United States District Court, M.D. Florida, Tampa Division
IN RE WESTPORT HOLDINGS TAMPA, LIMITED PARTNERSHIP, and WESTPORT HOLDINGS TAMPA II, LIMITED PARTNERSHIP, Debtors.
JEFFREY W. WARREN, as Liquidating Trustee, and CPIF LENDING, LLC, Appellees. SOUTHPOINT GLOBAL INVESTMENTS, LLC, Appellant,
VIRGINIA M. HERNANDEZ COVINGTON UNITED STATES DISTRICT JUDGE
context of a Chapter 11 bankruptcy proceeding, Appellant
SouthPoint Global Investments, LLC, appeals the Bankruptcy
Court's order authorizing the Debtors to obtain
replacement post-confirmation financing from another lender
and granting that lender liens and administrative expense
claims that would have priority over those held by
SouthPoint. The appeal is fully briefed and, as discussed
below, the Court affirms the Bankruptcy Court's order.
Village is a continuing care retirement community in Tampa,
Florida. (Doc. # 10-21 at 9). University Village is comprised
of 446 independent living apartments and 46 independent
living villas and condominium units (the Independent Living
Facility), along with an assisted living and skilled nursing
facility (the Health Center). (Id.). The Independent
Living Facility is owned by Westport Holdings Tampa, Limited
Partnership and Westport Holdings Tampa II, Limited
Partnership (collectively, the Debtors), both of which are
debtors in the underlying bankruptcy proceeding.
(Id. at 2, 9). At all times relevant to this appeal,
the Health Center was owned by Westport Nursing Tampa, LLC
(WNT), which is not a debtor in the underlying bankruptcy
proceeding. (Id. at 3, 9; Doc. # 10-7 at 3).
September 22, 2016, the Debtors filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code. (Doc. # 10-7
at 3; Doc. # 10-30 at ¶ 3). The Bankruptcy Court later
appointed Jeffrey Warren as Liquidating Trustee to administer
the Debtors' estates. (Doc. # 10-20 at 38-39; Doc. #
10-30 at ¶ 4).
of the bankruptcy proceedings, CPIF Lending, LLC, one of the
Debtors' creditors, filed a secured claim in the amount
of $9, 781, 224.58 based on a $9.5 million pre-petition loan
from CPIF in favor of the Debtors. (Doc. # 10-6 at 1, 4; Doc.
# 10-7 at 4-5; Doc. # 10-30 at ¶ 5; Doc. # 10-47 at 1,
4). CPIF asserts that the loan was secured by a
first-priority lien on substantially all of the Debtors'
assets, including the Independent Living Facility, any cash
collateral generated by the Independent Living Facility, and
substantially all personal property owned by the Debtors.
(Doc. # 10-6 at 5; Doc. # 10-7 at 5; Doc. # 10-30 at ¶
5; Doc. # 10-47 at 5). CPIF's secured claim was subject
to objections and an adversary proceeding, which remained
pending before the Bankruptcy Court when this appeal was
filed. (Doc. # 10-7 at 5; Doc. # 10-30 at ¶ 5). In
addition, USAmeriBank loaned money pre-petition to WNT, secured
by a first-priority lien on substantially all of WNT's
assets, including the Health Center. (Doc. # 10-7 at 5; Doc.
# 10-30 at ¶ 6).
May 8, 2018, order, the Bankruptcy Court determined that the
value of the Independent Living Facility, as collateral for
any secured claims, was $12.9 million for purposes of
confirmation of the Debtors' modified plan of
reorganization. In re Westport Holdings Tampa, L.P., et
al., No. 8:16-bk-8167-MGW, (Doc. # 1010) (Bankr. M.D.
Fla. May 8, 2018) (hereafter Bankruptcy Court Docket).
Similarly, it determined that the maximum amount of
CPIF's pre-petition secured claim was $12.9 million, less
outstanding taxes. Id. On appeal, this Court
affirmed that valuation on June 28, 2019. (Bankruptcy Court
Docket, Doc. # 1505).
Debtors required approximately $2 million in post-petition
financing for, among other things, capital improvements to
the Independent Living Facility, including roof repairs, and
operational expenses until a sale could be completed. (Doc. #
10-7 at 6-7; Doc. # 10-18 at 6, 9; Doc. # 10-30 at ¶ 7).
In April 2018, SouthPoint agreed to extend the Debtors this
financing pursuant to a revolving line of credit facility
with a $2 million maximum balance (the SouthPoint Loan
Facility). (Doc. # 10-7 at 7-8, 10; Exh. A to Doc. # 10-7).
Accordingly, the Liquidating Trustee filed a motion to obtain
post-petition financing under the terms of the SouthPoint
Loan Facility. (Id. at 1).
