GPIF Aspen Club, LLC v. Aspen Club & Spa, LLC (In re Aspen Club & Spa, LLC)

IN RE THE ASPEN CLUB & SPA, LLC, Debtor.

IN RE ASPEN CLUB REDEVELOPMENT COMPANY, LLC, Debtor.

GPIF ASPEN CLUB LLC, Appellant, v. THE ASPEN CLUB & SPA, LLC and ASPEN CLUB REDEVELOPMENT COMPANY, LLC, Appellees.

BAP No. CO-19-043

Bankr. No. 19-14158

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT

July 24, 2020

NOT FOR PUBLICATION¹

Chapter 11

OPINION

Appeal from the United States Bankruptcy Court for the District of Colorado

Before MICHAEL, SOMERS, and JACOBVITZ, Bankruptcy Judges.

JACOBVITZ, Bankruptcy Judge.

GPIF Aspen Club, LLC ("GPIF") appeals the Bankruptcy Court's order denying its motion for relief from the automatic stay under 11 U.S.C. § 362(d)(3),² applicable to cases in which the bankruptcy estate consists of single asset real estate ("SARE"). In denying stay relief, the Bankruptcy Court erred by not deciding whether the proposed priming lien exit financing feature of Debtors' chapter 11 plan precluded confirmation of the plan such that the plan did not have a reasonable possibility of being confirmed within a reasonable time. We reverse and remand.

I. Background

Aspen Club & Spa, LLC and Aspen Redevelopment Company, LLC³ (collectively or individually, "Aspen Club") commenced separate chapter 11 cases on May 16, 2019 in the United States Bankruptcy Court for the District of Colorado. The two cases subsequently were jointly administered. Aspen Club owns real property in downtown Aspen, Colorado on which it is in the process of developing luxury residential three- and four-bedroom condominiums, employee housing units, and a 60,800 square foot fitness club and spa (the "Property"). It took Aspen Club eight years and $5 million to obtain all approvals and licenses from local authorities to begin construction of the development project on the Property.

Aspen Club acquired ownership of the Property after consolidating $41 million of secured debt. Construction began in 2015 with over $18 million in presales and an expected completion date in 2018.

Aspen Club relied on several prepetition creditors to finance the construction and development of the Property. FirstBank agreed to provide $45 million in construction financing. By summer 2017, FirstBank had disbursed about $30 million but refused to lend the additional $15 million. Aspen Club Redevelopment Company, LLC recorded a deed of trust for the purpose of obtaining construction financing, which would provide up to $32 million to the project, but only $13 million was funded.⁴ Additionally, FirstBank's refusal to extend additional funding led to a lack of future investment in the project. The lack of funding prevented Aspen Club from paying contractors and vendors, and by September 2017 construction halted. GPIF acquired FirstBank's interest in the $30 million loan. GPIF's claim in the bankruptcy cases is secured by the Property.

On July 23, 2019, the Bankruptcy Court issued a Memorandum Opinion and entered a Judgment determining that Aspen Club is subject to the SARE provisions of the Bankruptcy Code and extending the time under § 362(d)(3) until September 16, 2019 for Aspen Club to file a plan.⁵

Aspen Club sought Bankruptcy Court approval of debtor-in-possession financing from EFO Financial Group, LLC ("EFO Financial").⁶ After conducting an evidentiary hearing, the Bankruptcy Court authorized Aspen Club to borrow up to $4.2 million from EFO Financial (the "DIP Loan") and granted EFO Financial a priming lien under § 364(c)(1) against the Property. In the hearing on the motion to approve debtor-in-possession financing, the Bankruptcy Court made the following finding on the record:

So I need to make a finding on the value of the property for purposes of this motion and this motion only, and based upon the evidence and the testimony, I would [find] the property is worth no less than the ninety to one-hundred-million-dollar range in an as-is condition for the purposes of ruling on the motion.⁷

This is the only Bankruptcy Court finding of the value of the Property reflected in the record on appeal. There were about $25.4 million of estimated mechanics' lien claims at the time Aspen Club obtained the DIP Loan, secured by liens senior to GPIF's lien, which exceeded $34 million.⁸ The estimated total pre-petition secured claims, including GPIF's claim, exceeded $67 million.⁹

