) In re: ) Chapter 11 ) MSR RESORT GOLF COURSE LLC, et al., 1 ) Case No (SHL) ) Debtors. ) (Joint Administration Requested) )

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1 James H.M. Sprayregen, P.C. Paul M. Basta Edward O. Sassower Chad J. Husnick KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) Proposed Counsel to the Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) MSR RESORT GOLF COURSE LLC, et al., 1 ) Case No (SHL) ) Debtors. ) (Joint Administration Requested) ) MOTION OF MSR RESORT GOLF COURSE LLC, ET AL., FOR THE ENTRY OF AN ORDER AUTHORIZING THE DEBTORS TO HONOR CERTAIN PREPETITION OBLIGATIONS TO CUSTOMERS AND OTHERWISE CONTINUE CERTAIN CUSTOMER PROGRAMS AND PRACTICES IN THE ORDINARY COURSE OF BUSINESS 1 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number include: MSR Resort Golf Course LLC (7388); MSR Biltmore Resort, LP (5736); MSR Claremont Resort, LP (5787); MSR Desert Resort, LP (5850); MSR Grand Wailea Resort, LP (5708); MSR Resort Ancillary Tenant, LLC (9698); MSR Resort Biltmore Real Estate, Inc. (8464); MSR Resort Desert Real Estate, Inc. (9265); MSR Resort Hotel, LP (5558); MSR Resort Intermediate Mezz GP, LLC (3864); MSR Resort Intermediate Mezz LLC (7342); MSR Resort Intermediate Mezz, LP (3865); MSR Resort Intermediate MREP, LLC (9703); MSR Resort Lodging Tenant, LLC (9699); MSR Resort REP, LLC (9708); MSR Resort Senior Mezz GP, LLC (9969); MSR Resort Senior Mezz LLC (7348); MSR Resort Senior Mezz, LP (9971); MSR Resort Senior MREP, LLC (9707); MSR Resort Silver Properties, LP (5674); MSR Resort SPE GP II LLC (5611); MSR Resort SPE GP LLC (7349); MSR Resort Sub Intermediate Mezz GP, LLC (1186); MSR Resort Sub Intermediate Mezz LLC (7341); MSR Resort Sub Intermediate Mezz, LP (1187); MSR Resort Sub Intermediate MREP, LLC (9701); MSR Resort Sub Senior Mezz GP, LLC (9966); MSR Resort Sub Senior Mezz LLC (7347); MSR Resort Sub Senior Mezz, LP (9968); and MSR Resort Sub Senior MREP, LLC (9705). The location of the debtors service address is: c/o CNL-AB LLC, 1251 Avenue of the Americas, New York, New York K&E

2 The above-captioned debtors and debtors in possession (collectively, the Debtors ) file this motion (this Motion ) for the entry of an order, substantially in the form attached hereto as Exhibit A, (a) authorizing the Debtors to honor certain prepetition obligations and otherwise continue certain customer programs and practices in the ordinary course of business and (b) granting such other relief as is just and proper. In support of this Motion, the Debtors respectfully state as follows. 2 Jurisdiction 1. The United States Bankruptcy Court for the Southern District of New York (the Court ) has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 2. Venue is proper pursuant to 28 U.S.C and The statutory bases for the relief requested herein are sections 105(a), 363(b), and 507(a)(7) of title 11 of the United States Code (the Bankruptcy Code ) and Rule 6003 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). Relief Requested 4. By this Motion, the Debtors seek the entry of an order (a) authorizing, but not directing, the Debtors to continue to honor certain prepetition obligations to customers in the ordinary course of business and (b) granting such other relief as is just and proper. 2 The facts and circumstances supporting this Motion are set forth in the Declaration of Daniel Kamensky of MSR Resort Golf Course LLC (A) In Support of Debtors Chapter 11 Petitions and First Day Motions and (B) Pursuant to Local Rule (the First Day Declaration ), filed contemporaneously herewith. 2