Bankruptcy Court found that the Debtors had “an
immediate and critical need” for the funds, and the
financing would be “necessary and vital to the
preservation and maintenance of the going concern values of
the Debtors.” (Doc. # 10-18 at 9). Accordingly, on May
2, 2018, the Bankruptcy Court entered an order authorizing
the Debtors to borrow up to $2 million from SouthPoint under
the terms of the SouthPoint Loan Facility (the SouthPoint
Financing Order). (Id. at 4-6; Doc. # 10-30 at
the SouthPoint Financing Order and the SouthPoint Loan
Facility, Southpoint received the following liens and
security interests: (1) a first-priority lien on any
unencumbered assets of the Debtors (subject to certain
exceptions under the Bankruptcy Code), (2) a second-priority
lien on all encumbered assets owned by the Debtors, junior
only to those liens held by CPIF and any tax liens, and (3) a
junior-priority lien on all encumbered assets of WNT. (Doc. #
10-7 at 7; Doc. # 10-18 at 7; Doc. # 10-30 at ¶ 8).
SouthPoint Financing Order also granted SouthPoint a
superpriority administrative claim under 11 U.S.C. §
The Debtors' obligations to repay [SouthPoint] for
advances pursuant to [the SouthPoint Loan Facility] shall be
accorded superpriority administrative expense status pursuant
to Section 364(c)(1) of the Bankruptcy Code, superior to any
other claims under Section 364(c)(1) of the Bankruptcy Code,
and priority over any and all other claims against the
Debtors, now existing or hereafter arising, of any kind
whatsoever, including, without limitation, all administrative
expenses of the kind specified in Sections 503(b) and 507(b)
of the Bankruptcy Code (the “Superpriority
Claim”), without the need to file any proof of
claim. The Superpriority Claim of [SouthPoint] shall be
entitled to the full protection of Section 364(e) of the
Bankruptcy Code in the event that this Order or any provision
hereof is vacated, reversed or modified, on appeal or
(Doc. # 10-18 at 7-8).
Bankruptcy Court found that the SouthPoint Loan Facility had
been negotiated in good faith and at arms' length, and
found that SouthPoint was acting in good faith, thereby
triggering the “protections offered by Section 364(e)
of the Bankruptcy Code, and [SouthPoint] shall be entitled to
the full protection of Section 364(e) of the Bankruptcy Code
in the event that this Order or any provision hereof is
vacated, reversed, or modified, on appeal or
otherwise.” (Id. at 10).
SouthPoint Financing Order further provided that all
outstanding amounts drawn under the SouthPoint Loan Facility
would become due and payable upon the occurrence of a
default. (Id. at 8). As pertinent to this case, the
SouthPoint Loan Facility documents defined an “Event of
Default” as: (1) an order “entered by the
Bankruptcy Court in the Bankruptcy Cases, without the prior
written consent of [SouthPoint], (i) to revoke, reverse,
stay, modify, supplement or amend the Financing Order, or
(ii) to grant or permit the grant of a Lien on the property
or assets of either Borrower other than a Permitted Lien,
” and (2) where a person “shall attempt to grant
a Lien in any of Borrowers' properties or assets”
or when “any action is commenced by a Borrower that
contests any provision of the Financing Order.” (Doc. #
10-12 at ¶¶ 8.1(j), (1)).
the SouthPoint Loan Facility closed, the Liquidating Trustee
requested $969, 605 for a proposed project to repair and
replace portions of the Independent Living Facility's
roof. (Doc. # 10-30 at ¶¶ 10, 11). According to the
Liquidating Trustee, the roofs at University Village suffered
from water intrusion and were in “great
disrepair.” (Doc. # 10-46 at 8). SouthPoint approved
the roofing contract and advanced a $10, 000 down payment.
(Doc. # 10-30 at ¶ 12). The Liquidating Trustee then
entered into the roofing contract. (Id.). SouthPoint
funded an additional $100, 000 for a progress payment on the
roof but then refused two later requests for additional
funds. (Id. at ¶¶ 13-15). Up to that
point, SouthPoint had advanced a total of $488, 000 on the
SouthPoint Loan Facility, with $110, 000 advanced for the
roofing project. (Doc. # 10-46 at 7-8). The roofing
contractor ceased any further work pending payment of its
unpaid invoices. (Doc. # 10-30 at ¶ 16).
