609 B.R. 555
Bankr. N.D. Ga.2019Background
- Debtor Aspen Village at Lost Mountain Memory Care, LLC owns a mostly completed 48-bed Memory Care Facility and adjacent Assisted Living Facility; construction was partially completed and would take ~4 months to finish once restarted.
- Debtor obtained an $18.05M loan from MidCap in 2016 secured by both properties; construction funding ceased in early 2018 after the loan went "out of balance," Debtor defaulted, and MidCap issued foreclosure notices.
- Debtor filed Chapter 11 on Feb. 5, 2019 and proposed a third amended plan (Sept. 13, 2019) to pay all creditors in full within 36 months via monthly payments and an anticipated $2.5M investor infusion under a Letter of Intent (LOI) to complete construction.
- MidCap objected, arguing the LOI was speculative, projections and budget unreliable (feasibility), liquidation analysis inadequate, plan a delay tactic (bad faith), and the cramdown treatment (7.5% interest plus significant negative amortization) was not fair and equitable; MidCap claimed ~$19.27M owed.
- After evidentiary hearings the Court found the LOI and projections sufficiently support feasibility and good faith, staffing and budgets were adequately addressed, but the Plan failed §1129(b) because it did not provide MidCap the present value of its full secured claim (including contractually provided interest-on-interest); confirmation was denied but Debtor was permitted to amend the Plan by Jan. 30, 2020.
Issues
| Issue | MidCap's Argument | Debtor's Argument | Held |
|---|---|---|---|
| Feasibility (§1129(a)(11)) | LOI speculative; projections unreliable; insufficient certainty of financing | LOI is binding enough, substantial due diligence done; occupancy/revenue projections reasonable and supported by management experience | Court: Projections and LOI support feasibility by preponderance of evidence; requirement met |
| Good faith (§1129(a)(3)) | Plan is a delay/scheme to frustrate foreclosure rights | Plan aims to reorganize, complete facility, and monetize assets; market demand supports reorganization | Court: Plan proposed in good faith given totality of circumstances |
| Best interests/liquidation (§1129(a)(7)) | Liquidation analysis omitted some costs and risks; delay harms MidCap | Chapter 7 liquidation value likely much lower; Plan would pay creditors in full over time | Court: Best-interest test satisfied; liquidation value lower than Plan recovery for non-MidCap creditors |
| Cramdown / fair & equitable (§1129(b)) — interest & negative amortization | 7.5% and deferred interest insufficient; contract entitles MidCap to interest on interest; deferred payments don’t provide present value of claim | Proposed rate is prime + 2.75% (market-range); negative amortization is permitted if safeguards exist; MidCap keeps liens and remedies on default | Court: Interest rate acceptable but Plan fails §1129(b) because it does not pay MidCap the present value of its full allowed claim (including contractual capitalization of interest); negative amortization not per se inequitable but present-value shortfall defeats confirmation |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (2004) (market-rate adjustments over prime are generally acceptable)
- McCormick v. Banc One Leasing Corp. (In re McCormick), 49 F.3d 1524 (11th Cir. 1995) (good-faith plan standard)
- Kaiser Aerospace & Elec. Corp. v. Teledyne Indus. (In re Piper Aircraft Corp.), 244 F.3d 1290 (11th Cir. 2001) (use totality of circumstances to assess good faith)
- In re Club Assocs., 107 B.R. 385 (Bankr. N.D. Ga. 1989) (factors for evaluating negative amortization in cramdown)
- In re Oaks Ptrs., Ltd., 141 B.R. 453 (Bankr. N.D. Ga. 1992) (negative amortization factors); aff’d, 956 F.2d 1065 (11th Cir. 1992) (affirming bankruptcy court framework)
- Great Western Bank v. Sierra Wood Group, 953 F.2d 1174 (9th Cir. 1992) (distinguishing accrual vs. pay rates for negative amortization)
- In re J.C. Householder Land Trust #1, 501 B.R. 441 (Bankr. M.D. Fla. 2013) (feasibility must be grounded in objective facts)
- In re Brandywine Townhouses Inc., 524 B.R. 889 (Bankr. N.D. Ga. 2014) (example of denial where projections failed to support feasibility)