October 30, 2020 – The Debtors notified the Court that their Amended Chapter 11 Plan had become effective as of October 30, 2020 [Docket No. 227]. The Court had previously confirmed the Debtors’ Plan on October 13, 2020 [Docket No. 217].

On July 23, 2020, IMH Financial Corporation (“IMH” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-11858 (Judge Sontchi). At filing, the Debtor, a real estate investment holding company, noted estimated assets of $121,983,000 and estimated liabilities of $128,721,000.

The Debtors were represented by William P. Bowden of Ashby & Geddes P.A. Further board-authorized engagements included (i) Snell & Wilmer L.L.P. as general bankruptcy counsel and (ii) Donlin Recano as claims agent.

Restructuring Support Agreement and "Pre-Arranged" Plan Overview

The Debtor's memorandum in support of Plan confirmation [Docket No. 203] sums up: "…the Plan implements the provisions of the Restructuring Support Agreement between the Debtor, JPM, the Juniper Parties, and the Bain Parties. The Plan, among other things, proposes the consensual restructuring of the Debtor’s obligations to JPM and the Juniper Parties (the holders of the various series of preferred stock in the Debtor), leaves the claims of general unsecured creditors unimpaired, and provides a cash recovery to the holders of the Debtor’s Common Stock and Warrants. More specifically, the Plan contemplates a transaction by which JPM will receive 100% of the New Common Stock of the Reorganized Debtor on the Plan Effective Date, in full and final satisfaction, and in exchange for, all Preferred Stock held by JPM. As a result, if the Court confirms the Plan, the Reorganized Debtor will emerge from chapter 11 as a privately-held enterprise owned entirely by JPM.

The Disclosure Statement [Docket No.159] provides: “The Plan generally provides for the following Restructuring:

• Distributions under the Plan will be funded by the Exit Facility [$71.0mn and provided by JPMorgan Chase Funding Inc. (“JPM”)];
• All Claims against the Debtor will be paid in full in Cash on the Plan Effective Date of the Plan, or otherwise receive such treatment as leaves such Claims Unimpaired under the Plan;
• Juniper’s Preferred Equity Interests in the Debtor (the 'Juniper Interests') will be redeemed in return for the payment of $8,912,519 in Cash; provided that, if the Plan Effective Date does not occur within 120 days after the Petition Date, then the Holders of the Juniper Interests also will receive payment in Cash of all accrued and unpaid dividends (and interest thereon, if any, from the date any such dividends accrued) on the Juniper Interests;
• In full and final satisfaction of all of its Preferred Equity Interests in the Debtor (the “JPM Interests”), with an aggregate redemption value of $71,300,347, JPM will be issued 100% of the new common stock in the Reorganized Debtor (the “New Common Stock”) on the Plan Effective Date;
• Provided that the Class votes to accept the Plan, Holders of existing Common Stock (as defined below) in the Debtor (the “Common Stock Interests “) in Class 6 will receive their Pro Rata share of $7,518,694 in Cash on the Plan Effective Date, subject to reduction as set forth in the Plan, in full and final satisfaction of their Interests. In the event Class 6 Common Stock Interests votes to reject the Plan, the Holders of these Interests will receive no distribution under the Plan and, in either event, their Common Stock Interests will be cancelled;
• Provided that the Class votes to accept the Plan, Holders of existing Warrants (as defined below) in the Debtor (the “Outstanding Warrant Interests”) in Class 7 will receive their Pro Rata share of $52,000 in Cash on the Plan Effective Date in full and final satisfaction of their Interests. In the event the Class 7 Outstanding Warrant Interests vote to reject the Plan, the Holders of these Interests will receive no distribution under the Plan and, in either event, their Outstanding Warrant Interests will be cancelled;
• All remaining equity Interests in the Debtor of any type, including, without limitation, Restricted Stock Grants or Stock Options (the “Miscellaneous Interests”), in Class 8 will receive no distribution and will be cancelled; and
• The Reorganized Debtor will continue as a going concern, funded by, among other things, the proceeds of the Exit Facility, which will remain an obligation of the Reorganized Debtor.

Additionally, on the Plan Effective Date, the Debtor will no longer be a public reporting company.”