3 Background 5. On the date hereof (the Petition Date ), MSR Resort Golf Course LLC and 29 of its affiliates each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to operate their business and manage their property as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. Concurrently herewith, the Debtors filed a motion seeking joint administration of these chapter 11 cases pursuant to Bankruptcy Rule 1015(b). 6. The Debtors invest in and own five luxury hotel and resort properties, specifically (a) the Grand Wailea Resort Hotel & Spa ( Grand Wailea ) in Wailea, Hawaii, (b) the La Quinta Resort & Club PGA West ( La Quinta ) in La Quinta, California, (c) the Arizona Biltmore Resort & Spa ( Arizona Biltmore ) in Phoenix, Arizona, (d) the Doral Golf Resort & Spa ( Doral ) in Miami, Florida, and (e) the Claremont Resort & Spa ( Claremont ) in Berkeley, California (collectively, the Resorts ). The Resorts are managed by third-party managers (the Resort Managers ) and operate as independent Resorts. The Debtors business is managed by Pyramid Resort Asset Management LLC (the Asset Manager ). 7. The Resorts employees are provided by the Resort Managers and most of the Debtors corporate functions are provided by the Asset Manager. Consequently, the Debtors do not have any employees. 8. As of November 30, 2010, the Debtors financial statements reflect consolidated assets totaling approximately $2.2 billion and consolidated liabilities totaling approximately $1.9 billion. Consolidated revenues for the three months ending December 31, 2010, were approximately $121 million. Consolidated 2010 annual revenues were approximately $465 million. Additional information regarding the Debtors business, their capital structure, 3

4 and the circumstances leading to these chapter 11 filings is contained in the First Day Declaration, filed contemporaneously herewith. The Debtors Customer Programs 9. Maintaining strong relationships with customers is essential to the success of the Debtors business. To preserve customer goodwill and effectively operate in a competitive industry, the Debtors offer certain customer programs described herein (collectively, the Customer Programs ). 3 The commencement of these chapter 11 cases inevitably exacerbates the competitive challenges faced by the Debtors. Accordingly, the Debtors seek the relief requested herein to ease any anxieties that customers may have that these chapter 11 cases will interfere with the Debtors ability to fully meet customer needs and expectations. 10. In general, the Customer Programs fall into the following categories, which include, but are not limited to: (a) Membership Programs, (b) Amenity Access Programs, (c) Reward Programs, (d) Customer Deposits, (e) Gift Cards, (f) Rental Pool Arrangements, and (g) Barter Arrangements (each as defined herein). 4 3 This Motion provides an overview of the Debtors most significant Customer Programs. The relief requested herein is applicable with respect to all Customer Programs and is not limited to those Customer Programs discussed in this Motion. To the extent that there are any outstanding prepetition obligations related to Customer Programs not discussed herein, the Debtors, out of an abundance of caution, seek authority to honor such obligations. 4 The Debtors also engage in various Customer Programs for which the Debtors believe there are no outstanding prepetition obligations; however, the continuation of such programs may be critical to maintaining certain aspects of the Debtors revenue. For example, under programs with third-party wholesale travel agencies, the Debtors agree to honor certain room rates at certain times for stays at the Resorts. Likewise, under programs with third-party homebuilders, the Debtors agree to honor certain rates for enrollment in the Membership Programs. Although the Debtors do not believe there are any outstanding obligations in connection with these programs, the Debtors, out of an abundance of caution, request authority to continue to honor obligations related to these programs in the ordinary course of business. 4

5 I. The Membership Programs. 11. The Debtors, in the ordinary course of business, offer various membership programs (collectively, the Membership Programs ) that generally allow members, in exchange for payment of monthly or annual dues, to enjoy access to each respective Resort s amenities, access to golf courses, preferred room rates, and discounts on spa services, dining, or retail purchases. 12. The Membership Program at Grand Wailea allows members, upon payment of an initial fee (which may be refundable or nonrefundable based on membership level) and annual dues, to enjoy, among other things, access to the resort s amenities, preferred room rates, special member-only promotions, and discounts on spa services, dining, and retail purchases. Currently, annual dues total approximately $2.0 million from approximately 11,870 members. The Debtors obligations for the Membership Program at Grand Wailea total approximately $19.8 million ($18.2 million in refundable member payments and $1.6 million in unredeemed resort credits). 13. The Membership Program at La Quinta allows members, upon payment of monthly dues according to membership level, to enjoy, among other things: (a) access to the resort s golf courses, tennis courts, swimming pools, and fitness facilities; (b) preferred room rates; and (c) discounts on spa services, dining, and retail purchases. Currently, annual dues total approximately $20.9 million from approximately 2,300 members. The Debtors obligations for the Membership Program at La Quinta relate solely to refundable member payments and total approximately $196 million. 14. The Membership Program at Arizona Biltmore allows members, upon payment of monthly dues, to enjoy, among other things, access to the resort s tennis courts and fitness facilities and discounts on spa services, dining, and retail purchases. Currently, annual dues total 5

