CP Holdings LLC
CASE SUMMARY: CP Holdings Seeks to Run Sale Process With Stalking Horse/DIP Lender Tor Asia Credit Master Fund, Prepetition Lender Under Debtor-Guaranteed Loan
Mon 06/21/2021 17:28 PM
Relevant Document:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Complaint
First Day Hearing Agenda
Dallas-based CP Holdings LLC and Pacrim U.S. LLC, which wholly own 47 nondebtor subsidiaries that operate 10 rural assisted living and memory care facilities in Alabama and Texas, filed for chapter 11 protection on Sunday, June 20, in the Bankruptcy Court for the District of Delaware. The debtors filed for chapter 11 under forbearance with prepetition first lien lender Tor Asia Credit Master Fund LP with respect to $66.4 million in first lien obligations for which the debtors are guarantors, after affiliate CP Global and other obligated parties made repeated covenant and payment defaults on the first lien obligations. The debtors filed chapter 11 to sell substantially all of their assets to Tor, which would also provide DIP financing. Pursuant to an asset purchase agreement, Tor would purchase substantially all of the debtors’ assets through a credit bid of $14.9 million of its prepetition first lien claims, plus all of its claims under a $1.5 million DIP facility (which has the potential to increase to $3 million). Anderson LeNeave & Co., the debtors’ investment banker, began the sale process after its engagement this month. For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the CP Holdings chapter 11 filing Request a Trial here.
The debtors say that the cases are intended to resolve all disputes regarding certain challenges of Guy Kwok-Hung Lam - a Hong Kong resident who is another guarantor of the first lien obligations and who formerly owned and controlled several corporate affiliates of the debtors - to Tor’s secured claims and its exercise of remedies, which included the (a) the appointment of John Howard Batchelor of FTI Consulting (Hong Kong) Ltd. and Andrew Morrison of FTI Consulting (Cayman) Ltd. as receivers of CP Global, (b) voting the stock of certain of its guarantor affiliates to replace the managers of the debtors and certain nondebtors with Tim Dragelin of FTI Consulting and (c) and Lam’s resignation as director.
Lam filed lawsuits against Tor and the debtors’ president, Andrew Oksner, in Texas and against Tor only in New York, and Tor filed a bankruptcy petition against Lam in Hong Kong. “Such resolution will accrue to the benefit of the Debtors and their stakeholders, and allow the Debtors to focus on operating their business without the cost and distraction of the currently pending litigation against Tor and Oksner,” the debtors say. Further, under the proposed sale, Tor would purchase the membership interests in the subsidiaries of CP Holdings and Pacrim, along with assumption of their liabilities, and therefore, the debtors say, a sale “will not negatively impact the business operations of the Company’s subsidiaries.”
Tor and Oksner have filed an adversary proceeding against the debtors and others to establish the validity of Tor’s first-priority liens on the debtors’ property and resolve related claims that Lam, a personal guarantor of the debts owed to Tor, has raised in pending state court litigation.
The first day hearing is scheduled for Wednesday, June 23, at 9 a.m. ET.
The debtors report $10 million to $50 million in assets and $50 million to $100 million in liabilities. The company’s prepetition capital structure includes the following:
The prepetition first lien facility is guaranteed by several CP Global affiliates, including the debtors, several of the debtors’ nondebtor subsidiaries and Lam, and is secured by, among other things, the equity interests owned by each debtor in their respective subsidiaries. The loan was issued in an aggregate principal amount of $29.5 million and accrued cash interest at 7% and PIK interest at 10% before the events of default, with a default rate of 27% PIK compounding quarterly “representing the sum of the cash interest rate and the paid-in-kind interest rate, plus 10%,” that has been accruing since the events of default, with a current amount due of $66.4 million in principal and accrued interest and fees. Tor provided the debtors with notice on June 10 demanding repayment of their guarantee obligations along with a notice of intent to foreclose on the debtors’ collateral. Tor ultimately agreed, however, to forbear through the petition date “to support the Debtors’ reorganization efforts,” including the proposed sale process.
