Creditors’ Committee Contends Breach of Duty in Crescent Resources LLC Chapter 11 Bankruptcy
Reorganization plan would wipe out equity holders stake. Disclosures hint of cause for actions against company’s parents, affiliates, officers, managers, directors, and professional advisers.
Palm Coast, FL – April 14, 2010 – The Creditors Committee in the Crescent Resources LLC chapter 11 bankruptcy raises questions of impropriety regarding the complex transaction that created the Duke Energy and Morgan Stanley joint venture which owns Crescent Resources. The committee’s contentions of "breach of duty" are found in the Disclosure Statement posted along with the Plan of Reorganization on the Crescent Resources Bankruptcy Administration Website.
The plan must be approved by a vote of eligible creditors and confirmed by the court. The voting deadline is May 10, 2010. The confirmation hearing is scheduled for May 20th and 21st. Crescent Resources is the parent of LandMar Group LLC, Palm Coast’s second largest developer, a ranking which will likely change post-bankruptcy.
Until 2006, Crescent Resources LLC was wholly owned by Duke Ventures. Then, in a complex transaction, Duke created Crescent Holdings by spinning off 51% of Crescent Resources LLC; 49% to Morgan Stanley Real Estate Funds, and 2% to management (2006 Duke Transaction). The highly leveraged transaction resulted in a $1.187 Billion distribution from loan proceeds to Duke.
Duke’s receipt of $1.187 Billion from the loan proceeds rings similar to Credit Suisse loans to several large resort developers, including the Ginn Company, Lake Las Vegas, Yellowstone Club, and Tamarack Resort. In each case, equity holders received large direct distributions from the loan proceeds. Every one of the Credit Suisse loans resulted in the developers’ bankruptcy. Credit Suisse now finds itself defendant in a $24 Billion lawsuit alleging a "loan to own scheme."
Credit Suisse fronted and administered the loans, collecting huge fees. The actual lenders were private investors. It appears that Bank of America NA played a similar role "as administrative agent and collateral agent" in the Crescent Resources Credit Facility.
Following are excerpts from the Disclosure Statement (emphasis added): Note: "Prepetition" refers to the time prior to the bankruptcy filing.
The Creditors’ Committee contends that the 2006 Duke Transaction rendered Crescent Holdings and certain of its subsidiaries insolvent and that the transaction also represented a breach of duty by its parents, affiliates, officers, managers, directors, and professional advisers, and that as a result, estate causes of action may exist that arise out of this transaction against participants in the transaction, approving directors or managers and recipients of the proceeds thereof. The Debtors have not analyzed and express no opinion whether such claims relating to the 2006 Duke Transaction are meritorious; however, the Creditors’ Committee believes that such causes of action arising from the 2006 Duke Transaction may include and be based on theories including, without limitation:
That transaction is well described in the Disclosure Statement.
2006 Duke TransactionIn the months immediately prior to September 2006, Duke Ventures, LLC (“Duke”), a Nevada limited liability company, was the sole owner of Crescent Resources. Duke, in turn, was a wholly-owned direct or indirect subsidiary of Duke Capital, LLC. On September 7, 2006, a Formation and Sale Agreement was entered into between Duke, Crescent Resources and several Morgan Stanley real estate investment entities whereby the Parties agreed that: (a) Crescent Resources had, pre-transaction, an enterprise value of $2.075 billion; (b) Duke would form Crescent Holdings and contribute its equity interest in Crescent Resources to Crescent Holdings; (c) Crescent Resources would enter into the 2006 Credit Agreement (defined below) from which $1,187,000,000 in term loan proceeds would be distributed to Crescent Holdings, with Crescent Holdings then distributing such proceeds directly (and solely) to Duke; (d) Morgan Stanley Real Estate Fund would purchase 49% of the membership interests in Crescent Holdings from Duke for $414 million; and (e) Crescent Holdings would enter into an employment agreement with Arthur W. Fields which provided, among other things, for the issuance to Mr. Fields of 2% of the membership interests in Crescent Holdings.Contemporaneous with the foregoing transaction, Crescent Holdings and certain of its subsidiaries entered into that certain Credit Agreement (the “2006 Credit Agreement”) among Bank of America, N.A. as administrative agent and collateral agent, the lenders party thereto from time to time as lenders, Crescent Resources as the borrower and Crescent Holdings and certain of its subsidiaries as guarantors, whereby Crescent Resources received: (a) $1.225 billion in term loan proceeds; (b) a $200 million unfunded revolving credit commitment; and (c) a letter of credit sub facility commitment not to exceed $100 million. Of the proceeds of the $1,225,000,000 in term loans, $1,187,000,000 were distributed to Duke as described in the foregoing paragraph with such proceeds being ultimately distributed to its parent, Duke Capital, LLC.As a continuation of the 2006 Duke Transaction, liens were granted to the Prepetition Lenders on depository accounts in 2007 and mortgages on real property of Crescent Resources and certain subsidiaries were created in 2008.The 2006 Duke Transaction, comprised of the Formation and Sale Agreement, the related financing transaction evidenced by the 2006 Credit Agreement, and the distribution of the loan proceeds to Duke, was approved by the then serving managers and directors of Crescent Resources, Crescent Holdings, Duke and Duke Capital, LLC and the various approval committees then appointed under the applicable corporate or limited liability company documentation for such entities.
