Cosmoledo’s stalking horse deal draws objection from U.S. Trustee

By Sarah Lizee

Olympia, Wash., Sept. 21 – The U.S. Trustee overseeing Cosmoledo, LLC’s Chapter 11 case has objected to the debtors’ bid procedures and stalking horse agreement, according to a notice filed with the U.S. Bankruptcy Court for the Southern District of New York.

Region 2 U.S. trustee William K. Harrington said in his objection that the current procedures not only lack transparency but appear “designed to chill any potential competitive bid.”

The stalking horse bidder’s purchase price includes a credit bid, but the amount of the credit bid is not disclosed.

“The stalking horse bidder has also acquired the secured claim of approximately $72 million from the non-debtor parent without disclosing the consideration paid for the heavily under secured claim,” he added.

“The cash collateral motion states the cash on hand is approximately $3.4 million and the value of the collateral is approximately $5.4 million.

“Based on an analysis of the documents submitted, it appears that if the maximum amount of the credit bid in the amount of $72 million were applied to the purchase price, there would be little likelihood of a competitive bid.”

Harrington noted that even if the maximum amount available for a credit bid were not applied to the purchase price, unless information regarding the consideration paid for the secured claim is disclosed, a potential competitive bidder would not be able to determine if a reduced credit bid nevertheless is intended to chill a competing bid.

The U.S. Trustee also said that uncertainties for a potential competitive bidder exist with respect to the calculation of the break-up fee as well as the failure to specify or limit the amount of the expense reimbursement to which the stalking horse bidder would be entitled.

New York-based Cosmoledo operates fine casual dining restaurants. It filed Chapter 11 bankruptcy on Sept. 10 under case number is 20-12117.

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