UNITED STATES BANKRUPTCY COURT DISTRICT OF MAINE Jointly Administere - PDF document

1 UNITED STATES BANKRUPTCY COURT DISTRICT
UNITED STATES BANKRUPTCY COURT DISTRICT OF MAINE Jointly Administered BREDA, A LIMITED LIABILITY FOR CONTINUED AUTHORITY TO USE CASH COLLATERAL Breda, a Limited Liability Company (“Breda”), by and through its undersigned counsel, and pursuant to 11 U.S.C. § 363(c)(2)(B), Fed. R. Bank. P. 4001(b), and D. Me. LBR 4001-2, hereby files this Third Motion for Continued Authority to Use Cash Collateral (the “Motion”). This Motion seeks authority to use cash collateral on a final basis in accordance with the terms of the Breda Cash Plan (as defined below and attached to the Motion) for the period of December 31, 2018 to March 31, 2019 (the “Breda Third Cash Collateral Period”). In support of this and the Local Rules of Procedure (a) Name of entities with purported interests in cash collateral: (i) Bar Harbor Bank & Trust (“BHBT”); (ii) CP3 Lending, LLC (“CP Lending”); (iii) FC Marketplace, LLC (“Funding Circle”); (iv) BFS Capital (“BFS”); and (v) American Express Bank, FSB (b) Purposes for Use of Cash Collateral: Cash collateral will be used as necessary to fund the operations of the hotel and restaurant facility owned by Breda, including funding payroll and funding expenses necessary to repair and maintain the property owned by Breda (all as more specifically set forth in the Breda Cash (c) Material Terms (Including Duration of Cash Collateral): Cash collateral shall be utilized in accordance with the Breda Cash Plan on a final basis for the Breda Third Cash Collateral Period. Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 1 of 11 (d) Forms of Adequate Protection: Adequate protection shall be provided in one or more of the following manners (as ordered by the Bankruptcy Court): (i) through existing equity cushions in collateral; (ii) through replacement liens as necessary; (iii) through an increase in cash collateral through operations o

2 ver the course of the cash collateral pe
ver the course of the cash collateral periods; and/or (iv) through operations, repair and maintenance Jurisdiction and Venue The United States District Court for the District of Maine has original, but not 28 U.S.C. § 157 and Rule 83.6 of the District Court’s local rules, the District Court has authority to refer, and has referred, this proceeding to this Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2), and this Court has authority to enter final judgmeVenue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. On March 28, 2018 (the “Petition Date”), Breda and Tempo Dulu, LLC (“Tempo Dulu” and, together with Breda, the “Debtors”) each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. §§ 101-1330 (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Maine. On April 5, 2018, this Court entered an order [D.E. 39] approving the joint administration of the Debtors’ bankruptcy cases. The Debtors continue to operate their Breda operates a high-end inn known as “The Camden Harbour Inn,” located at 83 Bay View St., Camden, Maine. The facility includes a four-star restaurant known as “Natalie’s.” Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 2 of 11 A. Summary of Breda’s Loan Agreements Prior to the Petition Date, Breda entered into various loan agreements with various lenders. In order to secure the indebtedness owed to the various lenders under the loan agreements, Breda granted such lenders security interests in the personal property owned by The following lenders may assert an interest in the cash collateral of Breda (the lenders lowest priority lien rights): A. BHBT: On or about July 15, 2013, Breda entered into that certain loan transaction with BHBT pursuant to which Breda borrowed the principal amount from BHBT (the “Breda/BHBT

3 Loan Transaction”). As part of the Br
Loan Transaction”). As part of the Breda/BHBT Loan Transaction, Breda executed that certain Security Agreement purporting to grant BHBT a security interest in the personal property of Breda, some of which may constitute cash collateral (the “Breda Security Agreement”). BHBT filed a UCC-1 in relation to the rights granted under the Breda Security Agreement [Financing Statement Number 2130002177223-10]. Additionally, Breda executed that certain Collateral Assignment of Leases and Rents purporting to grant BHBT rights in the revenues generated by the Camden Harbour Inn, some of which may constitute cash collateral (the “Breda Collateral Assignment”). BHBT recorded the Breda Collateral Assignment in the Registry of Deeds for Lincoln County at Book 4693, Page 272. B. Funding Circle: On or about September 4, 2015, Breda entered into that certain loan transaction with Funding Circle pursuant to which Breda borrowed the principal amount of from Funding Circle (the “Breda/FC Loan Transaction”). As part of the Breda/FC Loan Transaction, Breda executed that certain Business Loan and Security Agreement purporting to grant Funding Circle a security interest in the personal property of Breda, some of which may constitute cash collateral (the “Breda/FC Security Agreement”). Funding Circle filed a UCC-1 in relation to the rights granted under the Breda/FC Security Agreement [Initial Financing Statement Number 20150904109000103]. Breda reserves the right to contest the validly and extent of any and all interests of any of the lenders in the collateral, and nothing set forth herein shall be deemed an admission of the lenders’ interests, if any, in any collateral alleged to have been pledged by Breda to the various lenders. Additionally, certain of the loans have been modified by the terms of settlement agreements or forbearance agreements entered into after the execution of the original loan documents;