[As described at filing] On July 23, 2020, the Debtor entered into a Restructuring Support Agreement (the “RSA,” attached to the 8-K here) with (i)  Funding Inc. (“JPM”), the holder of all of the shares of the Company’s Series A Senior Preferred Stock and all of the shares of the Company’s Series B-2, B-3 and B-4 Cumulative Convertible Preferred Stock, (ii) JCP Realty Partners, LLC (“JCP Realty”), Juniper Capital Asset Management, LLC (“JCAM”), Juniper NVM, LLC (“JNVM”), and Juniper Investment Advisors, LLC (“JIA”) (collectively, the “Juniper Parties”), and (iii) ITH Partners, LLC and Lawrence D. Bain (collectively, the “Bain Parties”).

Summing up, the RSA provides that the Debtor "will emerge from chapter 11 as a privately held enterprise owned entirely by JPM."

Terms of the RSA, which became effective on July 23, 2020, include:

• Plan confirmation within 120 calendar days of the Petition date;
• The  Debtor obtaining a senior secured super-priority debtor-in-possession financing facility in the approximate amount of $10.15mn (interim $1.9mn) to be provided by JPM;
• The Debtor and JPM entering into a senior secured term loan exit facility (the 'Exit Facility') in an amount up to $71.0mn;
• The Debtor paying to the holders of the Company’s Series B-1 Cumulative Convertible Preferred Stock (the 'Series B-1 Preferred Stock') all dividends thereon;
• The holders of the Series B-1 Preferred Stock, other than JPM, receiving on the Plan Effective Date, pro rata, the aggregate sum of $8,912,519 in cash;
• JPM receiving 100% of the new common stock of the Reorganized Company, on the Plan Effective Date, in full and final satisfaction of all Preferred Stock held by JPM, with aggregate redemption value of $71,300,347, in full and final satisfaction, settlement, release, and discharge of, and in exchange of, such Preferred Stock and any and all related claims or other rights;
• In the event that the holders of the common stock votes to accept the Plan, those holders shall receive, pro rata, an aggregate cash payment of not less than $5,012,462 and not more than $7,518,694;
• If, at the Debtor’s request, JCP Realty communicates with the holders of Common Stock or Warrants and expends material resources, on a best efforts basis, assisting the Company and the Company’s retained professionals in the Company’s solicitation of votes for the acceptance or rejection of the Plan from such holders consistent with section 1126(d) of the Bankruptcy Code, then the Company will reimburse JCP Realty for such efforts and expenses by paying JCP Realty a flat fee of $100,000 on the Plan Effective Date as authorized by the Confirmation Order; 
• The Company redeeming the holders of the preferred limited liability company interests (the 'Hotel Fund Investors') in L’Auberge de Sonoma Resort Fund, LLC, a Delaware limited liability company (the 'Hotel Fund'), on terms and conditions acceptable to JPM in its sole discretion, to be effectuated on or after the Plan Effective Date (the 'Hotel Fund Redemption'), JPM to fund the Hotel Fund Redemption pursuant to a separate credit facility with Hotel Owner in an original principal amount not to exceed $22.5 million, on terms and conditions consistent with the Restructuring Support Agreement and in all other respects acceptable to JPM in its sole discretion (the 'Hotel Redemption Facility'); and   
• Cash payment in full of all secured claims and general unsecured claims on the later of the Plan Effective Date or the date such payment is due in the ordinary course, reinstatement of such claims pursuant to section 1124 of the Bankruptcy Code or other such treatment rendering such claims unimpaired, in each case, at the option of the Company and with JPM’s consent."

