448 B.R. 482
Bankr. N.D. Ill.2011Background
- Debtor seeks post-petition credit under 11 U.S.C. §364(d) to obtain a priming lien on encumbered property and liens on unencumbered property plus a superpriority administrative expense; CenterPoint objects.
- Property consists of two Chicago lakefront parcels and a long-term parking lease adjacent to McCormick Place, with plans to develop a hotel.
- Preliminary findings valued Debtor’s property at $81,150,000, creating a sizable equity cushion over CenterPoint’s claim of about $48.7 million.
- Debtor proposes a new lender, JMB, for up to $4 million to fund development-related work and pay a range of creditors and consultants tied to TIF, tax credits, and development.
- The court previously granted emergency relief to pay real estate taxes and held a final trial on the motion; an Amended Findings of Fact and Conclusions of Law will govern the ruling.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CenterPoint’s interest is adequately protected to permit a priming lien. | CenterPoint’s equity cushion protects it; value supports the loan. | Adequate protection is lacking due to speculative future value from development. | Yes; CenterPoint is adequately protected. |
| Whether the proposed use of JMB loan proceeds will benefit the estate and justify the priming. | Funded expenses will advance reorganization (TIF, credits, reports). | Some proposed uses are speculative or not properly evidenced. | Mostly yes; uses that meaningfully advance the estate are approved. |
| Whether certain payees (attorneys/accountants) may be paid from the JMB loan proceeds. | These professionals will benefit the estate and are properly contracted. | Some payees lack approved contracts or were previously unsecured. | Payees may be paid provided contracts exist and benefits to estate are shown; some exceptions apply. |
| Whether the proposed loan was negotiated and offered in good faith. | Loan terms reflect arm’s-length negotiations and fair value. | N/A or insufficient challenge raised; focus on terms and adequate protection. | Yes; loan negotiated in good faith. |
Key Cases Cited
- In re O'Connor, 808 F.2d 1393 (10th Cir. 1987) (adequate protection principles and value considerations)
- In re James Wilson Assocs., 965 F.2d 160 (7th Cir. 1992) (entrepreneurial risk and adequate protection when priming a creditor)
- In re Strug-Division LLC, 380 B.R. 505 (Bankr.N.D.Ill. 2008) (test for use of priming liens: likelihood of benefiting the estate)
- In re Mosello, 195 B.R. 277 (Bankr.S.D.N.Y. 1996) (value increase must be likely to benefit the estate; speculative constitutes inadequate protection)
- In re Swedeland Development Group, 16 F.3d 552 (3d Cir. 1994) (future profitability of development cannot alone justify adequate protection)
- In re 495 Cent. Park Ave. Corp., 136 B.R. 626 (Bankr.S.D.N.Y. 1992) (priming lien considerations and benefits to the estate)