In re Mount Carbon Metropolitan Dist., Bankruptcy No. 97-20215 MSK.
| Decision Date | 01 November 1999 |
| Docket Number | Bankruptcy No. 97-20215 MSK. |
| Citation | 242 BR 18 |
| Parties | In re MOUNT CARBON METROPOLITAN DISTRICT, a quasi-municipal corporation, EIN XX-XXXXXXX, Debtor. |
| Court | U.S. Bankruptcy Court — District of Colorado |
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Holly Holder, Holly I. Holder, P.C., Denver, CO, Brian P. Halloran, Connolly, Halloran & Lofstedt, P.C., Louisville, CO, for debtor.
Mark K. Worcester, Irvine, CA, for CDN Development, L.P.
Raymond Petros, Jr., Gillian Dale, Petros & White, LLC, Denver, CO, Stuart Pack, Charles McVay, Gorsuch Kirgis, LLP, Denver, CO, for the Cities.
Joel Laufer, Holden Padjen & Laufer, LLC, Denver, CO, for the Unsecured Creditors Committee.
Beth Brown, Kelly Calocci, Holme Roberts & Owen, LLP, Denver, CO, for the Indenture Trustee for holders of 1985 District bonds.
THIS MATTER comes before the Court on the request of Mount Carbon Metropolitan District (the District or Debtor) for confirmation of its Third Amended Plan for Adjustment of Debts (Plan). Objections to confirmation were filed by the City of Lakewood, Town of Morrison (collectively the Cities), Westwind Limited Liability Company (Westwind), Michael Blumenthal and Harvey B. Alpert. By Order of July 20, 1999, the objections of Michael Blumenthal and Harvey B. Alpert were overruled for lack of standing.
At the Confirmation Hearing conducted September 3-10, 1999, the District was represented by Holly Holder of Holly I. Holder, P.C., with regard to water issues, and Brian P. Halloran of Connolly, Halloran & Lofstedt, P.C., with regard to all other issues. The Plan funder, CDN Development, L.P. (CDN), appeared through counsel Mark K. Worcester. The Cities were represented by Raymond Petros, Jr. and Gillian Dale of Petros & White, LLC, with regard to water issues, and Stuart Pack and Charles McVay of Gorsuch Kirgis, LLP, with regard to all other issues. Also appearing were Joel Laufer on behalf of the Unsecured Creditors Committee (Committee) and Beth Brown and Kelly Calocci of Holme Roberts & Owen, LLP for the Indenture Trustee for holders of 1985 District bonds.
With regard to confirmation of the District's Plan, this Court's jurisdiction arises pursuant to 28 U.S.C. § 1334(a) and (e). However, it is limited in accordance with 11 U.S.C. § 904. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(L).
The District consists of approximately 1,000 acres bounded roughly by C-470, Alameda Avenue, Green Mountain subdivision, and Morrison Road in Jefferson County, Colorado. It is characterized by magnificent rolling green hills, breath-taking views of the hogback and Denver metropolitan area and easy accessibility. It is a prime site for development and is almost entirely unimproved.1
The District was organized initially as a water and sanitation district in 1976,2 but became a metropolitan district in 1982. Metropolitan districts are governed, in part, by C.R.S. § 32-1-202, et seq., which requires adoption of a service plan. The District's 1983 Service Plan (Service Plan) expands the District's authority and obligations to include provision of street improvements, safety protection, and park and recreation facilities.3 These obligations are ongoing and will become more important and costly to perform as the District is developed.
Of 18 landowners in the District, the three most significant for future development4 are: (1) CDN Development, L.P. (CDN)5 with approximately 228 acres zoned for residential development (Springfield Green) and approximately 161 acres zoned for commercial development (Red Rocks Centre), (2) Colco Corporation/Yale Investment owning approximately 280 acres zoned for commercial development (Red Rocks Centre and Red Rocks Business Park) and approximately 80 acres zoned for residential and commercial development (Lakewood West), and (3) Westwind Limited Liability Company with approximately 44 acres zoned for residential and commercial development.
CDN desires to develop Springfield Green as soon as possible. Such development is contingent upon confirmation of the District's Plan, provision of adequate water, installation of infrastructure and negotiation of a new Public Improvement Agreement (PIA) with Lakewood. Taubman-Mills desires to locate a shopping mall partly within the District, but negotiations for purchase of the site and approval by Lakewood and other entities have not been concluded. Anticipating confirmation of the Plan and an increase in tax assessment, Taubman-Mills desires to purchase an exclusion from the District.