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

• Class 1 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected recovery is 100%.
• Class 2 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected recovery is 100%.
• Class 3 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Projected recovery is 100%.
• Class 4 (“Juniper Interests”) is impaired and entitled to vote on the Plan. Projected recovery is 100%. Holders of Juniper Interests shall receive the sum of $8,912,520 in Cash less the aggregate amount of the Series B-1 Preferred Stock Prepetition Payments received by Juniper, representing the redemption thereof at par, in full and final satisfaction, settlement, release, and discharge of, and in exchange for, such Juniper Interests and all related rights, including (1) any dividends accruing post-petition (subject to the terms of the Restructuring Support Agreement), (2) the “consent payment” with respect to the Juniper Preferred Stock due on July 25, 2020; and (3) any Claim or Interest that is determined to be subordinated to the status of an equity security, whether under general principles of equitable subordination under Section 510(b) of the Bankruptcy Code, or otherwise, and all such Juniper Interests and related rights shall be cancelled on the Plan Effective Date.
• Class 5 (“JPM Interests”) is impaired and entitled to vote on the Plan. Projected recovery is 30.33 – 53.9%.  Holders of JPM Interests will be issued 100% of the New Common Stock in full and final satisfaction, settlement, release, and discharge of, and in exchange for, such JPM Interests and all related rights, including (1) any dividends accruing post-petition (subject to the terms of the Restructuring Support Agreement); (2) the “consent payment” with respect to JPM’s Series B-1 Preferred Stock and Series B-2 Preferred Stock due on July 25, 2020; (3) the liquidation preference with respect to JPM’s Series B-3 Preferred Stock and Series B-4 Preferred Stock due on the Petition Date; and (4) any Claim or Interest that is determined to be subordinated to the status of an equity security, whether under general principles of equitable subordination, Section 510(b) of the Bankruptcy Code, or otherwise, and all such JPM Interests and related rights shall be cancelled on the Plan Effective Date.
• Class 6 (“Common Stock Interests”) is impaired and entitled to vote on the Plan. Projected recovery is $0.30 – $0.45 per share if Class 6 accepts the Plan; $0.0 if Class 6 rejects the Plan. Holders of Allowed Common Stock Interests shall receive a Pro Rata share of an aggregate Cash payment of $7,518,694 (the “Common Stock Distribution”) on the Plan Effective Date, subject to reduction as follows:
  • To the extent that the aggregate of all Plan Effective Date Cash payments or reserves on account of Administrative Expense Claims, Priority Claims, and General Unsecured Claims, excluding only (1) the JPM Expenses4 and (2) the operating expenses of the Debtor incurred after the 90th day after the Petition Date, plus (A) expenses incurred by the Debtor and (B) net reductions to the Debtor’s initial Cash balance of $5,665,839 (for the avoidance of doubt, comprised of $5,570,839 plus $95,000 of expected Cash, as set forth in Schedule 2 to the Restructuring Term Sheet) during the period of July 1, 2020 through the Petition Date (such aggregate amount hereinafter referred to as the “Claims Distribution”), exceeds $6,892,912 but is not more than $7,728,322 (such amount over and above $6,892,912 and less than $7,728,322 hereinafter referred to as the “First Claims Overage”), then the Common Stock Distribution shall be reduced on a dollar-for-dollar basis by the First Claims Overage total.
  • To the extent that the Claims Distribution exceeds $7,728,322 but is not more than $9,228,322 (such amount over and above $7,728,322 and less than $9,228,322 hereinafter referred to as the “Second Claims Overage”), the Common Stock Distribution shall be reduced additionally by one-third of the total Second Claims Coverage, with such additional reduction not to exceed $500,000.
  • To the extent that the Claims Distribution exceeds $9,228,322 (any amount over $9,228,322 hereinafter referred to as the “Third Claims Overage”), the Common Stock Distribution shall be reduced additionally on a dollar-for-dollar basis by the Third Claims Overage total, provided that in no event shall the Common Stock Distribution be reduced below $5,012,462 (the “Minimum Common Stock Distribution”).
• Class 7 (“Outstanding Warrant Interests”) is impaired and entitled to vote on the Plan. Projected recovery is $0.02 per share if Class 7 accepts the Plan; $0.0 if Class 7 rejects the Plan.  In the event that Holders of Allowed Outstanding Warrant Interests vote to accept the Plan pursuant to Section 1126(d) of the Bankruptcy Code, such Holders shall receive a Pro Rata share of an aggregate Cash payment of $52,000 (the “Warrants Distribution”) on the Plan Effective Date
• Class 8 (“Miscellaneous Interests”) is impaired and entitled to vote on the Plan. Projected recovery is $0. Holders of Class 8 Miscellaneous Interests shall receive nothing on account of their Interests and such Interests shall be cancelled on the Plan Effective Date.