4 however, the terms of the settlement or
however, the terms of the settlement or forbearance agreements do not appear to impact the lenders’ rights in cash collateral. Funding Circle’s security interest does not extend to “Excluded Property” as defined in the Breda/FC Security Agreement, meaning, premised on the interests of BHBT, Funding Circle may not have an interest in the proceeds generated by the operation of the Camden Harbour Inn. Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 3 of 11 BFS: On or about January 28, 2016, Breda entered into that certain loan transaction with BFS pursuant to which Breda borrowed the principal amount of from BFS (the “Breda/BFS Loan Transaction”). As part of the Breda/BFS Loan Transaction, Breda executed that certain Secured Promissory Note purporting to grant BFS a security interest in the personal property of Breda, some of which may constitute cash collateral (the “Breda/BFS Security Agreement”). BFS filed a UCC-1 in relation to the rights granted under the Breda/BFS Security Agreement [Financing Statement Number CP Lending: On or about February 7, 2017, Breda entered into that certain loan transaction with CP Lending pursuant to which Breda borrowed the principal amount of (later increased to ) from CP Lending (the “Breda/CP Loan Transaction”). As part of the Breda/CP Loan Transaction, Breda executed that certain Mortgage, Security Agreement and Financing Statement purporting to grant CP Lending a security interest in the personal property of Breda, some of which may constitute cash collateral (the “Breda/CP Security Agreement”). CP Lending filed a UCC-1 in relation to the rights granted under the Breda/CP Security Agreement [Financing Statement Number 20170208109000010]. Additionally, Breda executed that certain Collateral Assignment of Leases and Rents purporting to grant CP Lending rights in the revenues generated by Th

5 e Camden Harbour Inn, some of which may
e Camden Harbour Inn, some of which may constitute cash collateral (the “Breda/CP Collateral Assignment”). CP Lending recorded the Breda/CP Collateral Assignment in the Registry of Deeds for Lincoln County. E. American Express: On or about October 18, 2017, Breda entered into that certain loan transaction with American Express pursuant to which Breda borrowed the principal amount of from American Express (the “Breda/American Express Loan Transaction”). As part of the Breda/American Express Loan Transaction, Breda executed that certain Business Loan and Security Agreement purporting to grant American Express a security interest in the personal property of Breda, some of which may constitute cash collateral (the “Breda/American Express Security Agreement”). American Express filed a UCC-1 in relation to the rights granted under a loan made to Breda by American Express [Financing Statement Number 20160203109000171-13], however, Breda does not believe that the initial filings pertains to the Breda/American Express Loan Transaction, meaning American Express likely in the cash collateral of Breda. B. History of Breda’s Authorit On the Petition Date, the Debtors filed the Joint Motion for Authority to Use Cash Collateral [D.E. 6] (the “First Cash Collateral Motion”), which sought authority for Breda and Tempo Dulu to use cash collateral on an interim and then final basis in accordance with certain Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 4 of 11 cash plans attached to the First Cash Collateral Motion. Following a hearing on April 3, 2018, the Court entered an order granting the First Cash Collateral Motion on an interim basis [D.E. 47] (the “First Interim Order”) on April 5, 2018, which granted Breda and Tempo Dulu authority to use cash collateral on an interim basis through May 2, 2018, in accordance with the cash plans attached

