In re Cinemas
| Decision Date | 24 November 2010 |
| Docket Number | No. 4:10–bk–14551–JMM.,4:10–bk–14551–JMM. |
| Citation | 442 B.R. 724 |
| Parties | In re LINDA VISTA CINEMAS, L.L.C., Debtor. |
| Court | U.S. Bankruptcy Court — District of Arizona |
OPINION TEXT STARTS HERE
Isaac D. Rothschild, Michael W. McGrath, Mesch Clark & Rothschild, PC, Tucson, AZ, for Debtor.Gerald Shelley, Phoenix, AZ, for Bank of Arizona.
Presented to the court over two days, October 27, and November 2, 2010, was the plan of reorganization proposed by the Debtor (ECF Nos. 52 and 65) (the “Plan”).
Evidence was taken in the form of numerous documents and witnesses, and the parties have filed written memoranda on legal points, and further addressed their positions through argument during the hearings.
The court has considered all sides of the issues, has carefully reviewed the pertinent record and law in this case, and now rules.
The Debtor originally filed a plan on August 24, 2010 (ECF No. 52), and amended it on September 14, 2010 (ECF No. 65). In concept, the Debtor's Plan proposes to repay all of its creditors 100% of their outstanding indebtedness, over a period of time.1 Contributions to the Debtor will be made, as needed, by the principals and affiliates of the Debtor. These same parties have also guaranteed the obligations of the Debtor to its primary secured creditor, Bank of Arizona, N.A. (the “Bank”).
The breakdown of the Plan's treatment of its creditors, as well as the vote of each class (ECF No. 84, Ballot Report), is:
After the court approved the Debtor's Disclosure Statement (ECF No. 71), both it and the Plan were circulated to the various classes of creditors. The creditors voted, and the Debtor filed a tally with the court as to the results of the voting by each class. (Ballot Report, ECF No. 84).
Only the Class 3 secured creditor, the Bank, has rejected the Plan and its modifications, and has objected thereto (ECF Nos. 81 and 82).
The Debtor owns and operates a movie multi-plex known as Tower Theatres. Like many businesses which began operations in the mid-decade, this start-up operation was adversely affected by the economic turndown affecting Tucson and the state. The theater, which leases its site in a relatively new and developing retail area, had worked with its landlord in a “build to suit” stand-alone movie theater pad. It financed the equipment and improvements through both capital infusions by its principals and their affiliates, and by a $5,2983,000 loan from the Bank (Ex. 9).
The $5.3 million borrowing, made on October 27, 2006, was to mature on August 1, 2014 (Ex. 9). The loan had several pieces of collateral securing it, including liens on:
• The Debtor's leasehold interest; • Equipment and other personalty related to the business;
• A Deed of Trust upon the real property owned by Cutler Fire Protection, Inc.
• A Deed of Trust on the home of Daniel and Linda Cutler; and
• A Deed of Trust on the home of Kent and Angela Edwards.
• Equipment lien on the personal property assets of Grand Cinemas, LLC.
(Ex. 8, 14); Debtor's Memorandum dated October 25, 2010 (ECF No. 85).
In addition, the Bank holds continuing guarantees, for the obligations of the Debtor, from:
• Cutler Fire Protection, Inc.;
• Grand Cinemas, LLC;
• Daniel G. and Linda L. Cutler;
• The Daniel G. and Linda L. Cutler Revocable Living Trust; and
• Kent and Angela Edwards.
Throughout the duration of this bankruptcy case, the parties have all dealt with the Bank as a fully secured creditor. No issue has been raised, by either side, that the Bank was either partially or fully unsecured.
The Debtor's Plan treats the Bank as fully secured (Class 3), and the Bank rejected the Plan, as a creditor holding a secured claim, on October 19, 2010 (Ex. 2, Bank of Arizona's Statement, p. 1 at line 22; p. 2 at lines 1–2) (ECF No. 82).
There was no argument, or evidence presented, suggesting that the Bank held any claim other than one which was fully secured.3 Thus, for purposes of this discussion, the Bank is deemed to be a fully secured creditor.
The Debtor presented its case through the testimony of four witnesses and several documents. The Bank presented one witness and three exhibits in rebuttal. In summary, the evidence was as follows:
1. Kent Edwards
Kent Edwards testified that the ownership structure of the Debtor LLC was that he and his wife owned an 8% share, while the Cutlers owned 92% of the enterprise. The concept for a multi-plex theater in the northwest part of Tucson was conceived mid-decade, and the construction concluded and the theater opened in about December, 2007.
The startup financing was a $1.4 million infusion from the principals, and a $5.3 million borrowing from the Bank.
Over the next few years, as the economy and “rooftop” building in the surrounding areas worsened, the Debtor had increasing difficulty in meeting its debt service requirements to both its landlord and to the Bank. However, through the principals' sales of other property, the proceeds from which were committed to the Bank, the Debtor's loan was reduced by $2 million to its present figure of about $3.1 million. ( See, e.g., Ex. 13.)
Since the filing of the case, the Debtor has paid the Bank $10,000 per month as “adequate protection” payments.
Mr. Edwards has had significant experience in the operations and management of retail movie houses. He testified that completion of significant road projects leading to the theaters will enhance customer attraction to the theaters from surrounding neighborhoods.
He also testified that his other two theater ventures, Crossroads and Grand View, are profitable and well-managed. These two entities are held by Grand Cinemas, LLC, itself a guarantor of the Bank's debt. That entity employs approximately 50 people. The past and projected profitability of Grand Cinemas was reflected by Ex. 5, with a $95,000 net profit expected and on track for 2010.
Mr. Edwards also noted that, if necessary, Grand Cinemas could grant a deed of trust to the Bank on a parcel of land which it owns on Valencia Road, worth about $25,000.
Toward the reorganization, Mr. Edwards stated that the Debtor's landlord, Marana Cinemas Associates, LLC, had made significant voluntary concessions and deferments to support the Debtor's Plan.
Mr. Edwards noted that the Debtor did better in 2009 than it had in 2008; held a 7.5% Tucson market share, up from 6% in 2008; and he expected a competitor to close in early 2011.
As for the feasibility aspects, Mr. Edwards observed that if the Debtor is able to complete its performance under the Plan, that it should be able to refinance out the Bank in seven years. This is true, in part, because the initial Bank loan of $5.3 million will have been reduced by half, and by seven years hence, Arizona's economy and the growth in the neighboring areas should have resumed once more. In that regard, the Debtor's projections reflect losses, over the next three years, as follows:
+---------------------------------------+
¦ ¦2011 ¦(134,118)¦ ¦
+---------+---------+---------+---------¦
¦ ¦2012 ¦(75,652) ¦ ¦
+---------+---------+---------+---------¦
¦ ¦2013 ¦(835) ¦ ¦
+---------------------------------------+
Thereafter, the Debtor projects positive revenues until the Plan's term ends. ( See Ex. B to Ex. 1.) As for losses incurred to date, and which will need to be covered in the next three years, Mr. Edwards stated that, as they had done in the past, the guarantors of the Bank debt would support the Debtor through application of their own cash infusions as needed. As for the Debtor's performance in 2010, Mr. Edwards felt that the actual performance had matched the projections.
2. George C. Larson
Mr. Larson has been a real estate investor and property manager, principally in Tucson, since 1970. He owns and/or manages about 40 properties in Tucson. Over the years, he has leased property to Grand Cinemas, and in doing so, dealt personally with the Cutlers and the...
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