6 approximately $314,000 from approximately 140 members. Members may only receive goods and services, not a cash refund, in connection with the Membership Program at Arizona Biltmore. 15. The Membership Program at Doral allows members, upon payment of monthly dues, to enjoy, among other things, access to the resort s golf courses, tennis courts, swimming pools, fitness facilities, and spa, as well as preferred pricing on accommodations. Currently, annual dues total approximately $3.6 million from approximately 750 members. The Debtors obligations for the Membership Program at Doral relate solely to refundable member payments and total approximately $10.2 million. 16. Lastly, the Membership Program at Claremont allows members, upon payment of monthly dues, to enjoy, among other things, access to the resort s tennis courts, swimming pools, fitness facilities, and spa, as well as preferred pricing on accommodations. Currently, annual dues total approximately $6.8 million from approximately 1,460 members. The Debtors obligations for the Membership Program at Claremont relate solely to refundable member payments and total approximately $10.6 million. 17. The Debtors aggregate obligations for the Membership Programs total approximately $236.6 million. The Membership Programs are a key component of the Debtors business and provide a vital and steady source of the Debtors revenue. Accordingly, the Debtors request authority to honor obligations related to the Membership Programs in the ordinary course of business. II. The Amenity Access Programs. 18. In addition to the Membership Programs, the Debtors, in the ordinary course of business, offer several amenity access programs (collectively, the Amenity Access Programs ) through which residents or guests of nearby condominiums or timeshare units may enjoy access 6

7 to a Resort s amenities in exchange for a fee. For example, residents and guests of certain units in the Ho oeli condominium building, which neighbors Grand Wailea, have access to Grand Wailea s swimming pools, fitness facilities, and spa. The Debtors estimate that for the calendar year ending December 31, 2010, the Debtors can attribute approximately $871,000 in revenue to Grand Wailea Amenity Access Programs. Similarly, guests at the Marriot Vacation Club villas, which neighbor Doral, have access to Doral s golf courses, recreation areas, spa, and restaurants. The Debtors estimate that for the calendar year ending December 31, 2010, the Debtors can attribute approximately $365,000 in revenue to Doral Amenity Access Programs. 19. The Debtors estimate that, as of the Petition Date, the aggregate outstanding obligations for the Amenity Access Programs total approximately $1.2 million. Like the Membership Programs, the Amenity Access Programs are an essential element of the Debtors business and a substantial source of revenue. Accordingly, the Debtors request authority to honor obligations related to the Amenity Access Programs in the ordinary course of business. III. Reward Programs. 20. In the ordinary course of business, the Debtors, through arrangements with certain Resort Managers, participate in various reward programs (collectively, the Reward Programs ) aimed at increasing customer loyalty and patronage and maintaining market competitiveness. Generally, customers earn points under the Reward Programs by staying at participating Resorts, using the services of travel partners, making qualified purchases on participating credit cards or at participating retailers, and various other ways. The Debtors honor points accumulated under the Reward Programs, and customers may redeem points toward stays at the respective Resorts. For instance, Hilton HHonors points are redeemable toward stays at Grand Wailea, La Quinta, and Arizona Biltmore, whereas Marriott Rewards points are redeemable toward stays at Doral. 7

8 21. When a customer redeems points for a stay at one of the Resorts, the Debtors receive payment, based on a certain percentage of the room rate, from the respective Resort Manager or an affiliate of the Resort Manager. The Debtors estimate the following approximate redemption revenue amounts for the calendar year ending December 31, 2010: Resort Grand Wailea Redemption Revenue Associated with Reward Programs $5.3 million La Quinta $61,000 Arizona Biltmore $71,000 Doral $183, Because hotels throughout the country offer programs similar to the Debtors Reward Programs, customers expect the Debtors to participate in such programs. Any inability of the Debtors to promptly honor points earned through the Rewards Programs likely would result in a rapid erosion of goodwill and an immediate loss of customers. Although the Debtors do not believe there are outstanding prepetition obligations with respect to the Rewards Programs, the Debtors consider their ability to participate in, and honor obligations related to, the Rewards Programs essential to the successful reorganization of their business. Accordingly, out of an abundance of caution, the Debtors request authority to continue the Rewards Programs in the ordinary course of business. IV. Customer Deposits. 23. In the ordinary course of business, the Debtors collect a security deposit or an advance deposit (collectively, the Deposits ) when a customer reserves a block of rooms or an event space at one of the Resorts. The Debtors collect a Deposit when a customer checks into a 8

