Promontory receives interim financing
July 8, 2008
The owners of Promontory breathed a momentary sigh of relief after a U.S. Bankruptcy Court judge sided with the embattled Snyderville Basin developer July 3.
Pivotal Group, the parent company to Promontory, will provide interim financing worth $25 million to operate the bankrupt equestrian community through January.
"This just basically pays all bills that we will have between now and January, which gives us time to focus on getting back into the real-estate business and then coming up with a new financing plan," Promontory Managing Director Rich Sonntag said Monday.
The developer has been in bankruptcy since creditors filed involuntary Chapter 11 petitions against Pivotal/Promontory Capital LLC last spring.
"What we had were creditors who were trying to go for a quick solution, which would end up with them owning the property," Sonntag said about the investor group led by lender Credit Suisse. "[Promontory] is worth an awful lot, and certainly more than we owe them."
U.S. Bankruptcy Judge Judith A. Boulden ruled that Pivotal is the only source of financing available to Promontory.
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"All parties acknowledge that [Promontory needs] funds to maintain business operations," Boulden states in a 15-page ruling.
But negotiations with Credit Suisse fizzled, she acknowledged.
"This let’s us now get back in business and focus on what we need to do, which is finding some new capital," Sonntag said about the decision.
A "plan of reorganization" will be filed with the court by October, he said, adding that collateral at Promontory is worth nearly $562 million.
"There will be a period of time between then and January to get that plan approved by the court," Sonntag said. "It is something that [Pivotal] will now be negotiating with various funding sources."
Total debt at Promontory may exceed $431 million, which includes about $6 million that is owed to Mountain Regional Water Special Service District.
First-lien lenders are owed $313 million and second-lien lenders are owed $87 million through January 2009, the decision states.
Boulden ruled that Promontory officials proved efforts to reorganize the company are "within their sound business judgment."
Pivotal Group Chief Executive Officer Francis Najafi was partly responsible for approving the financing on behalf of Promontory, according to the decision.
"Credit Suisse has argued that this insider financing requires the debtors to meet a heightened standard of proof that the transaction is inherently fair and in good faith," the judge states.
But the "heightened standard" was met, Boulden ruled.
"For example, Pivotal Finance and [Promontory] retained and were advised by separate legal counsel," she states.
The interim financing will not allow Promontory to operate "ad infinitum," the judge added.
Credit Suisse argues that liquidating property at Promontory is the best way to determine its value, according to the decision.
"There is simply no factual basis and scant legal authority supporting the use of a liquidation value," Boulden replied in her decision.
Lenders filed the bankruptcy when a sagging real-estate market forced Pivotal to default on substantial debt. Development at Promontory includes about 1,924 units on nearly 7,000 acres of land situated east of U.S. 40 and south of Interstate 80.