Case 08-20355-reb Document 156 Filed 04/30/2008 Page 1 of 5 UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA GAINESVILLE DIVISION In re: Chapter 11 CORNERSTONE MINISTRIES Case No. 08-20355-reb INVESTMENTS, INC. Debtor. Judge Brizendine RESPONSE OF THE OFFICIAL COMMITTEE OF CREDITORS HOLDING UNSECURED CLAIMS TO MOTION FOR AUTHORITY TO INCUR SECURED DEBT AND PROVIDE ADEQUATE PROTECTION AND REQUEST FOR PRELIMINARY HEARING The Official Committee of Creditors Holding Unsecured Claims (the Committee appointed in the above-captioned Chapter 11 case files this response (the Response to the Motion for Authority to Incur Secured Debt and Provide Adequate Protection and Request for Preliminary Hearing (the Motion. See Docket No. 133. As set forth below, the Committee does not oppose the Motion; however, any Order approving the Motion should: (i specify the precise use of the proceeds of the loan contemplated in the Motion; (ii specify First United Bank s rights with respect to both the Debtor and the Wellstone entities; (iii provide the Committee and the Debtor a full reservation of rights with respect to both First United Bank and the Wellstone entities; and (iv clarify that the Debtor is not seeking at this time to assume any executory contract with either First United Bank, any of the Wellstone entities, or any other entity. Background 1. The Debtor filed its petition under chapter 11 of title 11 of the United States Code on February 10, 2008.
Case 08-20355-reb Document 156 Filed 04/30/2008 Page 2 of 5 2. The Committee was appointed on February 27, 2008. 3. The Debtor filed the Motion on April 28, 2008. Through the Motion, the Debtor seeks authority to incur $350,000 of secured indebtedness to First United Bank. The Debtor represents that the proceeds of this loan from First United Bank will be used to fund specified expenses of certain Wellstone entities related to Wellstone s development of the Cooper Life project at Craig Ranch in McKinney, Texas. 4. According to the Motion, the Debtor is currently indebted to First United Bank under two loans. The first loan is defined in the Motion as the FUB Working Capital Loan and is, allegedly, a $3 million loan that apparently has been fully funded. The second loan is defined in the Motion as the FUB Additional Loan. The FUB Additional Loan is for an amount up to $3 million, and all but $350,000 of this FUB Additional Loan has already been advanced to the Debtor. Through the Motion, the Debtor seeks to borrow this final $350,000 from the FUB Additional Loan. The monthly adequate protection payments the Debtor seeks to make, however, would be made on the FUB Working Capital Loan. 5. The Debtor represents that the proceeds from these loans will be used to advance additional funds for certain specified purposes to one or more Wellstone entities that are borrowers from the Debtor. There are numerous Wellstone entities and, collectively, they are the largest borrowers from the Debtor. The Debtor has outstanding funding commitments to one or more of these Wellstone entities, including the entities that are developing the Cooper Life project at Craig Ranch. 2
Case 08-20355-reb Document 156 Filed 04/30/2008 Page 3 of 5 Response 6. The Committee does not oppose the general relief requested in the Motion i.e., the Debtor incurring secured post-petition debt to fund certain project costs related to the Cooper Life project. Any Order granting the Motion, however, should clarify the following four points: 7. First, the Order should specify the precise uses of the proceeds of the loan to be made by First United Bank and the Committee should be provided an opportunity to review and approve these proposed uses of the loan from First United Bank. The Motion sets forth that the proceeds from the First United Bank loan are to be used to fund particular expenses at the Cooper Life project. Paragraph 6 of the Motion states that Wellstone CL requires approximately $350,000 in additional funds in order to pay for site development work and recording fees Paragraph 7 of the Motion states that the funds lent by First United Bank will be advanced by the Debtor to Wellstone CL under the terms and conditions of the CL Notes and used by Wellstone CL to fund necessary expenses as set forth in the budget attached [to the Motion] as Exhibit B. 1 The Committee should have an opportunity to review and approve the budget as well as the funding requests from Wellstone. 8. Second, any Order should specify and set forth the rights of First United Bank vis-à-vis both Cornerstone and the Wellstone entities. The Committee understands that First United Bank is a substantial alleged secured creditor of both the Debtor and one or more of the Wellstone entities. Given the overlapping nature of the relationships between and among the Debtor, First United Bank, and various Wellstone entities, and the Debtor s substantial interests in the Wellstone entities, any exercise of remedies by First United Bank against either the Debtor 1 Exhibit B is not attached to the Motion. Similarly, the Motion makes no reference to any Exhibit A and does not attach a proposed Order. The Committee reserves its rights to review, comment upon, and approve the form of any Order submitted by the Debtor. 3
Case 08-20355-reb Document 156 Filed 04/30/2008 Page 4 of 5 or the Wellstone entities may have a significant impact on the Debtor s estate. Therefore, any Order should specify First United Bank s rights with respect to both the Debtor and the Wellstone entities. 9. Similarly, the Debtor makes certain representations in the Motion as to the proceeds that the Debtor will receive by incurring additional indebtedness to First United Bank and making loans to Wellstone. Specifically, the Debtor represents that it is estimated that approximately $1 million from the sales proceeds would be payable to the Debtor s estate following the closing of these initial commercial sites. See Motion 6. Any Order approving the Motion should set forth the distribution of proceeds to First United Bank and the Debtor from the sale of commercial sites anticipated to be realized by the Debtor making the loan to Wellstone. 10. Third, any Order granting the Motion should specify that it is granted without prejudice to either the Debtor or the Committee conducting an investigation into the relationship between and among the Debtor, First United Bank, the Debtor s numerous borrowers (including all of the Wellstone entities, and, potentially, other parties. This includes, but is not limited to, the terms upon which First United Bank made loans to the Debtor and to the Wellstone entities and First United Bank s alleged secured status with respect to both the Debtor and the Wellstone entities. Additionally, any Order approving the Motion should make no findings as to, and should reserve in full, any determination of the validity, perfection, priority, amount, and allocation of any claims of First United Bank. Moreover, any Order should make no findings as to whether First United Bank is over-secured or under-secured and should make no findings as to whether adequate protection payments to First United Bank are required. 4
Case 08-20355-reb Document 156 Filed 04/30/2008 Page 5 of 5 11. Fourth, any Order approving the Motion should specify that entry of the Order does not constitute an assumption of any executory contract with First United Bank, any Wellstone entity, or any other party under section 365 of the Bankruptcy Code. The Committee does not understand the Debtor to be requesting such relief, and the Order should make clear that such relief is not being granted. Respectfully submitted this 30th day of April 2008. ALSTON & BIRD LLP /s/ William S. Sugden Dennis J. Connolly (Bar No. 182275 Matthew W. Levin (Bar No. 448270 William S. Sugden (Bar No. 690790 1201 West Peachtree Street Atlanta, GA 30309 Telephone: (404 881-7000 Facsimile: (404 881-7777 Counsel to the Official Committee of Creditors Holding Unsecured Claims 5