9 Resort, or for larger events, prior to check-in. At check-out, the Resort refunds the Deposit amount, less any outstanding charges or damage charges, to the customer. 24. The Debtors estimate that, as of January 12, 2011, they held the following Deposits: Resort Grand Wailea La Quinta Arizona Biltmore Doral Approximate Estimated Deposits Held as of January 12, 2011 $12.7 million $2.6 million $3.7 million $1.1 million Claremont $354, The Deposits are an integral part of the Debtors business, as well as standard in the hotel industry. At any given time, the Debtors will have processed a substantial number of Deposits. Undoubtedly, certain of the Resorts customers will have begun their stays before the Petition Date but anticipate checking out postpetition. Other customers may have made a Deposit with respect to a future event, such as a convention or trade show. For any such guests, the Deposit would represent a prepetition claim. In order to preserve the reputations and revenues of the Resorts, and to make the chapter 11 transition as seamless as possible, the Debtors request authority to continue processing the refundable Deposits to Resort customers, in the ordinary course of business. V. Gift Cards. 26. In the ordinary course of their business, the Debtors sell pre-paid gift cards, and in certain instances, paper gift certificates (collectively, the Gift Cards ), to customers in various amounts, which are redeemable at the Debtors respective Resorts. In addition, on a 9

10 discretionary basis, the Arizona Biltmore may provide Gift Cards to customers in connection with the resolution of customer service issues. 27. As of the Petition Date, because some Gift Cards sold prepetition have not yet been redeemed, obligations on account of the Gift Cards remained outstanding. The Debtors estimate that, as of January 12, 2011, the face value of outstanding Gift Cards was approximately: Resort Approximate Outstanding Gift Cards as of January 12, 2011 Grand Wailea $475,000 La Quinta $1.3 million Arizona Biltmore $451,000 Doral $472,000 Claremont $6.5 million 28. Generally, customers may only redeem the Gift Cards for goods or services, not for a cash refund (unless required by state law). At La Quinta, however, customers may redeem Gift Cards for a cash refund. 29. At Grand Wailea and Doral, the Debtors use the services of third-party processors to process the Gift Cards. Gift Cards purchased at the remaining Resorts are processed in-house. Shift4 Corporation processes Gift Cards purchased at Grand Wailea. Payment Tech processes Gift Cards purchased at Doral. The Debtors believe that there are no outstanding prepetition fees owed to either Shift4 Corporation or Payment Tech in connection with their processing services. 5 5 Although they do not believe there are any outstanding amounts owed to either Shift4 Corporation or Payment Tech, the Debtors, out of an abundance of caution, request authority to pay any outstanding amounts due the processors that they become aware of in the ordinary course of business. 10

11 30. Because the Gift Cards do not have an expiration date, when customers purchased Gift Cards prior to the Petition Date, they expected and continue to expect that the Debtors would and will honor such Gift Cards. Moreover, when customers redeem a Gift Card, they often purchase goods and services in excess of the face amount of the Gift Card, therefore further contributing to the Debtors revenue. If the Debtors were unable to honor Gift Cards, there would be a negative impact on sales at the Resorts and customer relations. The Debtors believe that their ability to honor Gift Cards at the Resorts is critical to maintaining customer satisfaction and confidence. Accordingly, the Debtors request the authority to honor Gift Cards in the ordinary course of business. VI. Rental Pool Arrangements. 31. Prior to the Petition Date, the Debtors entered into certain rental pool arrangements (collectively, the Rental Pool Arrangements ) with various condominium and villa owners (the Unit Owners ) pursuant to which the condominium or villa units are booked through certain of the Resorts respective reservations systems and, like the Resorts, are managed by the respective Resort Manager. Generally, pursuant to the Rental Pool Arrangements, the Debtors receive payment in the full amount of the rental rate for the unit and, after deducting a management fee in some cases, provide payment to the Unit Owners under a 50/50 profit sharing agreement. Approximately 64 units in the Ho oeli condominium building, which neighbors Grand Wailea, are governed by a Rental Pool Arrangement. The Debtors have similar arrangements at La Quinta (where 182 villas are governed by a Rental Pool Arrangement) and Arizona Biltmore (where 132 villas are governed by a Rental Pool Arrangement). 32. The Rental Pool Arrangements are necessary to enhance the value of the Debtors estates. For the calendar year ending December 31, 2010, the Debtors associate approximately 11

