In re Trenton Ridge Investors, LLC

Decision Date23 June 2011
Docket Number09–63160.,Nos. 09–62570,s. 09–62570
PartiesIn re TRENTON RIDGE INVESTORS, LLC and Coventry East Investors, LLC, Debtors and Debtors in Possession.
CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

OPINION TEXT STARTS HERE

Thomas R. Allen, Allen Kuehnle Stovall & Neuman LLP, Columbus, OH, for Debtors.

MEMORANDUM OPINION AND ORDER DENYING CONFIRMATION OF DEBTORS' PLANS OF REORGANIZATION

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

+-----------------+
                ¦Table of Contents¦
                +-----------------+
                
                I.   Introduction                                                       451
                II.  Jurisdiction                                                       452
                III. Background                                                         452
                
    A.   The Debtors and Their Chapter 11 Cases                         452
                    B.   Summary of the Plans and the Results of Voting                 452
                
                IV. Arguments of the Parties                                            455
                
                
V.  Legal Analysis                                                      455
                
         Confirmation of Consensual Plans Under Section 1129(a) of the
                    A.   Bankruptcy Code                                                455
                         Confirmation of Non–Consensual Plans Under Section 1129(b) of
                    B.   the Bankruptcy Code                                            458
                         The Court's Independent Duty to Determine Compliance with the
                    C.   Bankruptcy Code's Confirmation Standards                       458
                    D.   The Debtors' Burden of Proof                                   459
                    E.   Application of the Confirmation Requirements                   463
                
         1.  Applicable Requirements of Section 1129(a)                 463
                
             a.  Section 1129(a)(1): Plan's Compliance with Applicable  463
                                 Provisions of the Bankruptcy Code
                
                 i.  Section 1122: Classification                       463
                                 ii. Section 1123: Contents of the Plan                 466
                
                 Section 1129(a)(2): Proponent's Compliance with
                             b.  Applicable Provisions of the Bankruptcy Code           467
                             c.  Section 1129(a)(3): Good Faith                         467
                             d.  Section 1129(a)(4): Payments Subject to Court          472
                                 Approval
                
                 Section 1129(a)(5): Disclosure of Identity and
                             e.  Affiliations of Certain Individuals                    473
                                 Section 1129(a)(7): The Best–Interests–of–Creditors
                             f.  Test                                                   473
                             g.  Sections 1129(a)(8)-(9) and (a)(12)                    475
                                 Section 1129(a)(10): At Least One Impaired Accepting
                             h.  Class                                                  476
                             i.  Section 1129(a)(11): Feasibility                       478
                
                 i.   In General                                        478
                                 ii.  The Effective Date                                479
                                 iii. The Debtors' Post–Effective Date Tax Obligations  483
                                 iv.  The Debtors' Five–Year Projections                484
                
                    1.  Income                                          484
                                    2.  Expenses                                        486
                
                 v.   The Cash Infusion from the Member Noteholders     488
                                      The Economic Life of the Trenton Ridge Apartments
                                 vi.  and the Coventry Apartments                       491
                                 vii. The Trenton Ridge Balloon Payment                 493
                
         2.  Section 1129(b): The Requirements for Cramdown             494
                
             a.  Unfair Discrimination                                  495
                             b.  Fair and Equitable Standard as Applied to PNC's Claims 495
                
                     Compliance with the Technical Requirements of 1129
                                 i.  (b)(2)(A)(i)                                       496
                                 ii. Compliance with the General Requirement that a     498
                                     Plan Be Fair and Equitable
                
                 The Fair and Equitable Standard as Applied to ATF's
                             c.  Claim                                                  506
                             d.  The Fair and Equitable Standard as Applied to General  507
                                 Unsecured Claims
                
                VI. Conclusion                                                          510
                
I. Introduction

In this contested matter, Trenton Ridge Investors, LLC (Trenton Ridge) and Coventry East Investors, LLC (“Coventry,” and collectively with Trenton Ridge, “Debtors”), seek confirmation of their Chapter 11 plans (“Plans”).1 PNC Bank, National Association (“PNC”) opposes confirmation.2 For the reasons set forth below—primarily, the lack of sufficient evidence establishing the “feasibility” of the Plans and the Debtors' failure to provide unsecured creditors with the treatment required by the “absolute priority rule”—the Court must deny confirmation of both of the Plans.

