Posted by Irve Goldman
March 23, 2015
At issue in GRG Acquisitions, LLC v. MDM Golf of Gillette Ridge, LLC (In re MDM Golf of Gillette Ridge, LLC), Case No. 14-21565 (ASD) (December 23, 2014), was whether relief from the automatic stay should be granted to a secured creditor in a single asset real estate case. A “single asset real estate” case is defined generally as a case in which the debtor owns real property that is its sole asset and on which there is no business being conducted other than operating the real estate. In such a case, the debtor, within 90 days of the bankruptcy filing, must either start making payments to the secured creditor or file a plan that has a reasonable possibility of being confirmed within a reasonable time. 11 USC §362(d)(3).
In MDM, the Debtor filed a plan of reorganization within the required 90-day period and thus, the standard applied by the Court for determining whether relief to the secured creditor should be granted required the Debtor to prove that the plan had a realistic chance of being confirmed and was not patently unconfirmable. The plan anticipated that the secured creditor would make a §1111(b) election to have the full amount of its claim ($4.2 million) secured and sought to value the collateral at $1.3 million.
Under the plan, the secured creditor was to receive on confirmation a payment of $300,000, along with a $1 million promissory note payable monthly with interest at 3% over seven years based on a 25-year amortization schedule; and at the end of the seven-year period, the secured creditor was to be paid a balloon payment equal to the remaining balance on the $1.3 million promissory note ($795,000) and the amount necessary to pay the total amount of the secured creditor’s claim, i.e., the unsecured portion ($4.2 million less $1.3 million = $2.9 million).
The Debtor argued that the plan was feasible because, based on its cash flow projections, it would be able to borrow the sums necessary for the balloon payment with secured loans. The Debtor’s projections, however, provided for golf course revenues to increase over the first three years by 3% - 5% with increases for the following two years of 3%. Thereafter, annual revenues were projected to increase at about 22% over 2015.
The Court found that the Debtor failed to prove the feasibility of its plan because the projected expenses were not broken down with sufficient detail to determine their reasonableness and did not include the plan payments. On the revenue side, the Court found that the projections were overly optimistic when compared to the Debtor’s past operating history. Accordingly, the Court granted the secured creditor relief from the automatic stay.
 The valuation has relevance because when a secured creditor makes a §1111(b) election, the plan must provide a stream of payments which, when discounted back to present value, equals at least the value of the creditor’s collateral, but the sum of the payments must be in an amount equal to at least the creditor’s total claim.
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