Voting Results

On October 7, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 198], which were as follows:

• Class 4 (“Juniper Interests”) 2 claim holders, representing $8,912,520.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 5 (“JPM Interests”) 1 claim holder, representing $71,300,347.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 6 (“Common Stock Interests”) 1413 claim holders, representing $74,273.38 (or 93.20%) in amount and 91.81% in number, accepted the Plan. 126 claim holders, representing $5,417.33 (or 6.80%) in amount and 8.19% in number, rejected the Plan.
• Class 7 (“Outstanding Warrant Interests”) 3 claim holders, representing $26,000.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 8 (“Miscellaneous Interests”) 24 claim holders, representing $14,270.62 in amount (or 100%) and 100% in number, voted in favor of the Plan.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Parson Declaration”), Chadwick Parson, the Debtor's Chief Executive Officer, detailed the events leading to IMH’s Chapter 11 filing. The Parson Declaration provides: “At any time after July 24, 2020, Juniper and JPM have the right under the CODs to require the Debtor to redeem certain of their Preferred Stock for the Redemption Amount of $42,882,513.21. The Debtor did not have the liquidity available to fund the Redemption Amount, nor did it have the ability to obtain funding from an outside source to fund the Redemption Amount. The Debtor’s failure to redeem would have triggered a process potentially resulting in the eventual liquidation of the Debtor….Although it had agreed to extend the Redemption Date in the past, Juniper indicated to the Debtor that it would refuse to extend the Redemption Date beyond July 24, 2020…. 

The main sources of liquidity for the Debtor historically have been the disposition of existing REO assets, proceeds from borrowings and equity issuances, cash-on-hand, revenue from the ownership and management of hotels, and investment income. Over the last few years, the Debtor used proceeds from the issuance of preferred equity and/or debt, proceeds from the sale of legacy assets, and the liquidation of mortgages and related investments to satisfy its working capital requirements. The Debtor’s investments do not, and historically have not, generated sustainable earnings sufficient to cover the Debtor’s operating costs. These sources of liquidity were no longer available. Additionally, although the Debtor’s Common Stock is not publicly traded, in early 2007, the Debtor became a public reporting entity. The expense of publicly reporting increased the Debtor’s operating costs significantly. On an annual basis, the Debtor incurs approximately $1.8 million in direct and indirect reporting related expense

Finally, the Hotel, the Debtor’s sole income producing investment, which was expected to generate significant revenues, has faced continued challenges from wildfires in 2017 and the current Pandemic, which has caused interruption of the Hotel’s operations, increased costs, and decreased demand.”

Significant Prepetition Shareholders

(i) JPM Chase Funding, Inc., (ii)  Jay Wolf, owner of JCP Realty Partners, LLC and (iii) Juniper Capital Partners, LLC all have in excess of 5% of the Debtor's voting shares.

Key Documents

The Disclosure Statement [Docket No. 148] attached the following exhibits:

• Exhibit A: Debtor’s Plan 
• Exhibit B: Restructuring Support Agreement 
• Exhibit C: Amended and Restated JIA Agreement 
• Exhibit D: Assumed Contracts Schedule 
• Exhibit E: Debtor’s Organizational Structure Chart 
• Exhibit F: Projections

The Debtors filed Plan Supplements [Docket Nos. 194 and 206] which attached the following documents:

• Attachment 1: Assumed Contracts Schedule [Docket No. 194]
• Attachment 1-A: Redline of Amended Assumed Contracts Schedule to Assumed Contracts Schedule [Docket No. 206]
• Attachment 2: Exit Facility Documents [Docket No. 194]
• Attachment 3: New Organizational Documents [Docket No. 194]
• Attachment 4: New Executive Employment Agreements [Docket No. 194]
• Attachment 5: Amended and Restated JIA Agreement [Docket No. 194]
• Attachment 6: Identities of the proposed members of the Reorganized Debtor’s board and the proposed executive officers of the Reorganized Debtor [Docket No. 194]
• Attachment 7: List of Causes of Action retained by the Reorganized Debtor [Docket No. 194] 

About the Debtors

The Parson Declaration provides: The Debtor is a real estate investment holding company. The Company’s real estate investments are located primarily in the southwestern part of the United States, and are held by wholly-owned or indirectly wholly-owned subsidiaries, none of which are debtors in this proceeding. The Debtor’s most significant real estate assets include: (a) a luxury hotel located in Sonoma, California, and (b) thousands of acres of undeveloped real property and related water rights located outside of Albuquerque, New Mexico. In addition, the Company has potentially valuable Tax Attributes…. The Company has no material secured debt, and no funded unsecured indebtedness. As discussed in more detail below, the Debtor does have significant contingent guaranty liability associated with its hotel asset, but that obligation will be paid in full through the Plan on the effective date. Otherwise, the Debtor’s unsecured debt is generally comprised of amounts owed to vendors, professionals, and preferred investors.

Corporate Structure Chart

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