Case MFW Doc 621 Filed 03/22/16 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

Transcription

1 Case MFW Doc 621 Filed 03/22/16 Page 1 of 9 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE x In re: : Chapter 11 : SPORTS AUTHORITY HOLDINGS, INC., et al., 1 : Case No (MFW) : Debtors. : (Jointly Administered) : : Objection Deadline: March 22, 2016 at 4:00 p.m. (ET) : Hearing Date: March 29, 2016 at 1:00 p.m. (ET) : : Related to Docket No. 20 and x LIMITED OBJECTION OF CAROUSEL CENTER COMPANY, L.P., HOLYOKE MALL COMPANY, L.P., KRG PORTOFINO, LLC, KRG PORT ST. LUCIE LANDING, LLC, AND KRG FORT MYERS COLONIAL SQUARE, LLC TO DEBTORS MOTION FOR INTERIM AND FINAL ORDERS (I) AUTHORIZING DEBTORS TO OBTAIN POST-PETITION SECURED FINANCING PURSUANT TO 11 U.S.C. 105, 362, 363, AND 364; (II) GRANTING LIENS AND SUPERPRIORITY CLAIMS TO POST-PETITION LENDERS PURSUANT TO 11 U.S.C. 364 AND 507; (III) AUTHORIZING THE USE OF CASH COLLATERAL AND PROVIDING ADEQUATE PROTECTION TO PREPETITION SECURED PARTIES AND MODIFYING THE AUTOMATIC STAY PURSUANT TO 11 U.S.C. 361, 362, 363, AND 364; AND (IV) SCHEDULING A FINAL HEARING PURSUANT TO BANKRUPTCY RULES 4001(B) AND (C) AND LOCAL RULE Carousel Center Company, L.P., Holyoke Mall Company, L.P., KRG Portofino, LLC, KRG Port St. Lucie Landing, LLC, and KRG Fort Myers Colonial Square, LLC (collectively, the Landlords ), by and through their attorneys, respectfully submit this limited objection (the Objection ) to the Debtors Motion for Interim and Final Orders (I) Authorizing Debtors to Obtain Post-Petition Secured Financing Pursuant to 11 U.S.C. 105, 362, 363, and 364; (II) Granting Liens and Superpriority Claims to Post-Petition Lenders Pursuant to 11 U.S.C. 361, 362, 363, and 364; and (IV) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Sports Authority Holdings, Inc. (9008); Slap Shot Holdings, Corp. (8209); The Sports Authority, Inc. (2802); TSA Stores, Inc. (1120); TSA Gift Card, Inc. (1918); TSA Ponce, Inc. (4817); and TSA Caribe, Inc. (5664). The headquarters for the above-captioned Debtors is located at 1050 West Hampden Avenue, Englewood, Colorado

2 Case MFW Doc 621 Filed 03/22/16 Page 2 of 9 and (c) and Local Rule (the DIP Motion ) [Docket No. 20] 2. In support of this Objection, the Landlords respectfully state as follows: PRELIMINARY STATEMENT 1. Through the DIP Motion, the Debtors seek to obtain post-petition financing in order to operate outside of the ordinary course of business by selling their assets including store leases and conducting various store closing sales. In exchange for this post-petition financing, the Debtors and DIP Agent have apparently agreed to the Approved Budget, which, upon information and belief, does not provide for the payment of Stub Rent (defined below) owed to the Landlords for use of their property from March 2, 2016 through March 31, 2016 and does not clearly provide for the payment of any rent. Despite failing to provide for the payment of Stub Rent in the Approved Budget, the Debtors seek to waive their protections set forth in sections 506(c) and 552(b) of the Bankruptcy Code. These provisions were enacted to prevent secured creditors from forcing unsecured creditors to pay for the liquidation of the secured creditors collateral. 2. The Debtors should be required to pay Stub Rent under its Leases (defined below) with the Landlords. The Court should not allow the Debtors to conduct their businesses outside of the ordinary course of business, market the Leases, and conduct store closing sales which are highly disruptive to the Landlords shopping centers, for the direct benefit of the DIP Lenders, without also ensuring that the Debtors timely pay Stub Rent. Anything less than full and immediate payment of all Stub Rent due and owing deprives the Landlords of their adequate protection rights and is unfair to the Landlords, who are essentially being forced to fund the Debtors operations including the store closing sales. The Landlords oppose any order or budget 2 Capitalized terms that are otherwise undefined shall have the meanings given to such terms in the DIP Motion. 2