12 $21.2 million in gross revenue (before profit sharing or management fees) with the Rental Pool Arrangements. Accordingly, the Debtors request authority to continue honoring obligations related to the Rental Pool Arrangements in the ordinary course of business. VII. Barter Arrangements. 33. Prior to the Petition Date, the Debtors entered into certain barter arrangements (collectively, the Barter Arrangements ) with various third-party organizations pursuant to which the Debtors grant the organizations a certain dollar amount of credits toward stays in the respective Resorts in exchange for advertising. 34. As of December 31, 2010, approximately $170,000 in unredeemed credits remained outstanding in connection with the Barter Arrangements. The Debtors believe the Barter Arrangements are a critical and low-cost way to increase advertising exposure for the Resorts, promote customer goodwill, and expand sales. Accordingly, the Debtors request the authority to honor their existing Barter Agreements in the ordinary course of business. Basis for Relief I. Ample Authority Exists To Continue To Honor the Customer Programs in the Ordinary Course of Business. 35. Courts have authorized payment of prepetition obligations under section 363(b) of the Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (finding that a sound business justification existed to justify payment of certain claims); see also Armstrong World Indus., Inc. v. James A. Phillips, Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 397 (S.D.N.Y. 1983) (relying on section 363 of the Bankruptcy Code to allow contractor to pay prepetition claims); In re Tropical Sportswear Int l Corp., 320 B.R. 15, 20 (Bankr. M.D. Fla. 2005) ( Bankruptcy 12

13 courts recognize that section 363 is a source for authority to make critical vendor payments, and section 105 is used to fill in the blanks. ). 36. In addition, the Court may authorize payment of prepetition claims in appropriate circumstances based on section 105(a) of the Bankruptcy Code. Section 105(a), which codifies the inherent equitable powers of the bankruptcy court, empowers a bankruptcy court to issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). Under section 105(a), courts may authorize the payment of pre-petition claims if such payment was essential to the continued operation of the debtor. In re Just for Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999). Specifically, the Court may use its power under section 105(a) to authorize payment of prepetition obligations pursuant to the necessity of payment rule (also referred to as the doctrine of necessity ). See Ionosphere, 98 B.R. at (stating that a bankruptcy court s use of its equitable powers to authorize the payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept ) (citing Miltenberger v. Logansport, C. & S.W. Ry. Co., 106 U.S. 286 (1882)). 37. The doctrine of necessity or the necessity of payment rule has long been recognized as precedent within the Second Circuit. See id. Today, the rationale for the necessity of payment rule the rehabilitation of a debtor s reorganization cases is the paramount policy and goal of Chapter 11. Id.; see also Just For Feet, 242 B.R. at 826 (Bankr. D. Del. 1999) (finding that payment of prepetition claims to certain trade vendors was essential to the survival of the debtor during the chapter 11 reorganization ); Mich. Bureau of Workers Disability Comp. v. Chateaugay Corp. (In re Chateaugay Corp.), 80 B.R. 279, 287 (S.D.N.Y. 1987) (authorizing payment of prepetition workers compensation claims on grounds that the fundamental purpose of reorganization and equity powers of bankruptcy courts is to create a flexible mechanism that 13

14 will permit the greatest likelihood of survival of the debtor and payment of creditors in full or at least proportionately ); 2 COLLIER ON BANKRUPTCY, [4][a] (16th ed. rev. 2009) (discussing cases in which courts have relied on the doctrine of necessity or the necessity of payment rule to pay prepetition claims immediately). 38. This flexible approach is particularly critical where prepetition creditors here, the customers are vital to the survival of a debtor s business. In In re Structurlite Plastics Corp., the bankruptcy court stated that a bankruptcy court may exercise its equity powers under 105(a) [of the Bankruptcy Code] to authorize payment of prepetition claims where such payment is necessary to permit the greatest likelihood of survival of the debtors and payment of creditors in full or at least proportionately. 86 B.R. 922, 931 (Bankr. S.D. Ohio 1988). The court explained that a per se rule proscribing the payment of prepetition indebtedness may well be too inflexible to permit the effectuation of the rehabilitative purposes of the [Bankruptcy] Code. Id. at Authorizing the Debtors to honor prepetition commitments under their Customer Programs will allow the Debtors operations to continue without interruption during the pendency of these chapter 11 cases. While the Debtors estates and their creditors will not be harmed by the Debtors continued ability to honor the Customer Programs, the Debtors failure to honor such obligations could lead to the loss of customer satisfaction, resulting in reduced future bookings and consequent harm to the Debtors business and revenues. See In re Coserv, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002) (noting that instances where the debtor in possession can only fulfill its fiduciary duty by preplan satisfaction prepetition... claims of... customers which, if not honored, could so harm the debtor s good will as to destroy its going concern value and recognizing that [r]ental deposits and other claims that arise prepetition but 14

