages plus compensatory, punitive, or exemplary damages and accused the Debtor of dishonesty and fraud.
The aggressive responses, unreasonable expectations regarding claim amounts, and apparent dislike of the form of potential treatment provided by the August 11 Plan (cash for the County and property value and related upside for the City) forced the Debtor to re-evaluate its approach. The Plan now provides that the distribution to holders of unsecured claims that were not otherwise entitled to recover from the Settlement Trust provided by the Plan Sponsor (i.e., the County, the City, and the Holders of Affiliate Unsecured Claims) will recover their pro rata share of distributions from the Class 5 Trust, which will hold and distribute the residual value of the Project Site (after payment of the Plan Sponsor Senior Obligations) and the proceeds of the Class 5 Trust Causes of Action, in each case based on the amount of their respective Allowed Claims and after satisfaction of the expenses of the Class 5 Trust.”
The extension motion [Docket No. 445] explains, ”The Debtor has made significant strides towards these goals, including the following:
First, the Debtor successfully negotiated and obtained court approval of a consensual DIP financing facility with DT Sports Holding, LLC (‘DT Sports’). The Final DIP Order provides the Debtor with numerous benefits, including: (a) immediate access on favorable terms to a $20 million non-priming multi-draw DIP facility, which provided the liquidity necessary to preserve the project site safely and otherwise pay the expected costs of the chapter 11 case and (b) authorization to perform under the Workers’ Trust Escrow Arrangements.
Second, on August 11, 2022, following negotiations and to facilitate its original chapter 11 objectives, the Debtor entered into a plan support and sponsorship agreement (the ‘Plan Sponsorship Agreement’) with DT Sports Holding and filed initial versions of the Debtor’s chapter 11 Plan and Disclosure Statement in fulfillment of the first milestone under the Final DIP Order. The Plan, made possible through the Plan Sponsorship Agreement and the contributions of DT Sports Holding, provides significant value and other considerations to the Debtor’s estate, including a path toward a near-term conclusion to the Chapter 11 Case and significant distributions to the Debtor’s creditors (including MBM, its subcontractors, and the other parties that provided actual goods and services to the Project).
Third, on September 15, 2022, following further negotiations, the Debtor, MBM, and the Plan Sponsor (as defined in Plan Support Agreement) entered into a plan support agreement (as may be amended, supplemented, or otherwise revised from time to time, the ‘Plan Support Agreement’) that requires MBM to (a) vote all claims to accept the Plan, (b) not oppose, the Plan, the Disclosure Statement, or any other pleadings or documents that the Debtor files that is consistent with the Plan, and (c) withdraw MBM’s Motion to Transfer Venue.
Fourth, the Debtor worked diligently to address all concerns and objections to the Disclosure Statement. As a result, on September 28, 2022, the Court entered an order approving the solicitation of votes on the Disclosure Statement and establishing a calendar for the confirmation process.
Fifth, the Debtor retained Clarus Properties, Inc. dba Colliers International (‘Clarus’) and Colliers International Valuation & Appraisal Services, LLC LLC (‘CIVAS,’ collectively with Clarus, ‘Colliers’) as its real estate broker and appraiser. The services provided by Collier’s are important to the Debtor’s chapter 11 plan process. Among other things, the Plan contemplates a marketing and sale process for the Project (as defined in the Plan), which will be led by Clarus. As of the date hereof, both U.S. and international investors and real estate developers have been contacted. More than seven thousand e-mails have been sent to contacts, and a robust social media marketing campaign has been launched. Two real estate developers have visited the project site with the Debtor’s real estate broker so far and have been provided with diligence related thereto.
Notwithstanding these achievements thus far, more remains to be done. In the coming weeks and months, the Debtor will be focused on plan confirmation, which is scheduled to be heard by the court on November 16, 2022. The Debtor also will need to address the various litigation proceedings involving the City and the County. Being able to focus on these workstreams without the distraction of a competing plan will be critical to the interests of the Debtor’s estate.”
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