The company’s nondebtor subsidiaries generally fund their individual operations and obligations from revenue from operations and do not rely on funding from the debtors to operate. Each of the loans in the chart above consist of subsidiary debt and guarantee obligations other than the unsecured CP Global promissory note, which has debtor CP Holdings as maker and CP Global as payee.
The debtors are represented by Cole Schotz in Wilmington, Del., as counsel and Anderson LeNeave & Co. as investment banker. The case has been assigned to Judge Laurie Selber Silverstein (case No. is 21-10950).
Background
The debtors and their nondebtor subsidiaries develop and operate assisted living and memory care residences in rural areas of Alabama and Texas. The debtors wholly own 47 nondebtor subsidiaries and partially own three nondebtor subsidiaries. Ten of the nondebtor subsidiaries operate facilities under the company’s controlled brand, Country Place Senior Living. The debtors say that they seek to serve America’s rural-based seniors and their families by designing and operating comfortable and “homelike 24-suite residential style” assisted living facilities.
Debtor CP Holdings is a holding company and has no employees. Its subsidiary, Pacrim U.S., has six employees who provide overall strategic, operational and finance leadership, as well as accounting and development services. Pacrim does not generate its own income. The company’s nondebtor subsidiaries generally fund their individual operations and obligations from their revenue, and Pacrim serves as manager and paymaster for the nondebtor subsidiaries’ payroll as well as certain overhead costs, including insurance and professional fees.
The company’s corporate organizational chart is HERE.
The debtors’ largest unsecured creditors are listed below:
Sale Process
The debtors began a marketing process this month through Anderson LeNeave & Co. The process allows for bids on some or all of the debtors’ assets. Initial overbids must exceed the stalking horse bid by $250,000, and subsequent overbids are also $250,000.
The debtors propose the following sale timeline:
DIP Financing Motion
The debtors request approval of up to $3 million in superpriority, senior secured DIP financing, with up to $410,000 on an interim basis, from prepetition lender Tor Asia Credit Master Fund, with each of the debtors as borrowers. The DIP financing bears interest at 10%, with 12% for the default rate, and matures on the earlier of a sale closing or Sept. 17. There are no proposed fees.
The debtors propose a lien on avoidance actions subject to the final order.
In exchange for its consent to the priming of the prepetition liens by the DIP liens and the use of cash collateral, Tor would receive the following adequate protection: replacement liens and superpriority administrative expense claims, provided that the “application of section 507(b) of the Bankruptcy Code is not limited in the event that the adequate protection provided to the Prepetition Lender hereunder is insufficient to compensate for any Diminution of their respective interests in the Prepetition Debtor Collateral during the Chapter 11 Cases or any Successor Cases.” In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $200,000 for the debtors’ professionals and $50,000 for the professionals of an official committee of unsecured creditors.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
In addition, within two business days after entry of the interim DIP order, the debtors would need to file their answer in the adversary proceeding to be commenced by Tor and Oksner, with the debtors seeking to have the adversary be the exclusive forum to adjudicate any challenges, including with respect to Lam. The debtors attach a draft answer to the DIP credit agreement.
The debtors propose that to challenge the debtors’ stipulations, a party in interest must answer or otherwise respond to or intervene in the adversary complaint within 30 days after entry of the interim DIP order. The UCC lien investigation budget is $25,000.
Adversary Proceeding
Tor and Oksner, the debtors’ president, filed a complaint for declaratory and injunctive relief against Lam, the debtors, CP Global (the borrower under the first lien agreement), guarantor PCII Holdings LLC, and various nondebtor subsidiaries that are guarantors of the first lien agreement.
