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September 30, 2022 – The Court hearing the Starlin cases issued an order approving the Debtors’ settlement with mezzanine lenders Clinton PB Holdings I LLC, Clinton PB Holdings II LLC and Clinton PB Holdings III LLC (collectively, the “CPBH Entities”) [Docket No. 68]. The Settlement Agreement is attached as Exhibit 1 to the order.
As detailed below, the settlement will see either (a) the @$240.0mn claims held by the CPBH Entities reduced by $45.0mn or (b) if that reduced settlement amount is not achived in a sale, the surrender of the Debtors' properties to the CPBH Entities.Tthe settlement "also saves each side untold millions of dollars in legal and related expert and other associated expenses…"
On June 28, 2022, Starlin LLC and seven affiliated Debtors (“Starlin” or the “Debtors,” the owners of real property and improvements in New York City) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 22-10888 and on September 14th they were joined by 10 further affiliated Debtors.
The settlement motion [Docket No. 23] provides, “The Debtors and the CPBH Entities and [Starlin manager Robert Gans] have been engaged in negotiations on and off for more than one year before reaching the agreement encompassed in the Settlement Agreement. Both sides have had the assistance of experienced and sophisticated counsel and the Debtors have also had the assistance of Getzler Henrich as their Financial Advisor in exploring the various alternatives. To avoid the substantial costs and uncertainty of further litigation between the parties, the parties have determined to resolve all outstanding claims and disputes between them by mutual agreement on the terms and subject to the conditions set forth in the Agreement and through a consensual chapter 11 process.”
The motion further notes, “The Settlement Agreement, once it is approved by the Court and its terms are implemented through timely performance by each of the Debtors and each of the CPBH Entities, will result in a consensual, global resolution of over $240 million dollars of claims by and between over 25 entities and individuals in what has been a contentious dispute that has been ongoing since at least 2020.
As a result, the Debtors’ properties will be developed in the near future through either (i) a refinancing or sale under a Chapter 11 plan in satisfaction of the CPBH Entities’ claims at a significant discount of more than $45 million (which voluntary discount grows by the continued accrual of default interest that would not be charged as part of the Settlement Amount); or (ii) surrendered to the CPBH Entities if the Debtors are unable to consummate a transaction allowing for the timely payment of the reduced Settlement Amount, in either case in full and complete satisfaction of any and all of the CPBH Entities and affiliates secured and unsecured claims against the Debtors, Gans and his family members….
Importantly, the settlement amicably resolves disputes between the parties and provides for a substantial voluntary reduction – in excess of $45 million (including the waiver of default rate for interest) – of claims asserted against the Debtors’ estates and resolves multiple pending litigations while affording the Debtors, and Mr. Gans, the opportunity to repay a materially reduced claim.
This global settlement also saves each side untold millions of dollars in legal and related expert and other associated expenses as well as the uncertainty of multiple litigations that could take an extended period to resolve.”
Key Terms of Settlement Agreement
- Allowed Claim: The CPBH Entities will receive an allowed claim, which is as of September 6, 2022, in the amount of $237,230,043, subject to continued accrual of interest at the default contract interest rate, incurrence of costs and expenses and payment of CPBH Entities’ professional fees and expenses (such claim, ‘Allowed Claim’). The Allowed Claim will be further increased by the Argo 45 Option Purchase Price (as provided for below) to the extent funded by or on behalf of one or more of the CPBH Entities. The Allowed Claim is secured by all of the assets of the Gans Entities other than Gans.
- Settlement Amount: Subject to the terms of the Agreement, the CPBH Entities agree to accept a material voluntary reduction of their Allowed Claim as payment of the Settlement Amount (as defined below). To obtain this benefit, the Debtors must pay the CPBH Entities an amount equal to the sum of (i) $200 million, plus (ii) the Argo 45 Option Purchase Price to the extent funded by or on behalf of one or more the CPBH Entities, plus (iii) interest on $200 million (compounding monthly) at the non-default contract interest rate from and after August 19, 2022, plus (iv) payment of CPBH Entities’ professional fees and expenses and from and after July 5, 2022 (such claim, the ‘Settlement Amount’). The applicable CPBH Entities shall retain their interests in the 533-535 West 27th Street property. The Settlement Amount must be paid in cash and in full on or before December 22, 2022 or such later date to which the CPBH Entities may agree in their sole discretion (‘Payment Date’). As part of the Agreement, the CPBH Entities agree they shall not assert any other claim against the Debtors’ estates or other Gans Entities other than the Settlement Amount, and the payment of the Settlement Amount under the Agreement will be in full and complete satisfaction of any and all claims the CPBH Entities has or may have against any of the Gans Entities so long as timely payment of the Settlement Amount is made.
- The Argo 45 Transaction: Within no more than one day following the Execution Date (which was September 8, 2022), Argo 45 shall accelerate the closing date of the purchase option (‘Purchase Option’) provided in Section 30 of the lease (as amended, the ‘Option Lease’) dated January 2013 between Argo 45 and SA Waterfront Realty, Inc., with respect the property located at 605 West 45th Street, New York, New York (Block 1093, Lot 28) (‘Option Property’), and immediately provide evidence of such acceleration to the CPBH Entities – which Argo 45 has done on September 9, 2022 – and within no more than ten (10) days following the Execution Date, actually close on the acquisition of the Option Property (‘Argo 45 Option Closing Date’). Clinton PB Holdings I, LLC will provide a secured loan to Argo 45 to fund (i) the acquisition of the Option Property at the purchase price for the Option Property set forth in the Option Lease and (ii) the reasonable and necessary closing costs (including reasonable legal fees, title insurance charges, prorations and recording fees and mortgage recording tax in an amount not to exceed 4% of the purchase price for the Option Property (the foregoing, with interest, except as waived as provided for herein with respect to the Settlement Amount, the ‘Argo 45 Option Purchase Price’). The amount of such secured loan shall either be added to the original mortgage or new individual mortgage, at Clinton PB Holdings I, LLC’s option and in its sole discretion, and be subject to the same terms as the Senior Loan. On the Argo 45 Option Closing Date, Argo 45 will, concurrently with the closing, (i) cause the Option Property to be added to Clinton PB Holdings I, LLC’s collateral in accordance with the terms of the Senior Loan documents, and (ii) provide Clinton PB Holdings I LLC a pledge of the membership interests in Argo 45. Immediately thereafter, Gans will cause a voluntary chapter 11 petition to be filed for Argo 45.