3 Case MFW Doc 621 Filed 03/22/16 Page 3 of 9 which includes section 506(c) and 552(b) waivers and does not expressly permit the immediate payment of Stub Rent and the timely payment of all ongoing rent to the Landlords. 3. Additionally, the Landlords seek certain limits to the DIP Agent and DIP Lenders liens and remedies. These limits were provided for in the Interim DIP Order, and should be provided for in any further or final order as well. JURISDICTION 4. The United States Bankruptcy Court for the District of Delaware (the Court ) has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). BACKGROUND 5. On March 2, 2016, each of the above-captioned debtors (the Debtors ) filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the Court. 6. Upon information and belief, the Debtors are operating their businesses as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 7. The Landlords and one of the Debtors are parties to unexpired leases of nonresidential real property (the Leases ) of premises (collectively, the Premises ) as follows: Landlord Shopping Center Location Store No. Carousel Center Company, L.P. Destiny USA Syracuse, NY 498 Holyoke Mall Company, L.P. Holyoke Mall Holyoke, MA 178 KRG Portofino, LLC Portofino Shopping Center Shenandoah, TX 231 KRG Port St. Lucie Landing, LLC The Landings at Tradition Port St. Lucie, FL 376 KRG Fort Myers Colonial Square, LLC Colonial Square Fort Myers, FL The Premises are located within shopping centers as that term is used in 365(b)(3) of the Bankruptcy Code. See In re Joshua Slocum, Ltd., 922 F.2d 1081, (3d Cir. 1990). 3

4 Case MFW Doc 621 Filed 03/22/16 Page 4 of 9 9. On March 2, 2016, the Debtors filed the DIP Motion. 10. On March 3, 2016, the Court entered the Interim Order (I) Authorizing Debtors to Obtain Post-Petition Secured Financing Pursuant to 11 U.S.C. 105, 362, 363, and 364; (II) Granting Liens and Superpriority Claims to Post-Petition Lenders Pursuant to 11 U.S.C. 361, 362, 363, and 364; and (IV) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c) and Local Rule (the Interim DIP Order ) [Docket No. 157]. 11. A final hearing on the DIP Motion is scheduled for March 29, 2016 at 1:00 p.m. 12. The Debtors have failed to pay rent for the period of March 2, 2016 through March 31, 2016 ( Stub Rent ) to any of the Landlords for use and occupancy of the Premises. LIMITED OBJECTION A. The Court Should Order the Debtors to Pay Stub Rent Immediately 13. Section 503(b)(1) of the Bankruptcy Code provides for an allowed administrative expense for the actual and necessary costs and expenses of preserving the estate. 11 U.S.C. 503(b)(1). The Landlords claims for Stub Rent constitute administrative expenses owed by the Debtors. See In re Goody s Family Clothing Inc., 610 F.3d 812, 818 (3d Cir. 2010). 14. The Court has discretion to determine when an administrative expense will be paid. In re Garden Ridge Corp., 323 B.R. 136 (Bankr. D. Del. 2005). In determining the timing for payment of an administrative expense, the Court will consider (1) prejudice to the Debtor, (2) hardship to the claimant, and (3) the potential detriment to other creditors. Id. This Court has held that an administrative claim under 503(b) need not be paid immediately but can be paid as late as the confirmation date. In re DVI, Inc., 308 B.R. 703, 708 (Bankr. D. Del. 2004); see also In re HQ Global Holdings, Inc., 282 B.R. 169, (Bankr. D. Del. 2002) (holding that any decision on the amount and payment of stub rent must await the debtors decision on whether to 4