The District has historically lacked and currently lacks sufficient water and infrastructure to develop. It holds rights to approximately 400 EQRs6 of water, but its ability to use such water is limited by the infrastructure in place. The infiltration gallery through which raw water is drawn from Bear Creek does not provide treatment sufficient for residential consumption. The District lacks adequate water storage, and the Morrison wastewater facility, which services the District, lacks sufficient capacity to treat even this volume of waste water, much less a greater volume necessary for development.7 Two water experts, Dr. Jeris Danielson and Mr. Robert Brogden, agree that even if the District purchases water rights from CDN in accordance with the Plan,8 it will nevertheless need substantial additional water rights and expanded infrastructure in order to develop in accordance with the District's projections.9 The experts also agree that water rights for acquisition are not readily available and that acquisition of water rights, expansion of the wastewater treatment capacity10 and installation of other water and sewer infrastructure will be costly and time consuming. Mr. Brogden did not opine as to the cost or timeline for acquiring the water or for infrastructure development.11 The Court, therefore, accepts Dr. Danielson's estimate that the cost of water and sewer related infrastructure will be at least $46 million12 and the time for acquisition of sufficient water rights and installation of appropriate infrastructure will be approximately six to seven years.
At the time of its filing on July 14, 1997, the District was not providing services in accordance with its 1983 Service Plan and had less than $200.00 in cash.13 The District's 21.45 mill tax levy generated tax revenues of less than $11,000.00 in 1996 and less than $10,000.00 in 1997. Having no resources with which to fund this case, the District's Chapter 9 expenses are being paid with funds borrowed from CDN.
The District's pre-petition debt totals approximately $58 million (including principal and accrued interest).14 Of that, approximately $37 million is owed on promissory notes held by CDN; approximately $13 million is owed on Series 1985 A-1 and A-2 Bonds (secured by Treasury Strips); approximately $6 million is owed on 1991 general obligation bonds; approximately $2 million is owed to other note holders; and approximately $1 million is owed to Citywide Bank (secured by water rights).
The District's Plan was filed on April 1, 1999. The Disclosure Statement in support of the Plan was approved following proper notice. Votes from creditors in impaired classes (1, 4, 5 and 7) were solicited, and such classes accepted the Plan. Class 2, Citywide Bank, and Class 3, CDN, did not vote because such claims were unimpaired. Class 6, executory contract holders, did not vote because the Plan proposes assumption of all executory contracts.
The District's Plan proposes to pay creditors with a combination of cash and Exchange Bonds. The District will issue Exchange Bonds in the face amount of $194 million in four classes: $5 million of Series A; $5 million of Series B; $7 million of Series C; and, $177 million of Series D. Series A Exchange Bonds will bear interest at 6% per year, payable semiannually, for 40 years and beyond if not fully repaid at the end of 40 years. Tax revenues will pay these bonds first. Series A Exchange Bonds are callable at any time. Series B Exchange Bonds bear interest at 7% per year, also payable semiannually, for 40 years or longer. They have second priority for payment from tax revenues and may also be paid with "additional tap revenues."15 Series B Exchange Bonds are also callable. Series C Exchange Bonds have the same terms as Series B, but are third in priority for payment from tax revenues and may also be paid with additional tap revenues. Series D Exchange Bonds bear interest at 8% per year, payable semiannually, for 40 years or longer. No principal is expected to be paid until year 38 and they are not callable. They are last in priority for payment from taxes and all other sources of revenue.
The Exchange Bonds will have a lien position senior to all other debt incurred after confirmation. None of the Exchange Bonds have a default provision. If interest is not fully or timely paid, it compounds as principal. If the Exchange Bonds are not paid as the District projects, its debt could increase exponentially over an unlimited time period. The "no default" provision means that the District will technically never be in default in payment of the Exchange Bonds; therefore, it cannot seek future Chapter 9 restructuring due to its failure to pay the Exchange Bonds as projected.
Administrative claims (Class 1), City-wide Bank (Class 2) and the 1985 bond trustee claim (Class 7) will be paid in cash with funds borrowed from CDN. For 1985 bondholders, Treasury Strips worth approximately $2 million securing the 1985 bonds will be liquidated and paid to reduce principal. For the remaining principal amount, bondholders may elect between a cash payment of 33 1/3% of unpaid principal, or receipt...
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