According to the complaint, Tor lent the defendants “nearly” $30 million and has not received any payment on the loan that is now 18 months beyond maturity. Nonetheless, Tor says it “finds itself” as defendant in lawsuits brought by Lam in Texas and New York in which Tor has alleged that the loan obligations are invalid and that Tor’s exercising remedies were also invalid and “part of a larger conspiracy with Oksner.” The complaint says that these disputes have negatively affected the value of the debtors’ assets and pulled Oksner into “baseless litigation.” The plaintiffs seek to “clear the cloud that Lam has attempted to place over Defendants’ Obligations to Tor, Tor’s valid liens on the Debtors’ assets, and the management of the Debtors’ business by Oksner.” Tor and Oksner argue that resolution of this adversary is a “necessary predicate” to any restructuring, including the proposed credit-bid sale to Tor.
The complaints seek to resolve Lam’s allegations and clarify the rights and obligations of the parties under the credit agreement, including requesting declarations that (a) the defendants’ obligations under the loan agreement are valid and enforceable, constitute allowed claims against the debtors as guarantors and that Tor holds valid and perfected first priority liens; (b) the maturity date default has occurred and continues to exist; (c) the remedies exercised by Tor were in accordance with the credit agreement and applicable law; (d) Tor did not breach the covenant of good faith and fair dealing; (e) Oksner did not breach any fiduciary duty to Lam; (f) Oksner did not breach any fiduciary duty to Lam; (g) Tor did not aid and abet Oksner in any breach of fiduciary duty to Lam; (h) Oksner did not tortiously interfere with Lam’s guaranty; (i) plaintiffs did not tortiously interfere with Lam’s prospective contractual relations; and (j) plaintiffs were not involved in any civil conspiracy. The complaint also asks that the court enforce the credit agreement for all outstanding amounts, and “to the extent of, the security it provided, less any amounts recovered by Tor from the Debtors in the Chapter 11 Cases.”
The plaintiffs also request that the court issue a permanent injunction enjoining the Texas and New York actions and “any claims or causes of action that may be brought in the future by or on behalf of CP Global, CP Assets, PCII Holdings LLC, or Lam or any entities under his direct or indirect control arising under or related to the Credit Agreement, Security Agreement, or any other Loan Document.” The plaintiffs assert an injunction is needed to ensure finality of the proposed sale, and avoid further ligitagion and the risk of inconsistent judgments in other jurisdictions that would threaten the debtors’ reorganization.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Complaint
First Day Hearing Agenda
| Summary |
| Debtors are holding companies of nondebtor subsidiaries that operate assisted living and memory care facilities in rural areas |
| Attribute filing to the exercising of rights and remedies by Tor Asia Credit Master Fund LP, as lender of first lien obligations to the debtors’ affiliate, CP Global, under which the debtors are guarantors |
| Seek to sell substantially all of their assets to Tor for a credit bid of (i) $14.9 million of first lien obligations and (ii) all DIP obligations |
| Requesting $1.5 million of DIP financing from Tor, with the potential to increase the DIP facility to $3 million |
Dallas-based CP Holdings LLC and Pacrim U.S. LLC, which wholly own 47 nondebtor subsidiaries that operate 10 rural assisted living and memory care facilities in Alabama and Texas, filed for chapter 11 protection on Sunday, June 20, in the Bankruptcy Court for the District of Delaware. The debtors filed for chapter 11 under forbearance with prepetition first lien lender Tor Asia Credit Master Fund LP with respect to $66.4 million in first lien obligations for which the debtors are guarantors, after affiliate CP Global and other obligated parties made repeated covenant and payment defaults on the first lien obligations. The debtors filed chapter 11 to sell substantially all of their assets to Tor, which would also provide DIP financing. Pursuant to an asset purchase agreement, Tor would purchase substantially all of the debtors’ assets through a credit bid of $14.9 million of its prepetition first lien claims, plus all of its claims under a $1.5 million DIP facility (which has the potential to increase to $3 million). Anderson LeNeave & Co., the debtors’ investment banker, began the sale process after its engagement this month. For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the CP Holdings chapter 11 filing Request a Trial here.