5 Case MFW Doc 621 Filed 03/22/16 Page 5 of 9 assume or reject the leases). However, the facts here are readily distinguishable. In the DVI case, the debtor ceased operations at the leased location less than forty-five (45) days after the filing for bankruptcy protection. The debtor filed a bankruptcy petition on August 25, 2003, and filed a motion to reject the lease on September 10, The Court subsequently granted the motion effective September 30, In the HQ case, numerous landlords brought motions for immediate payment of stub rent. The debtors objected, and argued that the motions to compel stub rent filed by the landlords would be rendered moot after the debtors decided whether to assume or reject the leases. Here, the Debtors seek to provide waivers of their rights under sections 506(c) and 552(b) to the DIP Lenders, seek to conduct store closing sales at the Landlords Premises, market the Leases, and want to compel the Landlords to subsidize and involuntarily finance those store closing sales. These store closing sales may continue until June 30, Upon information and belief, the Approved Budget does not provide for the payment of Stub Rent (and does not clearly provide for the payment of ongoing rent). 3 The Debtors will receive a significant cash infusion from the store closing sales, while seeking to defer their obligation to pay Stub Rent for a period which covers approximately 23% of the time that the store closing sales are ongoing at the Premises. It is inequitable to allow the Debtors to use the Premises in a manner outside of the ordinary course of business, reaping an actual and necessary benefit to the estates, while not paying Stub Rent. The Landlords respectfully request that the Court, in an exercise of its discretion, order the Debtors to immediately pay all Stub Rent due and owing to the Landlords as a condition to granting the DIP Motion. In the alternative, the Court should at a minimum direct the Debtors to immediately pay all Stub Rent due under the Leases of stores where store closing sales are conducted. 3 The budget attached to the DIP Motion and Interim DIP Order includes categories of various disbursements but none are denominated as rent. 5

6 Case MFW Doc 621 Filed 03/22/16 Page 6 of Further, the Landlords are entitled to prompt payment of the Stub Rent as adequate protection of their interests in the Leases. A landlord s right to adequate protection seems to follow clearly from the language of 363(e) of the Bankruptcy Code. In re P.J. Clarke s Rest. Corp., 265 B.R. 392, 404 (Bankr. S.D.N.Y. 2001). Adequate protection may be provided: 11 U.S.C. 363(e). on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. 16. The Landlords are entitled to adequate protection of their interest in the Leases, and respectfully request that the Court prohibit use of the Premises subject to the Leases, or condition their use upon satisfaction of the Landlords administrative expense claims for Stub Rent. B. The Court Should Not Allow 506(c) or 552(b) Waivers Unless Stub Rent is Paid Immediately 17. Section 506(c) of the Bankruptcy Code allows a debtor to recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim. 11 U.S.C. 506(c). Section 506(c) ensures that the costs associated with the liquidation of a secured lender s collateral are not paid from unsecured recoveries. See Precision Steel Shearing, Inc. v. Fremont Financial Corp. (In re Visual Industries, Inc.), 57 F.3d 321, 325 (3d. Cir. 1995) ( 506(c) is designed to prevent a windfall to the secured creditor at the expense of the claimant. ). Section 552(b) of the Bankruptcy Code, allows a debtor, or other party-in-interest, 6

7 Case MFW Doc 621 Filed 03/22/16 Page 7 of 9 to exclude post-petition proceeds from prepetition collateral depending upon the equities of the case and is often referred to as the equities of the case exception. 18. Here, the Debtors seek waivers of their rights under both sections 506(c) and 552(b) through the DIP Motion. See DIP Motion, 44, 45, 73, 74. Further, the Interim DIP Order provides for sections 506(c) and 552(b) waivers. See Interim DIP Order, Upon information and belief, the Approved Budget does not provide for the payment of Stub Rent. Neither the DIP Motion nor the Interim DIP Order provides any assurance that the Debtors estates will have sufficient funds to pay Stub Rent. The Debtors should not be permitted to waive their rights under sections 506(c) and 552(b) without any provision for the payment of Stub Rent. The Debtors cases cannot be conducted solely to benefit the secured creditors, in contradiction of one of the fundamental principles of the Bankruptcy Code, the orderly and equitable distribution of the estate to creditors. Zazzali v. 1031n Exch. Group (In re DBSI, Inc.), 478 B.R. 192, 199 (Bankr. D. Del. 2012); see also In re Mortgage Lenders Network USA, Inc., Hearing Transcript (Docket No. 346) at 20-21, Case No (PJW) (Bankr. D. Del. Mar. 20, 2007) (recognizing that 506(c) waivers require creditor consent); see also In re NEC Holdings Corp., Case No (PJW Hearing Transcript (Docket No. 224) at 100 (Bankr. D. Del. July 13, 2010 (Court required secured creditors to ensure an administratively solvent estate). A copy of the pertinent pages of the Mortgage Lenders and NEC Holdings hearing transcripts are attached hereto as Exhibit A. Further, the equities of the case exception pursuant to Section 552(b) of the Bankruptcy Code is intended to prevent secured creditors from receiving windfalls and to allow bankruptcy courts broad discretion in balancing the interests of secured creditors against the general policy of the Bankruptcy Code, which favors giving debtors a fresh start. In re Photo Promotion Assocs., 7

