(Steven Miller/NPRI) – The federal judge in charge of the Las Vegas Monorail Company bankruptcy case is ordering, for the second time, the debt-ridden firm to come up with solid evidence that it will ever be financially viable.
Unless it does, suggested U.S. Bankruptcy Judge Bruce Markell last week, the company will never exit from bankruptcy court.
The judge directed monorail attorneys to be ready at the next confirmation hearing, Nov. 14, to demonstrate realistic financing prospects for the bankrupt company.
Markell first issued an order on this same subject Sept. 9, expressing his “concerns … as to … whether the Debtor will likely obtain financing” that would permit it to satisfy debt obligations and meet capital-spending needs.
Monorail attorneys were then directed to bring the judge, by Sept. 16, “admissible evidence” demonstrating that their proposed monorail reorganization plan will have adequate financing behind it and “is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor” firm.
Markell underscored the issue he wanted the monorail’s attorneys — Gordon & Silver, Ltd. — to address, citing multiple bankruptcy cases in which courts denied debtor-reorganization plans, finding them too vague financially.
Cited were cases:
- Where the “debtor offered evidence of voluntary donations and oral pledges, not firm commitments”;
- Where the debtor offered “uncorroborated testimony [about a] contributing source for needed capital and [where the] prospective sharing agreements [were] mere speculation and wishful thinking”;
- Where the “proposed financing was based on contingencies, at best conditional, and thus, not feasible”;
- Where the “debtor’s plan to obtain refinancing was speculative [and] where industry standard … would be insufficient to meet plan obligations”; and
- Where “the debtor offered no credible evidence as to why it had been unable to obtain refinancing during the two years since filing bankruptcy, no evidence as to the value of the properties, and no evidence as to its general financial situation and prospects.”
Monorail attorneys responded to Markell with assurances that the “Debtor believes that the changes made in the Third Amended Plan, as Revised, will address at least part of the Court’s feasibility concerns.”
However, after the judge received the latest version of the plan — by count, the sixth version that had been “supplemented” twice — he clearly found it less than adequate.
Therefore, on Nov. 1, Markell issued his second order on the subject, this one explicitly titled, “Order Regarding Plan Feasibility.”
Repeating much of his initial Sept. 9 order, Markell added that, “Neither Debtor’s new plan, nor any supplement relating thereto, fully resolves the court’s initial concerns.
“Thus, the court repeats its previous request that, at the confirmation hearing” on Nov. 14 “and independent of any objections by interested parties, counsel should be prepared to address the court’s concerns with admissible evidence that demonstrates Debtor’s new plan satisfies” the requirements of federal law that it actually be viable.
In particular, repeated Markell, he wanted to see evidence “whether Debtor will likely obtain future financing,” noting that without that financing, “Debtor will be unable to satisfy debt obligations” and to fund construction of the new monorail stations the bankrupt company still intends to build.
The judge also directed monorail attorneys to be ready to explain “what steps, if any, Debtor has taken, or plans to take,” to obtain such financing.
The bankrupt Las Vegas Monorail Company owes creditors approximately $650 million — spread over three classes, or “tiers,” of bonds: $451.5 million in the First Tier, $149.2 million in the Second Tier, and $48.5 million in the Third Tier.
On Oct. 31, lawyers for the Third Tier bondholders’ trustee filed an objection to the monorail company’s sixth plan for reorganization, asserting that the plan, as proposed, would simply “stiff” many people unfairly.
“Many of the Debtor’s creditors — including investors, former employees, and injured parties with claims against the Debtor — stand to receive little, if any, recovery, with Debtor asserting that it has little money to pay creditors,” wrote the trustee’s counsels. “In short, Debtor’s financial condition is a mess.”
What is worse, argues the objection, the monorail’s latest reorganization plan seeks to illegally shield monorail company insiders and other third parties:
“Invariably in cases such as this one, the activity leading up to and during the bankruptcy — the actions of the Debtor’s leadership, insiders, advisers and parties that have received payments from the Debtor — are closely examined and often become the subject of legal proceedings to help recover losses suffered by creditors of the estate.
“Such legal action, whether brought by the bankruptcy estate itself or directly by creditors, often serves as an important source of recovery, and sometimes the only source of recovery in a cash-starved case.”
However, noted attorneys for the Third Tier trustee, the Las Vegas Monorail case has already departed significantly from normal practice in Chapter 11 bankruptcies, which calls for an official committee of unsecured creditors to be appointed to lead the review and prosecution of such potential causes of action.
Because “no Committee has been appointed,” assert the Third Tier trustee attorneys, “a void in the overall representation of unsecured creditors” was created.
“Into that void, the Debtor has now proposed its Plan, which seeks to bury potential litigation against its directors, officers, and other debtor-related parties (“Insiders”).
“If that were not enough, Debtor also proposes to grant illegal releases to these Insiders protecting them from claims that the Debtor or others might assert in this bankruptcy case.”
Because the trustee attorneys cited Section 1102, Subchapter 1 of Chapter 11 of the U.S. Bankruptcy Code, Nevada Journal looked it up.
The section states that, “as soon as practicable after the order for relief under chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims….”
The one exception, in section 1102, to the rule is that, “On request of a party in interest in a case in which the debtor is a small business debtor and for cause, the court may order that a committee of creditors not be appointed.”
Nevada Journal contacted the federal Office of the U.S. Trustee, part of the U.S. Department of Justice, seeking to learn why the Trustee had not, in the case of the Las Vegas Monorail Company, followed the apparent meaning of 11 U.S.C. § 1102.
An e-mail response from the Executive Office of the U.S. Trustee Program said that “there’s no information on the public record.” The message added that, “In general, under section 1102 of the Bankruptcy Code, ‘a committee of creditors … shall ordinarily consist of the persons, willing to serve, that hold the seven largest claims against the debtor of the kinds represented on such committee …’” (Ellipses in the original.)
The Washington, D.C., and San Francisco offices of the Executive Office of U.S. Trustees said that decisions about the appointment of creditor committees in Southern Nevada bankruptcy cases are made locally in the U.S. Trustee’s Las Vegas office.
A spokesman at that office informed Nevada Journal that Athanasios Agelakopoulos is the office’s attorney in charge of the Las Vegas Monorail bankruptcy.
However, multiple calls and e-mails to Mr. Agelakopoulos seeking an on-the-record explanation were not returned by publication time.
An experienced bankruptcy attorney consulted by Nevada Journal on a not-for-attribution basis said it is “highly unusual” that no creditors’ committee was appointed in the monorail case.
Even if the different creditors may be reaching agreements in their private negotiations, he said, one would still expect the appointment of multiple creditors’ committees because of all the different interests in play.
(Steven Miller is the managing editor of Nevada Journal, a publication of the Nevada Policy Research Institute. For more in-depth reporting, visit http://nevadajournal.com/ and http://npri.org/.)