MSR Resort lender Five Mile blasts plan, cites undisclosed liability

By Caroline Salls

Pittsburgh, Jan. 9 - MSR Resort Golf Course LLC lender Five Mile Capital Partners LLC objected to the company's proposed plan of reorganization, claiming "the plan suffers from numerous and insurmountable impediments," according to a Tuesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

Five Mile said the plan creates and then intentionally fails to pay a more than $331 million debt to the United States and unknown additional amounts to state taxing authorities and indemnities.

The lender said the MSR debtors "dropped this bombshell just two days before the hearing on their disclosure statement and after the gavel had fallen in the debtors' auction."

Despite having reached a stalking horse agreement in August under which the buyer would assume no tax liability and despite having offered disclosures in previous versions of the disclosure statement related to the plan that never confirmed or quantified any transactional tax exposure, Five Mile said MSR did not reveal a $314 million REIT liability and a $17 million non-REIT holding company liability until Dec. 11.

In addition, the lender said MSR did not proclaim until Dec. 11 that those debts would not be paid.

"Whether intentional or not, the massive unfunded liability created by the sale transaction, only disclosed at the 11th hour, precludes confirmation of the plan," Five Mile said in its objection.

"From the perspective of the REIT - a non-debtor - the plan will impose a massive tax liability upon it in exchange for no consideration and, by the debtors' own admission, will render the REIT insolvent."

At a minimum, Five Mile said the United States will have administrative claims against the debtors senior to those of the stalking horse bidder, the REIT will have administrative common law and contractual claims for its injury, the REIT's management will have administrative claims for indemnification of personal liability, and Five Mile will have the right to assert administrative fraudulent transfer claims on account of the REIT having been rendered insolvent for no consideration.

The lender said "the plan does not propose to pay or reserve for any of these claims."

A hearing is scheduled for Jan. 15.

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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