8 Case MFW Doc 621 Filed 03/22/16 Page 8 of 9 Inc., 61 B.R. 936, 940 (Bankr. S.D.N.Y. 1986). Section 552(b) prevents a situation where unencumbered assets of the Debtors fund the costs of the secured creditors recovery to the detriment of unsecured creditors. Therefore, the final order approving the DIP Motion should not grant 506(c) and 552(b) waivers unless Stub Rent is paid immediately. C. Any Further or Final Order Must Contain Language Limiting the Rights of DIP Lenders Consistent with Interim DIP Order 20. Any further or final order should provide that any lien in favor of the DIP Agent and/or the DIP Lenders is granted only as to any proceeds of the Leases and not the Leases themselves. Paragraph 9(c) of the Interim DIP Order entered by the Court restricted liens in favor of the DIP Agent and/or the DIP Lenders to Lease Proceeds, but not the Leases themselves, whether or not so perfected prior to the Petition Date. Interim DIP Order, 9(c). The further or final order should likewise provide that any lien in favor of the DIP Agent and/or the DIP Lenders is granted only as to any proceeds of the Leases and not the Leases themselves similar to the provisions of the Interim DIP Order. 21. Any further or final order approving the DIP Motion must also make it clear that neither the DIP Agent nor the DIP Lenders have rights to use or occupy the Premises. Paragraph 41 of the Interim DIP Order entered by the Court restricted the DIP Agent and DIP Lenders remedies as follows: (A) with respect to any of the Debtors leasehold locations, the DIP Agent s and the DIP Lenders rights shall be limited to such rights (i) as may be ordered by this Court upon motion and notice to the applicable landlord with an opportunity to respond that is reasonable under the circumstances; (ii) to which the applicable landlord agrees in writing with the DIP Agent; or (iii) which DIP Agent and DIP Lenders have under non-bankruptcy law. Interim DIP Order, 41. The further or final order should provide for the same limitations. 8

9 Case MFW Doc 621 Filed 03/22/16 Page 9 of 9 D. Reservation of Rights 22. The Landlords reserve their rights to supplement this Limited Objection and make such other and further objections as they deem necessary or appropriate. E. Joinder 23. The Landlords hereby join any objections filed by the Debtors other landlords to the DIP Motion, to the extent such objections are not inconsistent with the relief sought herein. WHEREFORE, the Landlords respectfully request that the Court enter an order: (i) denying further or final approval of the Debtors DIP Motion or conditioning further or final approval of the Debtors DIP Motion consistent with this Objection and (ii) granting such other and further relief as this Court deems just and proper. Respectfully submitted, Dated: March 22, 2016 /s/leslie C. Heilman Wilmington, Delaware Matthew G. Summers, Esquire (No. 5533) Leslie C. Heilman (No. 4716) BALLARD SPAHR LLP 919 N. Market Street, 11 th Floor Wilmington, Delaware Telephone: (302) Facsimile: (302) and Kevin M. Newman (admitted pro hac vice) Jeffrey D. Eaton (admitted pro hac vice) MENTER, RUDIN & TRIVELPIECE, P.C. 308 Maltbie Street, Suite 200 Syracuse, New York Telephone: (315) Facsimile: (315) Attorneys for Carousel Center Company, L.P., Holyoke Mall Company, L.P., KRG Portofino, LLC, KRG Port St. Lucie Landing, LLC, and KRG Fort Myers Colonial Square, LLC 9