15 come due post petition may require payment to avoid sanctions under state law as well as loss of good will ); see also In re Equalnet Commc ns Corp., 258 B.R. 368, (Bankr. S.D. Tex. 2000) (recognizing that retail cases involve business transactions which are at once individually minute but collectively immense and critical to the survival of the business... [and] failure to allow payment of [prepetition obligations like coupons and credits] would be devastating to a proposed reorganization in the context of a retail market and stating that such a failure to pay and its consequent loss of customer base would impair value of the business on either a going concern or liquidation basis ). 40. In addition, section 363(c) of the Bankruptcy Code authorizes a debtor in possession operating its business pursuant to section 1108 of the Bankruptcy Code to use property of the estate in the ordinary course of business without notice or a hearing. Consequently, the continuation, renewal, replacement, initiation, and/or termination of their Customer Programs, in the ordinary course of business, is permitted by sections 363(c), 1107(a), and 1108 of the Bankruptcy Code, without further application to the Court. Out of an abundance of caution, however, the Debtors request the relief described herein. 41. Courts in this jurisdiction and others consistently have granted similar relief where retaining the loyalty and patronage of customers is critical to a successful reorganization. See, e.g., In re Great Atl. & Pac. Tea Co., Case No (RDD) (Bankr. S.D.N.Y. Jan. 12, 2011); In re Blockbuster Inc., Case No (BRL) (Bankr. S.D.N.Y. Sept. 23, 2010); In re Innkeepers USA Trust, Case No (SCC) (Bankr. S.D.N.Y. July 20, 2010); In re Neff Corp., Case No (SCC) (Bankr. S.D.N.Y. June 9, 2010); In re Citadel Broad. Corp., Case No (BRL) (Bankr. S.D.N.Y. Dec. 21, 2009); In re Reader s Digest Ass n, Inc., Case No (RDD) (Bankr. S.D.N.Y. Sept. 17, 2009); In re Lear Corp., Case 15

16 No (ALG) (Bankr. S.D.N.Y. July 31, 2009); In re Gen. Motors Corp., Case No (REG) (Bankr. S.D.N.Y. June 1, 2009) The Debtors respectfully submit that similar relief is warranted in these chapter 11 cases. The Debtors ability to reorganize and implement their restructuring is dependent upon the continued relationship with their customers. Hence, the Debtors have sought the relief requested herein to assure their customers that the Debtors reorganization will cause minimal, if any, disruption to the Debtors operations. II. The Customer Deposits Are Entitled to Priority Treatment. 43. Pursuant to section 507(a)(7) of the Bankruptcy Code, the Customer Deposits are entitled to priority treatment for up to $2,600 for each individual who seeks a Customer Deposit claim, arising from the deposit... of money in connection with the... rental of property... for the personal, family, or household use of such individuals, that were not delivered or provided. 11 U.S.C. 507(a)(7). As stated herein, the Debtors customers provide Customer Deposits to secure their reservation for rentals of rooms and event spaces. Where customers are individuals, they may be entitled to a priority claim. To the extent such claims for Customer Deposits are afforded priority status, the Debtors would be required to pay these claims in full to confirm a chapter 11 plan of reorganization. See U.S.C. 1129(a)(9)(B) (requiring payment of allowed unsecured claims for certain deposits under section 507(a)(7)); see also In re Equalnet Commc ns Corp., 258 B.R. 368, 70 (Bankr. S.D. Tex. 2000) (recognizing that certain types of claims enjoy a priority status in addition to being sometimes critical to the ongoing nature of the business ). Thus, honoring obligations in connection with the Customer Deposits at this time 6 Because of the voluminous nature of the orders cited herein, they are not attached to the Motion. Copies of these orders are available on request of the Debtors proposed counsel. 16