6 to the First Interim Order. On May 2, 20
to the First Interim Order. On May 2, 2018, the Court held a continuet Cash Collateral Motion, and on that same day the Court entered the Second Interim OrAuthority to Use Cash Collateral [D.E. 100] (the “Second Interim Order”), which granted Breda and Tempo Dulu authority to continue using cash collateral on an interim basis through June 3, nd Interim Order. hearing on the First Cash Collateral Motion on May 30, 2018. On June 1, 2018, the Court entered the Final Order on Joint Motion for Authority to Use Cash Collateral [D.E. 127] (the “First Final Cash Collateral Order”). The First Final Cash Collateral Order authorized Breda and Tempo Dulu to use cash collateral on a final basis in accordance with the cash plans attached thereto through September 2, 2018. On August 2, 2018, the Debtors filed the Second Joint Motion for Continued Authority to Use Cash Collateral [D.E. 146] (the “Second Final Cash Collateral Motion”), which sought an order, inter alia, authorizing Breda to continue using cash collateral on a final basis for the period of September 3, 2018 to December 30, 2018 (the “Breda Second Cash Collateral Period”). On August 30, 2018, the Court conducted a final hear Collateral Motion, and on August 30, 2018, the Courfor Continued Authority to Use Cash Collateral [D.E. 152], authorizing Breda to use cash collateral on a final basis during the Breda Second Final Cash Collateral Period in accordance Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 5 of 11 with the cash plans attached thereto. The Breda Second Final Cash Collateral Period expires on December 30, 2018. Breda, therefore, requires authority to use cash collateral to continue operating its inn and restaurant business after December 30, 2018. The inability to use cash collateral to fund essential expenses after December 30, 2018, would result in immediate and irreparable harm

7 to the estate and creditors of Breda. A
to the estate and creditors of Breda. Accordingly, by this Motito 11 U.S.C. § 363(c)(2)(B), Fed. R. Bankr. P. 4001(b) and D. Me. LBR 4001-2, to use the proceeds generated by the operation of Breda’s businesses, some of which may be cash collateral, on a final basis for the Breda Third Cash Collateral Period substantially in the manner and amounts reflected on the attached cash plan for Breda (the “Breda Cash Plan,” attached hereto as ), with recognition that the timing of revenue and expenses may be slightly Basis for Relief Section 363(a) of the Bankruptcy Code provides the definition of cash collateral. 11 U.S.C. § 363(a). Cash collateral is defined by § 363 to mean: . . . cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents whenever acquired in which the estate and an entity other than the estate have an interest and includes the proceeds, products, offspring, rents, or profits of property and the fees, charges, accounts or other payments for the use or occupancy of rooms and other public facilities in hotels, motels, or other lodging properties subject to a security interest as provided in section 552(b) of this title, whether existing before or after the commencement of a case under this title. A debtor is authorized to use cash collateral if the party with an interest in the cash collateral consents to its use or the Court after notice and hearing authorizes its use. 11 Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 6 of 11 A court can authorize use of cash collateral over the objection of the affected creditor where the debtor demonstrates that it can adequately protect the interests of the party holding an interest in the cash collateral. 11 U.S.C. § 363(e). As explained more fully below, Breda believes that adequate protection can be provided in at least three forms: (a) through

8 operation, repair, and maintenance of in
operation, repair, and maintenance of income producing property; (b) through continued operations, an increase in cash collateral will occur over time; and (c) through equity cushions and/or replacement liens. Adequate Protection In the Contex Where the collateral is income producing real property, the value of a creditor’s interest in the underlying real property must be declining if the creditor is to be protection with respect to the real property and/or its accompanying rental stream (which is incorporated within and is an element of the real property value). In re Mullen, 172 B.R. 473, 476 (Bankr. D. Mass. 1994) (citing In re Kalian, 169 B.R. 503, 505 (Bankr. D.R.I. 1994); Federal Nat’l Mortgage Ass’n v. Dacon Bolingbrook Assoc. Ltd. P’ship, 153 B.R. 204, 210 (N.D. Ill. 1993); In re Robbins, 119 B.R. 1 (Bankr. D. Mass. 1990); In re Pine Lake Village Apartment Co., 19 B.R. 819, 826 (Bankr. S.D.N.Y. 1982); In re Chatham Parkway Self Storage, LLC, 2013 WL 1898058, *8 (Bankr. S.D. Georgia, April 25, 2013) (“The vast majority of the expenses for which Debtor is currently using cash collateral under the terms of the Cash Collateral Order are expenses directly related to the operation, maintenance, or preservation of the Property, and thus do not require adequate protection.”). Thus, where the value of a Under established precedent in this district, creditors are not entitled to adequate protection of their interest in rents independent of their interest in the underlying real property Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 7 of 11 because the basic method of valuation for income producing properties is predicated on the rental income stream, meaning that the fair market value of the real property is equal to the present value of the rental income over some extended period of time, plus residual value. In re Citicorp Park Assocs., 18