approaching several lenders to obtain replacement financing,
the Liquidating Trustee filed an expedited motion for
approval of a replacement financing facility from Rosemawr
Management, LLC, pursuant to 11 U.S.C. §§ 364(c)
and (d). (Doc. # 10-25; Doc. # 10-30 at ¶¶ 18-19;
Doc. # 10-46 at 9-11). Under the terms of the proposed loan,
Rosemawr would make advances of up to $2 million, with an
“accordion” feature allowing Debtors to borrow up
to an additional $500, 000. (Doc. # 10-25 at
The proposed replacement financing would be secured by
priming liens on all assets of the Debtors and WNT, subject
only to existing liens on the assets of WNT. (Id.;
Doc. # 10-30 at ¶ 27). In addition, the lender would be
granted a superpriority administrative expense claim.
filed a written objection to the requested replacement
financing, (Doc. ## 10-27, 10-28), but prior to the hearing,
CPIF offered to provide the replacement financing on
substantially the same terms and conditions as those offered
by Rosemawr. (Doc. # 10-46 at 11-12). CPIF's offer did,
however, contain a more favorable fee structure.
(Id. at 12). The Liquidating Trustee accepted
CPIF's offer, contingent upon the approval of the
Bankruptcy Court, thus resolving CPIF's objection.
(Id. at 11-12). SouthPoint did not lodge a written
objection to the proposed replacement financing.
to a signed declaration filed by the Liquidating Trustee in
support of the expedited motion, none of the potential
lenders approached by the Liquidating Trustee were willing to
extend post-confirmation financing on anything other than a
priming basis. (Doc. # 10-30 at ¶¶ 20, 26). The
Liquidating Trustee stated in his declaration that he
believed obtaining this replacement post-confirmation
financing was in the best interests of the estate and the
creditors. (Id. at ¶ 21).
the Liquidating Trustee averred that replacement financing
was necessary to complete much needed capital expenditures,
including the roofing contract, and to fund operating
expenses until University Village could be sold.
(Id. at ¶ 23). According to the Liquidating
Trustee, the replacement funding would be necessary to
maintain and improve the value of the Debtors' assets, to
continue the business without interruption, and to maximize
the sale value for all creditors. (Id. at ¶
the Liquidating Trustee also averred that SouthPoint's
and CPIF's interests, as existing secured creditors,
would be adequately protected because the replacement
financing would be used to increase the value of the
collateral “in an amount at least equal to the amount
[of the] Post-Confirmation Facility.” (Id. at
¶ 28). According to the Liquidating Trustee, the value
of the collateral would be increased in four ways.
the capital expenditures would increase the collateral's
value by no less than the amounts spent. (Id. at
¶ 30(a)). Second, the forthcoming capital expenditures
justified an increase in the residents' monthly service
fee, resulting in an increased annual revenue of $276, 000.
(Id. at ¶ 30(b)). According to the Liquidating
Trustee, using a “conservative” capitalization
rate of 4%, this increased fee would add $1, 104, 000 in
value to the collateral. (Id.). Using a
“market-based” 7% capitalization rate, the
increase in the monthly service fee adds $1, 932, 000 in
value to the collateral. (Id.).
the anticipated capital expenditures would allow the
Liquidating Trustee to implement a marketing program expected
to yield a minimum of four new renters every month, with an
average blended monthly rent of $1, 854 and a $2, 500
community fee per move-in, adding further value to the
collateral. (Id. at ¶ 30(c)). Finally,
commencing capital improvements enhanced resident support and
morale, which prompted residents to undertake repairs and
refurbishments on their own, further enhancing the value of
the collateral. (Id. at ¶ 30(d)). The
Liquidating Trustee stated his belief that, without
post-confirmation financing, the going-concern value of the
Debtors would decline, making them “significantly less
attractive” to potential buyers. (Id. at
Bankruptcy Court held a hearing on the replacement financing
motion on November 5, 2018. (Doc. # 10-46 at 1). At the
hearing, counsel for SouthPoint lodged a “conditional
objection” to the replacement financing motion, stating
that “the Trustee is not really authorized to borrow
monies under the Court-approved financing that we provided
without paying off our facility.” (Id. at 31).
SouthPoint's counsel explained that it stopped making
advances under the SouthPoint Loan Facility due to the
Liquidating Trustee's lack of progress in selling the
Debtors' assets, saying that SouthPoint was “very
afraid” of advancing any more money to the Debtors due
to “legitimate concerns about getting repaid.”
(Id. at 31-32). Counsel pointed to the terms of the
SouthPoint Loan Facility and the SouthPoint Financing Order
providing that the loan would be paid off in full in the
event of a default or an impairment by any other financing.
(Id. at 32-33). In conclusion, SouthPoint stated
that it had no objection to the CPIF replacement financing,
so long as it was repaid the monies it already advanced.
(Id. at 33-34).