Aspen Club filed a joint plan of reorganization on September 13, 2019 (the "Plan"), three days before expiration of the SARE period to file a plan, and a jointdisclosure statement on September 16, 2019.¹⁰ The Plan defines "Debtors" as Aspen Club, as debtors and debtors-in-possession in the bankruptcy cases.¹¹ "Reorganized Debtors" is defined as the Debtors from and after the Plan effective date.¹² The Plan provides that property of the estate vests in the Reorganized Debtors on the Plan effective date.¹³ The Plan effective date is the first business day after the Plan is confirmed when there is no stay of the confirmation order in effect and all conditions to the Plan effective date have occurred.¹⁴ One of those conditions is that the Bankruptcy Court shall have entered an order approving exit financing on a super priority basis under §§ 364(c) and (d)(1) and that the exit financing has been funded and made available to the Debtors and Reorganized Debtors.¹⁵

With respect to exit financing, the Plan provides that the exit financing facility will be advanced to the Reorganized Debtors, will be secured by a lien against all property of the estate, and the lien against already encumbered property that secures the loan will be senior and prior to all existing liens except liens securing allowedmechanics lien claims.¹⁶ The Plan also provides that confirmation will authorize the Reorganized Debtors to borrow monies from the exit lender, EFO Financial, and will authorize the Reorganized Debtors to execute the loan documents for the exit financing facility.¹⁷

The Plan proposes payment in full to holders of allowed mechanics' lien claims on the Plan effective date or as soon as practicable thereafter.¹⁸ The Plan proposes payment to GPIF on terms summarized below.

A few days later, on September 16, 2019, Aspen Club filed a motion to approve exit financing pursuant to § 364(d) (the "Exit Financing Motion").¹⁹ GPIF objected to the Exit Financing Motion. In the Exit Financing Motion, Aspen Club sought approval of an additional $140 million loan from EFO Financial secured by a lien that would prime GPIF's lien pursuant to § 364(d)(1).

The Exit Financing Motion recites that the exit loan would pay off the DIP Loan and approximately $26.5 million of mechanics' lien claims, both of which are secured by liens that are senior to the lien securing GPIF's clam, and that Aspen Club would use the balance of the funds to complete its development project. The terms of the exit loan are set forth in EFO Financial's exit loan commitment attached to the motion.²⁰

The loan commitment defines "Borrower" as The Aspen Club & Spa, LLC, debtor and debtor in possession under Case Number 19-14158-JGR.²¹ The loan commitment contemplates loan advances to enable the Borrower to pay off mechanics' liens and certain other creditors and to complete the development and construction of the project.²² The loan commitment contains covenants that contemplate that the Borrower will own the collateral and that disbursements will be made to the Borrower.²³ Funds are not to be advanced to the Borrower all at once. The loan commitment provides funds will be advanced to pay for the construction and development of the project incrementally as work progresses. The terms of repayment to EFO Financial are (a) 75% of net cash flow to the EFO Financial, (b) 90% of net proceeds of sale of each living unit to EFO Financial until the principal balance is reduced by $50 million, after which the Borrower may pay the next $10 million of 90% of net sale proceeds to GPIF, (c) 90% of the next net proceeds of sale of each living unit to EFO Financial until the principal balance is reduced by another $50 million, after which the borrow may pay the next $10 million of 90% of net sale proceeds to GPIF, and (d) payment of 90% of the remaining net sale proceeds to the lender until the exit loan is paid in full.²⁴ The Plan provides for payment to GPIF consistent with these terms.

The Exit Financing Motion recites that the development project includes twenty to be completed three- and four-bedroom luxury residential condominiums, twelve to becompleted workforce housing units, and a world class club and spa.²⁵ The Exit Financing Motion further recites that five luxury condominiums units are 80% complete, five are 70% complete, and three are 60% complete; and other parts of the project are 30% complete.²⁶

On October 4, 2019, GPIF filed a motion for relief from the automatic stay under the SARE provisions of § 362(d)(3) (the "Stay Relief Motion").²⁷ GPIF alleged the Plan is patently unconfirmable because it is predicated on non-consensual priming lien exit financing, which the Bankruptcy Court cannot approve, and, therefore, the Plan does not have a reasonable possibility of being confirmed within a reasonable time. GPIF alleged there is no legal basis upon which the Bankruptcy Court could approve the priming lien exit financing under § 364, because § 364 does not apply to exit financing, or under state law, because state law does not permit non-consensual priming liens. GPIF further alleged the proposed exit financing could not be crammed down under § 1129(b)(2)(a)(i), because GPIF would not retain its lien under the Plan, or under § 1129(b)(2)(a)(iii), because GPIF's would not realize the indubitable equivalent of its secured claim as a result of the proposed priming lien exit financing.

On October 25, 2019, the Bankruptcy Court entered an order setting a bifurcated non-evidentiary hearing on November 6, 2019 on the Exit Financing Motion in which the court would consider, solely as a matter of law, whether the proposed exit financingcould be approved on a priming...