The debtors say that the cases are intended to resolve all disputes regarding certain challenges of Guy Kwok-Hung Lam - a Hong Kong resident who is another guarantor of the first lien obligations and who formerly owned and controlled several corporate affiliates of the debtors - to Tor’s secured claims and its exercise of remedies, which included the (a) the appointment of John Howard Batchelor of FTI Consulting (Hong Kong) Ltd. and Andrew Morrison of FTI Consulting (Cayman) Ltd. as receivers of CP Global, (b) voting the stock of certain of its guarantor affiliates to replace the managers of the debtors and certain nondebtors with Tim Dragelin of FTI Consulting and (c) and Lam’s resignation as director.
Lam filed lawsuits against Tor and the debtors’ president, Andrew Oksner, in Texas and against Tor only in New York, and Tor filed a bankruptcy petition against Lam in Hong Kong. “Such resolution will accrue to the benefit of the Debtors and their stakeholders, and allow the Debtors to focus on operating their business without the cost and distraction of the currently pending litigation against Tor and Oksner,” the debtors say. Further, under the proposed sale, Tor would purchase the membership interests in the subsidiaries of CP Holdings and Pacrim, along with assumption of their liabilities, and therefore, the debtors say, a sale “will not negatively impact the business operations of the Company’s subsidiaries.”
Tor and Oksner have filed an adversary proceeding against the debtors and others to establish the validity of Tor’s first-priority liens on the debtors’ property and resolve related claims that Lam, a personal guarantor of the debts owed to Tor, has raised in pending state court litigation.
The first day hearing is scheduled for Wednesday, June 23, at 9 a.m. ET.
The debtors report $10 million to $50 million in assets and $50 million to $100 million in liabilities. The company’s prepetition capital structure includes the following:
The prepetition first lien facility is guaranteed by several CP Global affiliates, including the debtors, several of the debtors’ nondebtor subsidiaries and Lam, and is secured by, among other things, the equity interests owned by each debtor in their respective subsidiaries. The loan was issued in an aggregate principal amount of $29.5 million and accrued cash interest at 7% and PIK interest at 10% before the events of default, with a default rate of 27% PIK compounding quarterly “representing the sum of the cash interest rate and the paid-in-kind interest rate, plus 10%,” that has been accruing since the events of default, with a current amount due of $66.4 million in principal and accrued interest and fees. Tor provided the debtors with notice on June 10 demanding repayment of their guarantee obligations along with a notice of intent to foreclose on the debtors’ collateral. Tor ultimately agreed, however, to forbear through the petition date “to support the Debtors’ reorganization efforts,” including the proposed sale process.
The company’s nondebtor subsidiaries generally fund their individual operations and obligations from revenue from operations and do not rely on funding from the debtors to operate. Each of the loans in the chart above consist of subsidiary debt and guarantee obligations other than the unsecured CP Global promissory note, which has debtor CP Holdings as maker and CP Global as payee.
The debtors are represented by Cole Schotz in Wilmington, Del., as counsel and Anderson LeNeave & Co. as investment banker. The case has been assigned to Judge Laurie Selber Silverstein (case No. is 21-10950).
Background
The debtors and their nondebtor subsidiaries develop and operate assisted living and memory care residences in rural areas of Alabama and Texas. The debtors wholly own 47 nondebtor subsidiaries and partially own three nondebtor subsidiaries. Ten of the nondebtor subsidiaries operate facilities under the company’s controlled brand, Country Place Senior Living. The debtors say that they seek to serve America’s rural-based seniors and their families by designing and operating comfortable and “homelike 24-suite residential style” assisted living facilities.