LandMar Group LLC is a subsidiary of Crescent Resources LLC., which in turn is owned by Crescent Holdings, formed by the 2006 Duke Transaction.
Local subsidiaries of LandMar Group include:
The Reserve, LLC – owner and developer of Grand Landings, a residential community south or the Flagler County Airport
Roberts Road, LLC – owner of property east and west of Roberts Road entitled for residential development. A portion of this property is affected by an agreement between the City of Palm Coast. LandMar, and Sea Ray Boats which, if concluded, would create an industrial park owned by the city while at the same time satisfying an existing agreement between LandMar and Sea Ray for LandMar to provide funds for emission control measures at the Sea Ray plant.
Grand Woods Developers, LLC – owner of 243+-acres adjacent to the closed Matanzas Woods golf course. The property was to be developed as a residential component of the larger Palm Coast Park Development of Regional Impact (DRI). Palm Coast Park is being developed by Palm Coast Holdings.
From the Disclosure Statement:
Currently, LandMar Group, LLC, LandMar Management, LLC, The Reserve, LLC, Roberts Road, LLC, and Grand Woods Developers, LLC are negotiating a settlement agreement with Florida Landmark Communities, Inc. to convey the assets to the secured parties in satisfaction of the claims related to the loans and related documents described in subsections (a) through (c) above. The Debtors intend to stipulate that all assets will be conveyed to the secured parties subject to all outstanding ad valorem tax obligations.
This means that these properties will revert back to Landmark Communities. It’s unknown what effect the transfer might have on the agreement between, Landmar, the City of Palm Coast and Sea Ray Boats.
Note: Landmark Communities is the landholding component of Palm Coast Holdings, a subsidiary of Allete Properties, which in turn is a subsidiary of Allete Inc. Ironically, Allete Inc.’s holdings include Minnesota Power.
The Plan of Reorganization does not hint of the possible impact on four local golf courses linked to Crescent Resources and Landmar. The Grand Haven Golf Course is listed in bankruptcy documents as an asset of Crescent Resources LLC. The Grand Club and its three courses (Pine Lakes, Cypress Knolls, and Matanzas) are owned by The Grand Club LLC. State records list Landmar Management LLC as "Manager" and Hampton Golf Inc as "Manager/Member" of The Grand Club LLC. Landmar Management is listed as one of the bankrupt subsidiaries.
Crescent Resources was valued at $2.075 Billion in 2006. After restructuring, it ‘s estimated that the company will have a value of between $85 Million and $162 Million.
READ THE DOCUMENTS
Heap of trouble
Dukes of Hazzard, with Buba at the wheel of the 00 Charger, and Dazy Duke sitting shotgun, would just put the pedel to the metal and jump the old briges, and get away from the Sherrif. These "Dukes" are not going to escape him, as they are out of gas and stranded. With the 49% ownership and the cash on hand you can bet the courts will go after them with all the fines for the initial scheme with Credit Swiss. Expect large awards to the many investors that now will file suites against the culperts. Overstating assets then and understating them for bankruptcy, has the markings of criminal fraud, that the courts don’t like, nor does the Federal Government, that probably will file charges for SEC violations. You in a heap of trouble boy, we don’t cotton to that, hear!