9 0 B.R. 15, 18 (Bankr. D. Me. 1995). The
0 B.R. 15, 18 (Bankr. D. Me. 1995). Therefore, if the value of the income producing property is not declining, and the debtor is using the rental income to properly maintain the property, insure it, and pay real estate taxes, a secured creditor with a mortgage and an assignment of rents is adequately protected because its interest in property is not declining in value. Id.; see also Chapter 11 Theory and Practice: A Guide to Reorganization § 16.64 (James F. Queenan, Jr., Philip J. Hendel & Ingrid M. Hillinger, eds., 3d ed. rev. 2002) (the “typical approach” for adequately protecting creditors with an interest in income producing real estate “focuses on maintaining the value and rental capacity of the property and from rents [to do so]”); Chapte As reflected in the Breda Cash Plan, Breda intends to use the income/cash collateral generated by the hotel during the Breda Third Cash Collateral Period to fund essential expenses relating to the property, such as maintaining and inreal estate taxes and utility services such as water, sewer, and electricity. Because the value of the property is not declining and Breda intends to use such income to maintain the property, the interests in the property of certain of the lenders are adequately protected under §§ 361 and 363 of the Bankruptcy Code, and no further adequate protection is necessary, to the extent the income is used to precipitate the further production of income. Cash Collateral Increases Through The Breda Third Cash Collateral Period A creditor is adequately protected in the event cash collateral increases over the course of the chapter 11 proceedings, even in circumstances where the levels of cash collateral Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 8 of 11 decrease for periods during the case. In re Dynaco Corp., 162 B.R. 389, 394 (Bankr. D.N.H. As reflected in the Breda Cash Plan, t

10 he cash collateral position of Breda wil
he cash collateral position of Breda will increase during the Breda Third Cash Collateral Period compared to the beginning cash collateral position at the Petition Date. The lenders of Breda, therefore, are adequately protected by the increase in the cash collateral positions over the Breda Third Cash Collateral Period, and the In the event a lender has an equity cushion in its collateral, such equity cushion can be used to adequately protect a lender in relation to a debtor’s use of cash collateral. Baybank-Middlesex v. Ralar Distributors, Inc., 69 F.3d 1200, 1203 (1st Cir. 1995) (“A sufficient equity cushion is itself a recognized form of adequate protection, thus collateral valuation is a logical step in making an adequate protection determination.”). Additionally, adequate protection can be provided in the form of replacement liens on property to the extent use of cash collateral results in a decrease in an entity’s interest in such propertIn this case, BHBT and CP Lending have mortgages on the real property owned by both Breda and Tempo Dulu (and on additional property owned by certain of the members of the Debtors). The Camden Harbour Inn was appraised on March 27, 2017 for (real and personal property combined). The Danforth Inn, in turn, was appraised at approximately the same time for (real and personal property combined). In addition, 81 Bayview Street (the property that is adjacent to The Camden Harbour Inn) is worth approximately . From the above, the total collateral value is roughly . The total amount of the debt owed to BHBT and CP Lending combined Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 9 of 11 between Breda and Tempo Dulu is approximately . This means that BHBT and CP Lending are adequately protected in relation to the use of cash collateral by a loan to value of approximately 61%. Premised on the above, BHBT a

11 nd CP Lending are adequately protected b
nd CP Lending are adequately protected by an equity cushion in their collateral. In the event there is a diminution in cash collateral of Breda, the lenders with an interest in the cash collateral of Breda (outlined above) shall be granted replacement liens on the real property owned by Breda. Breda requests that the Court implement marshalling as needed to ensure that all lenders are adequately protected by equity cushions and/or replacement liens to the extent, and only to the extent, of any diminution in cash collateral over the course of this proceeding. As set forth in the certificate of service, notice of this Motion has been given to: (a) the United States Trustee; (b) Breda’s secured creditors, or, if applicable, to the lawyers representing such creditors; (c) the non-insider holders of the twenty largest unsecured claims against Breda or, if applicable, to the lawyers representing such holders; (d) the applicable federal and state taxing authorities; and (e) all parties who have entered an appearance or requested notice in the Debtors’ cases. Breda submits that in light of the nature of the relief WHEREFORE, Breda respectfully requests that this Court enter an Order granting the following relief: A. Authorizing Breda to use cash collateral upon the terms and conditions set forth herein in the amounts reflected on the Breda Cash Plan on a final basis through the Breda Third Cash Collateral Period, with recognition that the timing of revenue and expenses may be slightlyB. Granting Breda such other and further relief as the Court deems just and proper. Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 10 of 11 BREDA, A LIMITED LIABILITY /s/ Adam R. Prescott D. Sam Anderson, Esq. Adam R. Prescott, Esq. BERNSTEIN, SHUR, SAWYER & Case 18-20157 Doc 218 Filed 12/07/18 Entered 12/07/18 15:50:06 Desc Main Document Page 1