Debtor CP Holdings is a holding company and has no employees. Its subsidiary, Pacrim U.S., has six employees who provide overall strategic, operational and finance leadership, as well as accounting and development services. Pacrim does not generate its own income. The company’s nondebtor subsidiaries generally fund their individual operations and obligations from their revenue, and Pacrim serves as manager and paymaster for the nondebtor subsidiaries’ payroll as well as certain overhead costs, including insurance and professional fees.
The company’s corporate organizational chart is HERE.
The debtors’ largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| Bank of Commerce | Chanute, Kan. | Loan
Guaranty |
$ 2,217,135 |
| Southside Bank | Tyler, Texas | Loan
Guaranty |
2,197,862 |
| Bank of Commerce | Chanute, Kan. | Loan
Guaranty |
176,074 |
| SDE LLC | Burbank, Calif. | Trade | 27,137 |
| CliftonLarsonAllen | Dallas | Professional
Services |
21,525 |
| Robert Boone | Montgomery, Ala. | Legal
Demand |
10,000 |
| SNI Companies | Irving, Texas | Trade | 9,000 |
| Parity Consultants LLC | Lewisville, Texas | 7,488 | 7,488 |
| Benchmark Design
Group LLC |
Tyler, Texas | Trade | 4,600 |
| MetLife Group Benefits | Kansas City, Kan. | Employee
Benefits |
3,033 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtor's Counsel | Warren A. Usatine | Cole
Schotz |
Hackensack, N.J. |
| Felice R. Yudkin | |||
| Matteo Percontino | |||
| Patrick Reilley | Wilmington, Del. | ||
| Debtor's Independent
Manager |
Marc Weinsweig | Weinsweig
Advisors |
Washington |
|
Debtor's Investment
Banker |
Peter Wright | Anderson
LeNeave & Co. |
Charlotte, N.C. |
|
Co-Counsel to Tor
Investment Management (Hong Kong) Limited, as Stalking Horse Purchaser, DIP Lender and Prepetition Lender |
Gregg M. Galardi | Ropes
& Gray |
New York |
| Kevin Liang | |||
| Andrew G. Devore | Boston | ||
| Stephen L. Iacovo | Chicago | ||
| Co-Counsel to Tor
Investment Management (Hong Kong) Limited |
Erin R. Fay | Bayard | Wilmington, Del. |
| U.S. Trustee | Linda J. Casey | Office of the
U.S. Trustee |
Wilmington, Del. |
Sale Process
The debtors began a marketing process this month through Anderson LeNeave & Co. The process allows for bids on some or all of the debtors’ assets. Initial overbids must exceed the stalking horse bid by $250,000, and subsequent overbids are also $250,000.
The debtors propose the following sale timeline:
DIP Financing Motion
The debtors request approval of up to $3 million in superpriority, senior secured DIP financing, with up to $410,000 on an interim basis, from prepetition lender Tor Asia Credit Master Fund, with each of the debtors as borrowers. The DIP financing bears interest at 10%, with 12% for the default rate, and matures on the earlier of a sale closing or Sept. 17. There are no proposed fees.
The debtors propose a lien on avoidance actions subject to the final order.
In exchange for its consent to the priming of the prepetition liens by the DIP liens and the use of cash collateral, Tor would receive the following adequate protection: replacement liens and superpriority administrative expense claims, provided that the “application of section 507(b) of the Bankruptcy Code is not limited in the event that the adequate protection provided to the Prepetition Lender hereunder is insufficient to compensate for any Diminution of their respective interests in the Prepetition Debtor Collateral during the Chapter 11 Cases or any Successor Cases.” In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $200,000 for the debtors’ professionals and $50,000 for the professionals of an official committee of unsecured creditors.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- June 25: Entry of interim DIP order;
- July 16: Entry of final DIP order;
- Sept. 3: Entry of sale order; and
- Sept. 17: Sale consummation.
In addition, within two business days after entry of the interim DIP order, the debtors would need to file their answer in the adversary proceeding to be commenced by Tor and Oksner, with the debtors seeking to have the adversary be the exclusive forum to adjudicate any challenges, including with respect to Lam. The debtors attach a draft answer to the DIP credit agreement.