17 reduces the number of priority claims against the Debtors and should not unduly prejudice the rights of other creditors. III. Cause Exists To Authorize the Debtors Financial Institutions To Honor Checks and Electronic Fund Transfers. 44. The Debtors have sufficient funds to pay the amounts described herein in the ordinary course of business by virtue of expected cash flows from ongoing business operations and anticipated access to cash collateral. Also, under the Debtors existing cash management system, the Debtors can readily identify checks or wire transfer requests as relating to an authorized payment in respect of the Customer Programs. Accordingly, the Debtors believe that checks or wire transfer requests, other than those relating to authorized payments, will not be honored inadvertently. Therefore, the Debtors respectfully request that the Court authorize all applicable financial institutions, when requested by the Debtors, to receive, process, honor, and pay any and all checks or wire transfer requests in respect of the relief requested herein. The Requirements of Bankruptcy Rule 6003 Are Satisfied 45. Bankruptcy Rule 6003 empowers a court to grant relief within the first 21 days after the Petition Date to the extent that relief is necessary to avoid immediate and irreparable harm. There is no question the Debtors failure to honor their Customer Programs likely would result in immediate and irreparable harm to both the Debtors and the Debtors customers. The Customer Programs are an integral part of the service and products provided by the Debtors to their customers. In addition, the Customer Programs are essential to the Debtors success in retaining customer satisfaction, sustaining goodwill, and ensuring that the Debtors remain competitive within the hotel industry. Restricting or canceling the Customer Programs could jeopardize customer relations and irreparably harm the Debtors reputation and ability to assure that customers continue to visit their Resorts. 17

18 Waiver of Bankruptcy Rule 6004(a) and 6004(h) 46. To implement the relief requested herein successfully, to the extent applicable, the Debtors seek a waiver of the notice requirements under Bankruptcy Rule 6004(a) and the 14-day stay of an order authoring the use, sale, or lease of property under Bankruptcy Rule 6004(h). Motion Practice 47. This Motion includes citations to the applicable rules and statutory authorities upon which the relief requested herein is predicated and a discussion of their application to this Motion. Accordingly, the Debtors submit that this Motion satisfies Rule (a) of the Local Bankruptcy Rules for the Southern District of New York (the Local Bankruptcy Rules ). The Debtors Reservation of Rights 48. Nothing contained herein is intended or should be construed as an admission of the validity of any claim against the Debtors, a waiver of the Debtors rights to dispute any claim, or an approval or assumption of any agreement, contract, or lease under section 365 of the Bankruptcy Code. The Debtors expressly reserve their right to contest any invoice or claim related to the relief requested herein in accordance with applicable non-bankruptcy law. Notice 49. The Debtors have provided notice of this Motion to: (a) the Office of the U.S. Trustee for the Southern District of New York; (b) the entities listed on the Consolidated List of Creditors Holding the 30 Largest Unsecured Claims; (c) the special servicer under the Debtors prepetition secured mortgage loan and holders of the Debtors prepetition mezzanine loans; and (d) any party that has requested notice pursuant to Bankruptcy Rule In light of the nature of the relief requested herein, the Debtors respectfully submit that no further notice is necessary. 18

19 No Prior Request 50. No prior request for the relief sought in this Motion has been made to this or any other court. [Remainder of Page Intentionally Left Blank] 19

20 WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto as Exhibit A, granting the relief requested herein and granting such other relief as is just and proper. New York, New York Dated: February 1, 2011 /s/ Paul M. Basta James H.M. Sprayregen, P.C. Paul M. Basta Edward O. Sassower Chad J. Husnick KIRKLAND & ELLIS LLP 601 Lexington Avenue New York, New York Telephone: (212) Facsimile: (212) Proposed Counsel to the Debtors and Debtors in Possession 20