- Consummation of Agreement under a Chapter 11 Plan: The Settlement Agreement will be implemented through the consensual bankruptcy cases of all the Gans Entities (other than Mr. Gans), including the Mezz Borrower Debtors, the PropCo Debtors and Argo 45. The Settlement Amount will be paid under a sale and/or refinancing transaction under a Chapter 11 plan (‘Plan’) in form and substance acceptable to the CPBH Entities and for which CPBH will be a co-plan proponent. The Plan will provide the CPBH Entities with the following treatment: (a) payment of the Settlement Amount on or before the Payment Date, or (b) if the Debtors fail to make such timely payment, then, one (1) Business Day after the Payment date (or such later dates as determined by the CPBH Entities in their sole and absolute discretion), the sale or sales of the assets of the Gans Entities to the CPBH Entities (or their designees) through a credit bid for an amount not to exceed the full amount of the Allowed Claim in full and complete satisfaction of any and all claims of any of the CPBH Entities has or may have against any of the Gans Entities (‘Sale Treatment’).
- In furtherance of the Agreement and the Plan, the Parties agreed to the following milestones:
- the hearing on the motion to approve the Agreement shall occur on the earliest available date available from the Bankruptcy Court upon the filing of such motion;
- the filing of the Plan and disclosure statement shall occur on or before November 7, 2022;
- a hearing to confirm the Plan shall occur on or before December 8, 2022; and
- the Plan’s effective date shall occur on or before December 22, 2022.
- The Debtors shall not be permitted to withdraw the Plan (absent the consent of the CPBH Entities and, then, only to proceed with the Sale Treatment under the Sale Motion).
- Sale Treatment: If the CPBH Entities are provided the Sale Treatment because the Settlement Amount is not paid on or before the Payment Date, then the CPBH Entities may elect (in their sole discretion) to either: (a) pay all allowed priority and allowed administrative expense claims so that the Sale Treatment occurs under the Plan and the Plan can go effective or (b) consummate the Sale Treatment through one or more sales under section 365 and 363 of the Bankruptcy Code outside of a plan (in which case, the Plan shall not go effective). Promptly upon the Bankruptcy Court’s approval of the Agreement, the Debtors will file a sale motion (‘Sale Motion’) for a private sale to the CPBH Entities, as credit bidder, as a backstop if the Plan fails to be confirmed or does not go effective with the Settlement Payment being made by the Payment Date or the CPBH Entities elect not to proceed with the Sale Treatment under a Plan.
Events Leading to the Chapter 11 Filing
In a declaration filed by Starlin manager Robert Gans in the 175 Spring cases [Docket No. 2], “On June 28, 2022, Starlin LLC and its affiliates (‘Mezz Debtors’) filed their chapter 11 cases because of a concern that the mezzanine lenders intended to pursue a UCC foreclosure sale of the membership interests held as collateral or exercise remedies under pledge agreements held by them which could have resulted in the Mezzanine Borrowers immediate loss of operational control of the those entities and the property owners being filed today.
During the intervening period, the Debtors and the CPBH Entities have negotiated a comprehensive Settlement Agreement which is being filed contemporaneously with the petitions of the property owning entities and the Debtors and CPBH Entities intend to expeditiously seek approval of the Settlement Agreement, which they expect will lead to the confirmation of a consensual joint chapter 11 plan of reorganization before the end of this year.”
Argo Purchase Option
Argo 45, LLC (“Argo”), is an affiliate of the Debtors and a party to the Settlement Agreement. It has not yet filed a chapter 11 case but intends on filing on or about September 20, 2022. Article 30 of the Argo Lease contains a purchase option for the leased property allowing Argo to acquire the option property for $4,500,000.
Under the Settlement Agreement, Argo agreed to accelerate the closing date on the purchase option to ten days after the execution of the Settlement All the Parties to the Settlement Agreement have agreed that the transaction will be timely if it closes no later than September 19, 2022.
To close the transaction, the CPBH Entities (or an affiliated entity) are required under the Settlement Agreement to loan Argo the $4,500,000 purchase price plus the closing costs and Mr. Gans will cause the property to be added to Clinton Is collateral in accordance with the terms of the senior loan documents, and provide Clinton I a pledge of the membership interests in Argo, except for if the Debtor timely pays the Settlement Amount as contemplated by the Settlement Agreement, the interest on the loan will be waived in full.
About the Debtors
According to the Starlin Debtors: “The Debtors are the owners of the real property and improvements located at 175 Spring Street, New York, New York; 610 West 46th Street, New York, New York; 616-620 West 46th Street, New York, New York; 617 11th Avenue, New York, New York; 623 11th Avenue, New York, New York; 616-624 11th Avenue, New York, New York; 613-615 11th Avenue, New York, New York; 603 West 45th Street aka 609-611 11th Avenue, New York, New York; 108-02 Merrick Boulevard, Queens, New York; and 108-16 Merrick Boulevard, Queens, New York.”
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