II. Jurisdiction

The Court has jurisdiction to hear and determine this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(L).

III. Background
A. The Debtors and Their Chapter 11 Cases

Both of the Debtors are Ohio limited liability companies operating multi-family apartment complexes in Columbus, Ohio. One of the complexes, which was constructed in 1973, lies on an approximately 16–acre tract of land owned by Trenton Ridge and consists of 272 townhouse units (“Trenton Ridge Apartments”). The other complex, which was constructed in 1972, lies on an approximately 26–acre tract of land owned by Coventry and consists of 320 garden and townhouse units (“Coventry Apartments”).

With receivership proceedings relating to the operation of the Trenton Ridge Apartments and the Coventry Apartments pending in state court, the Debtors commenced these cases by filing voluntary petitions for relief under Chapter 11 of the Bankruptcy CodeTrenton Ridge on October 28, 2009 and Coventry on November 9, 2009. During their cases, the Debtors have used certain rents on which PNC has a lien pursuant to cash collateral orders approved by the Court and extensions thereof stipulated to by the Debtors and PNC.

B. Summary of the Plans and the Results of Voting

The parties in interest in these Chapter 11 cases, their proposed treatment under the Plans and the manner in which they voted on the Plans is summarized below.

Since November 2007, the co-managers of both of the Debtors have been John R. Davis (“Davis”) and Patricia J. Shorr (“Shorr”). The Debtors anticipate that Davis and Shorr will continue to serve as co-managers after confirmation. Davis and Shorr have not asserted a claim against either of the Debtors. But they do hold—either directly or indirectly—equity in the Debtors in the form of membership interests. The Plans provide that the equity interests held by Davis and Shorr, along with all other existing equity interests, will be cancelled on the effective date. The holders of those interests, therefore, were deemed to have rejected the Plans and were not entitled to vote. Davis and Shorr would receive membership interests in the reorganized Debtors pursuant to the Plans.

Certain of the other current holders of the membership interests (not Shorr and Davis) also received promissory notes from Trenton Ridge and Coventry. The members who received such notes will be referred to in this opinion as the “Member Noteholders.” Under the Plans, the Member Noteholders are to receive a pro-rata share of membership interests in the reorganized Debtors. As a class, the Member Noteholders voted to accept both of the Plans.

The creditor holding the vast majority of the debt in these cases is PNC, which filed timely proofs of claim against both Debtors. It has asserted a claim against Trenton Ridge on account of a note dated March 21, 2005, as amended (“Trenton Ridge Note”), secured by substantially all of Trenton Ridge's assets, including the Trenton Ridge Apartments and rents generated therefrom by virtue of an Open–End Mortgage, Assignment of Rents and Security Agreement, dated March 21, 2005, as modified on November 28, 2007. PNC also has asserted a claim against Coventry on account of two notes, each dated September 20, 2005, as amended (“Coventry Notes”); that claim is secured by substantially all of Coventry's assets, including the Coventry Apartments and the rents generated from the operation therefrom pursuant to two Open–End Mortgages, Assignments of Rents and Security Agreements, both executed on or about September 20, 2008. As of the dates Trenton Ridge and Coventry commenced their Chapter 11 cases, the Trenton Ridge Note and the Coventry Notes had matured.

PNC has filed notices (Docs. 141 & 142) of its election to have its claims treated as fully secured pursuant to § 1111(b) of the Bankruptcy Code. In the Plans, the Debtors have provided for the retention by PNC of its liens and the payment of its claims in accordance with its § 1111(b) election, with a 40–year amortization (and a 30–year balloon payment) for Trenton Ridge and a 30–year amortization for Coventry with no balloon payment. During the Confirmation Hearing, the Debtors and PNC entered into the stipulations summarized below:

For purposes of the Confirmation Hearing only, the values of the Trenton Ridge Apartments and the Coventry Apartments are as set forth in Trenton Ex. 3 and Coventry Ex. 3, respectively. See Tr. I at 5:14–24. Accordingly, the value of the Trenton Ridge Apartments is $3,660,000, see Trenton Ex. 3, The Robert Weiler Company Appraisal of Trenton Ridge Apartments, Effective Date of July 14, 2010 (“Trenton Ridge Appraisal”), and the value of the Coventry Apartments is $5,120,000. See Coventry Exhibit 3, The Robert Weiler Company Appraisal of Coventry East Apartments,...

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