Liquidating Trustee responded that the parties were not there
to litigate the “default” by SouthPoint but,
instead, “[w]e are here to prime them as a lender and
we will resolve the disputes with them at a later and
appropriate time.” (Id. at 34). The
Liquidating Trustee explained that it was forced to file the
emergency motion for replacement financing because SouthPoint
refused to perform under their earlier agreement.
(Id. at 34-35).
Bankruptcy Court stated at the hearing that “[n]o one
disputes that the repairs to the roof needed to be
made” and that “it's in everyone's
interest that the Debtor be sufficiently funded so that it
can continue to operate as a going concern.”
(Id. at 37). As to SouthPoint's objections, the
Bankruptcy Court stated that:
SouthPoint relies on its documents. But, you know, I
can't overlook the fact that the reason we're here
and doing this is because SouthPoint in fact didn't fund
what their initial commitment was. And they have, I shall
assume, wonderful reasons and we'll litigate those,
I'm sure, in due course. But where we are here today is
this roof needs to be fixed and we can't be going off and
having -- trying major lawsuits as part of that process.
So the idea that we can now require CPIF to fund
SouthPoint's piece of the case as part -- a condition to
this is way too much at this stage. We'll have to resolve
SouthPoint's issues in due course.
But taking everything into consideration, this is a fair and
equitable resolution. It's one that harms no one, it
improves the value of the collateral, it violates no
bankruptcy principle that is not flexible and therefore I
will overrule all those objections for purposes of this
motion and approve the financing, as announced here in open
(Id. at 40-41).
order dated November 9, 2018, the Bankruptcy Court
memorialized its decision to approve the replacement
financing (the Replacement Financing Order). (Doc. # 10-41).
In the Replacement Financing Order, the Bankruptcy Court
granted the Liquidating Trustee's expedited motion to
obtain replacement financing, overruled SouthPoint's oral
objection, and found that “approval of the final relief
requested in the [m]otion is necessary to avoid immediate and
irreparable harm to [the Debtors], is otherwise fair and
reasonable, is in the best interests of [the Debtors] and
their creditors, and is essential for the preservation of the
value of [the Debtors'] assets.” (Id. at
the Replacement Financing Order authorized the Debtors to
borrow up to $2 million from CPIF, with an option to borrow
an additional $500, 000. (Id. at 11). The
Replacement Financing Order granted CPIF first priority
priming liens under 11 U.S.C. § 364(d)(1),
“ranking prior to all other liens, claims and
encumbrances on the Debtor Collateral, and shall prime all
other liens and security interests on the Debtor Collateral,
” whether then existing or later acquired.
(Id. at 13). The Bankruptcy Court also granted CPIF,
as the replacement lender, first priority liens and security
interests in the WNT collateral and in any proceeds from a
sale of the post-confirmation collateral, subordinate only to
Valley National's existing lien. (Id. at 3, 7-8,
13-14). The Replacement Financing Order also granted CPIF a
superpriority administrative expense claim with priority over
all other administrative expense claims under 11 U.S.C.
§ 364(c)(1). (Id. at 14).
of the Replacement Financing Order, the Bankruptcy Court made
several findings of fact and conclusions of law.
(Id. at 5). The Bankruptcy Court found that good
cause existed to approve the replacement financing,
explaining that the Debtors needed funding to finance
necessary capital expenditures, ensure the continued
operation of the business, and enhance, preserve, and
maintain the value of their assets in order to maximize a
return for all creditors. (Id. at 6). Specifically,
the Bankruptcy Court explained that the proceeds of the
replacement financing “are intended to allow the Credit
Parties to make certain capital expenditures and to continue
the operation of [University Village] through the marketing
and sale of the assets of [the Debtors and other related
parties].” (Id.). The Bankruptcy Court
relatedly found that the absence of such financing
“would immediately and irreparably harm the Credit
Parties, their assets, their creditors and the possibility
for a sale of the Credit Parties' assets as a going
concern or otherwise.” (Id.). The Bankruptcy
Court also found that, despite his good faith efforts, the
Liquidating Trustee was unable to obtain a loan on any more
favorable terms than those offered by CPIF. (Id.).
Bankruptcy Court also made a finding as to adequate
protection of the existing secured creditors, including
The Post-Confirmation Liens shall constitute priming liens
and security interests under Section 364(d) of the Bankruptcy
Code in the Debtor Collateral, ranking prior to any existing
liens and security interests of any other party in the Debtor
Collateral, including any liens asserted by CPIF and
SouthPoint, including, but not limited to, any liens granted
by [the SouthPoint Financing Order]. The Court finds and
determines that, after granting the Post-Confirmation Liens,
the interests of any and all parties in the Debtor