21 EXHIBIT A Proposed Order

22 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) MSR RESORT GOLF COURSE LLC, et al., 1 ) Case No (SHL) ) Debtors. ) (Joint Administration Requested) ) ORDER AUTHORIZING THE DEBTORS TO HONOR CERTAIN PREPETITION OBLIGATIONS TO CUSTOMERS AND OTHERWISE CONTINUE CERTAIN CUSTOMER PROGRAMS AND PRACTICES IN THE ORDINARY COURSE OF BUSINESS 1 Upon the motion (the Motion ) 2 of the above-captioned debtors and debtors in possession (collectively, the Debtors ) for entry of an order (this Order ) authorizing the Debtors to honor certain prepetition obligations to customers and otherwise continue certain Customer Programs and practices in the ordinary course of business, all as more fully set forth in the Motion; and upon the First Day Declaration; and the Court having found that the Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; and the Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b)(2); and the Court having found that 1 The debtors in these chapter 11 cases, along with the last four digits of each debtor s federal tax identification number include: MSR Resort Golf Course LLC (7388); MSR Biltmore Resort, LP (5736); MSR Claremont Resort, LP (5787); MSR Desert Resort, LP (5850); MSR Grand Wailea Resort, LP (5708); MSR Resort Ancillary Tenant, LLC (9698); MSR Resort Biltmore Real Estate, Inc. (8464); MSR Resort Desert Real Estate, Inc. (9265); MSR Resort Hotel, LP (5558); MSR Resort Intermediate Mezz GP, LLC (3864); MSR Resort Intermediate Mezz LLC (7342); MSR Resort Intermediate Mezz, LP (3865); MSR Resort Intermediate MREP, LLC (9703); MSR Resort Lodging Tenant, LLC (9699); MSR Resort REP, LLC (9708); MSR Resort Senior Mezz GP, LLC (9969); MSR Resort Senior Mezz LLC (7348); MSR Resort Senior Mezz, LP (9971); MSR Resort Senior MREP, LLC (9707); MSR Resort Silver Properties, LP (5674); MSR Resort SPE GP II LLC (5611); MSR Resort SPE GP LLC (7349); MSR Resort Sub Intermediate Mezz GP, LLC (1186); MSR Resort Sub Intermediate Mezz LLC (7341); MSR Resort Sub Intermediate Mezz, LP (1187); MSR Resort Sub Intermediate MREP, LLC (9701); MSR Resort Sub Senior Mezz GP, LLC (9966); MSR Resort Sub Senior Mezz LLC (7347); MSR Resort Sub Senior Mezz, LP (9968); and MSR Resort Sub Senior MREP, LLC (9705). The location of the debtors service address is: c/o CNL-AB LLC, 1251 Avenue of the Americas, New York, New York All capitalized terms used but otherwise not defined herein shall have the meanings set forth in the Motion.

23 venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C and 1409; and the Court having found that the relief requested in the Motion is in the best interests of the Debtors estates, their creditors, and other parties in interest; and the Court having found that the Debtors provided appropriate notice of the Motion and the opportunity for a hearing on the Motion under the circumstances; and the Court having reviewed the Motion and having heard the statements in support of the relief requested therein at a hearing before the Court (the Hearing ); and the Court having determined that the legal and factual bases set forth in the Motion and at the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had before the Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is granted as set forth herein. 2. The Debtors are authorized, but not directed, to honor and perform the Customer Programs and any other obligation relating to the Debtors customary business practice, without regard to whether the Debtors Customer Programs arose before or after the Petition Date. 3. In accordance with this Order and any other order of this Court, each of the financial institutions at which the Debtors maintain their accounts relating to the payment of the obligations described in the Motion is directed to honor checks presented for payment of obligations described in the Motion and all fund transfer requests made by the Debtors related thereto to the extent that sufficient funds are on deposit in such amounts. 4. The Debtors are authorized to issue postpetition checks, or to effect postpetition fund transfer requests, in replacement of any checks or fund transfer requests in respect of the unsecured claims that are dishonored or rejected. 2

24 5. Notwithstanding the relief granted in this Order and any actions taken pursuant to such relief, nothing in this Order shall be deemed: (a) an admission as to the validity of any claim against a Debtor entity; (b) a waiver of the Debtors right to dispute any claim on any grounds; (c) a promise or requirement to pay any claim; (d) an implication or admission that any particular claim is of a type specified or defined in this Order or the Motion; (e) a request or authorization to assume any agreement, contract, or lease pursuant to section 365 of the Bankruptcy Code; or (f) a waiver of the Debtors rights under the Bankruptcy Code or any other applicable law. 6. Notwithstanding the relief granted in this Order, any payment made by the Debtors pursuant to the authority granted herein shall be subject to the orders authorizing the use of cash collateral. 7. The requirements set forth in Bankruptcy Rule 6003(b) are satisfied. 8. Notice of the Motion as provided therein shall be deemed good and sufficient notice as such motion and the requirements of Bankruptcy Rule 6004(a) and the Local Bankruptcy Rules are satisfied by such notice. 9. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Order shall be immediately effective and enforceable upon its entry. 10. All time periods set forth in this Order shall be calculated in accordance with Bankruptcy Rule 9006(a). 11. The Debtors are authorized to take all actions necessary to effectuate the relief granted pursuant to this Order in accordance with the Motion. 3

25 12. The Court retains exclusive jurisdiction with respect to all matters arising from or related to the implementation of this Order. Dated: New York, New York THE HONORABLE SEAN H. LANE UNITED STATES BANKRUPTCY JUDGE 4