The debtors propose that to challenge the debtors’ stipulations, a party in interest must answer or otherwise respond to or intervene in the adversary complaint within 30 days after entry of the interim DIP order. The UCC lien investigation budget is $25,000.
Adversary Proceeding
Tor and Oksner, the debtors’ president, filed a complaint for declaratory and injunctive relief against Lam, the debtors, CP Global (the borrower under the first lien agreement), guarantor PCII Holdings LLC, and various nondebtor subsidiaries that are guarantors of the first lien agreement.
According to the complaint, Tor lent the defendants “nearly” $30 million and has not received any payment on the loan that is now 18 months beyond maturity. Nonetheless, Tor says it “finds itself” as defendant in lawsuits brought by Lam in Texas and New York in which Tor has alleged that the loan obligations are invalid and that Tor’s exercising remedies were also invalid and “part of a larger conspiracy with Oksner.” The complaint says that these disputes have negatively affected the value of the debtors’ assets and pulled Oksner into “baseless litigation.” The plaintiffs seek to “clear the cloud that Lam has attempted to place over Defendants’ Obligations to Tor, Tor’s valid liens on the Debtors’ assets, and the management of the Debtors’ business by Oksner.” Tor and Oksner argue that resolution of this adversary is a “necessary predicate” to any restructuring, including the proposed credit-bid sale to Tor.
The complaints seek to resolve Lam’s allegations and clarify the rights and obligations of the parties under the credit agreement, including requesting declarations that (a) the defendants’ obligations under the loan agreement are valid and enforceable, constitute allowed claims against the debtors as guarantors and that Tor holds valid and perfected first priority liens; (b) the maturity date default has occurred and continues to exist; (c) the remedies exercised by Tor were in accordance with the credit agreement and applicable law; (d) Tor did not breach the covenant of good faith and fair dealing; (e) Oksner did not breach any fiduciary duty to Lam; (f) Oksner did not breach any fiduciary duty to Lam; (g) Tor did not aid and abet Oksner in any breach of fiduciary duty to Lam; (h) Oksner did not tortiously interfere with Lam’s guaranty; (i) plaintiffs did not tortiously interfere with Lam’s prospective contractual relations; and (j) plaintiffs were not involved in any civil conspiracy. The complaint also asks that the court enforce the credit agreement for all outstanding amounts, and “to the extent of, the security it provided, less any amounts recovered by Tor from the Debtors in the Chapter 11 Cases.”
The plaintiffs also request that the court issue a permanent injunction enjoining the Texas and New York actions and “any claims or causes of action that may be brought in the future by or on behalf of CP Global, CP Assets, PCII Holdings LLC, or Lam or any entities under his direct or indirect control arising under or related to the Credit Agreement, Security Agreement, or any other Loan Document.” The plaintiffs assert an injunction is needed to ensure finality of the proposed sale, and avoid further ligitagion and the risk of inconsistent judgments in other jurisdictions that would threaten the debtors’ reorganization.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 21-10950.
- Motion to pay employee wages and benefits
- The company seeks authority to: (i) pay accrued prepetition wages (approximately $8,750), salaries, commissions, processing services and other cash and other noncash compensation claims (including up to $3,000 for any processing fee payments to ADP); (ii) honor, continue and pay the prepetition amounts associated with the debtors’ holiday, vacation and sick time policies; (iii) honor, continue and pay the prepetition amounts associated with employee benefit plans, 401(k) plans and programs and workers’ compensation plans and program; (iv) reimburse prepetition employee expenses (not to exceed $3,000); and (v) pay all prepetition withholdings and employer payroll-related taxes.
- Motion to use cash management system
- The company has four bank accounts with East West Bank.
- Motion to maintain insurance programs
- The debtors maintain the following nine insurance policies:
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