MSR Resort parent member files suit tied to plan proposal agreement

By Caroline Salls

Pittsburgh, July 24 - MSR Resort Golf Course, LLC upstream controlling parent member 111 Debt Acquisition-Key LLC filed a lawsuit Tuesday in the U.S. Bankruptcy Court for the Southern District of New York in connection with the proposed filing of a plan of reorganization for MSR Resort's Chapter 11 case.

111 Debt and defendant CNL Recovery Acquisition LLC are the sole members of the MSR Resort affiliated debtors' upstream controlling parent CNL-B LLC.

Under CNL-B's operating agreement, CNL-B cannot make any "major decisions" without the unanimous consent of 111 Debt and CNL Recovery.

The company said major decisions include decisions or actions on any major recapitalization or restructuring tied to the debtors' properties, a refinancing or modification of debt affecting properties owned by the debtors, a pledge of interest in any properties, any additional capital contributions made to CNL-B by 111 Debt or CNL Recovery or a sale of any property owned by the debtors.

Exclusivity term sheet

According to the lawsuit, CNL Recovery caused CNL-B, the MSR Resort debtors and MSR Hotels & Resorts Inc. to seek approval of a term sheet under which MSR Resort's official committee of unsecured creditors will refrain from proposing a plan of reorganization through Aug. 1.

The term sheet also secures the parties' consent to a plan to be proposed by the debtors, MSR Hotels & Resorts and CNL-B, acting under CNL Recovery's control, as long as it is a qualified or auction plan.

111 Debt said any qualifying or auction plan would involve one or more major decisions. As a result, 111 Debt said the plan could not be proposed without its consent.

The plaintiff said it has tried to resolve differences with CNL Recovery on the elements of a qualifying plan since June 1, but the defendant has excluded 111 Debt from recent plan discussions.

In addition, 111 Debt said CNL Recovery has refused to provide it with information that it is entitled to review and analyze.

"[CNL Recovery] has, in effect, hijacked the process of deliberating over and devising a proposed plan of reorganization, and in consequence 111 Debt cannot and has not consented to any such plan," the plaintiff said in the lawsuit.

Rulings sought

Through its lawsuit, 111 Debt is asking the court to rule that:

• 111 Debt has enforceable voting rights under the operating agreement;

• Any proposed plan involving major decisions must be provided to 111 Debt for review, comment and approval;

• No information can be withheld from 111 Debt by the debtors or their counsel on the grounds of attorney-client privilege, attorney work product or any other basis; and

• CNL Recovery must trigger a buy/sell provision of the operating agreement to resolve a deadlock if 111 Debt refuses to consent to a plan that CNL Recovery wants to propose.

MSR Resort owns and operates five resorts. The New York-based company filed for bankruptcy on Feb. 1, 2011. The Chapter 11 case number is 11-10372.

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