10 Case MFW Doc Filed 03/22/16 Page 1 of 8 EXHIBIT A {KLC/PRINT//KLC1625.DOC}

11 Case MFW Doc Filed 03/22/16 Page 2 of 8

12 Case MFW Doc Filed 03/22/16 Page 3 of 8

13 Case MFW Doc Filed 03/22/16 Page 4 of 8

14 Case MFW Doc Filed 03/22/16 Page 5 of 8

15 Case MFW Doc Filed 03/22/16 Page 6 of 8

16 Case MFW Doc Filed 03/22/16 Page 7 of 8

17 Case MFW Doc Filed 03/22/16 Page 8 of 8

18 Case MFW Doc Filed 03/22/16 Page 1 of 3 CERTIFICATE OF SERVICE Leslie C. Heilman, Esquire hereby certifies that on this 22nd day of March, 2016, a true and correct copy of the foregoing Limited Objection of Carousel Center Company, L.P., Holyoke Mall Company, L.P., KRG Portofino, LLC, KRG Port St. Lucie Landing, LLC, and KRG Fort Myers Colonial Square, LLC to Debtors Motion for Interim and Final Orders (I) Authorizing Debtors to Obtain Post-Petition Secured Financing Pursuant to 11 U.S.C. 105, 362, 363, And 364; (II) Granting Liens and Superpriority Claims to Post-Petition Lenders Pursuant to 11 U.S.C. 364 and 507; (III) Authorizing the Use of Cash Collateral and Providing Adequate Protection to Prepetition Secured Parties and Modifying the Automatic Stay Pursuant to 11 U.S.C. 361, 362, 363, and 364; and (IV) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c) and Local Rule was served upon the addressees listed on the attached service list in the manner indicated. Dated: March 22, 2016 Wilmington, Delaware /s/ Leslie C. Heilman Leslie C. Heilman (DE No. 4716) BALLARD SPAHR LLP

19 Case MFW Doc Filed 03/22/16 Page 2 of 3 SERVICE LIST Via Hand Delivery: Michael R. Nestor, Esq. Andrew L. Magaziner, Esq. Young Conaway Stargatt & Taylor, LLP Rodney Square, l 000 North King Street Wilmington, Delaware Counsel for the Debtors Bradford J. Sandler, Esq. Pachulski Stang Ziehl & Jones LLP 919 N. Market Street, l 7th Floor Wilmington, DE Counsel to the Official Committee of Unsecured Creditors Office of the United States Trustee Attn: Hannah McCollum, Esq. 844 King Street, Suite 2207 Lockbox 35 Wilmington, Delaware Gregory A. Taylor, Esq. Ashby & Geddes 500 Delaware A venue Wilmington, Delaware Counsel for Bank of America, N.A., DIP Agent Robert J. Dehney, Esq. Gregory W. Werkheiser, Esq. Tamara K. Minott, Esq. Morris, Nichols, Arsht & Tunnell LLP 1201 N. Market St., 16th Floor P.O. Box 1347 Wilmington, DE Counsel for Wilmington Savings Fund Society, FSB, Prepetition Term Loan Agent Mark Collins, Esq. Andrew M. Dean, Esq. Richards, Layton & Finger, PA One Rodney Square 920 North King Street Wilmington, DE Counsel for Wells Fargo Bank, National Association, FILO Agent Via First Class U.S. Mail: Robert A. Klyman, Esq. Matthew J. Williams, Esq. Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California Counsel for the Debtors Robert J. Feinstein, Esq. Pachulski Stang Ziehl &Jones LLP 780 Third Avenue, 36t" Floor New York, NY Counsel to the Official Committee of Unsecured Creditors Jeffery N. Pomerantz, Esq. Pachulski Stang Ziehl & Jones LLP Santa Monica Boulevard, 13 th Floor Los Angeles, CA Counsel to the Official Committee of Unsecured Creditors Donald E. Rothman, Esq. Riemer & Braunstein LLP Three Center Plaza, Boston, Massachusetts Counsel for Bank of America, N.A., DIP Agent

20 Case MFW Doc Filed 03/22/16 Page 3 of 3 Robert J. Stark, Esq. Bennett S. Silverberg, Esq. Brown Rudnick LLP Seven Times Square New York, NY Counsel for Wilmington Savings Fund Society, FSB, Prepetition Term Loan Agent Steven B. Levine, Esq. Andreas Andromalos, Esq. Brown Rudnick, LLP One Financial Center Boston, MA Counsel for Wilmington Savings Fund Society, FSB, Prepetition Term Loan Agent Kevin J. Simard, Esq. Choate, Hall & Stewart LLP Two International Place Boston Massachusetts Counsel for Wells Fargo Bank, National Association, FILO Agent 2