KGI helps Arlie & Co. Beat-the-Clock

Last-Minute Deals Benefit the Company and BofA

Time was running out for Arlie & Company in its one-year old bankruptcy battle. Working against the clock when all appeared to be lost, KGI levered its restructuring expertise and capital connections to help Arlie craft two critical last-minute deals that:

  • Enabled the owners to retain control of the company
  • Avoided a costly legal battle with BofA
  • Achieved a very favorable 4.5% restructured interest rate on the outstanding debt
  • Exited bankruptcy and avoided a Chapter 7 Liquidation

A Race against the Clock

Founded in 1986 and headquartered in Eugene, Oregon, Arlie is a developer and owner that had acquired and developed an impressive portfolio of 40 commercial and residential properties worth over $200 million. Its flagship Class A Crescent Village mixed-use development had earned a coveted LEED Platinium certification from the US Green Building Council.

Like many developers, Arlie was asset rich, but cash poor. Faced with intense liquidity pressures, Arlie filed Chapter 11 Bankruptcy in January 2010 with more than $60 million of project debt held by a group of regional banks.

Arlie hired KGI in December 2010 as Real Estate Plan Consultant and Interest Rate Expert in order to prepare for a looming confirmation battle with Bank of America, whose objections threatened to derail the Plan. Arlie was also under the gun to complete a major property sale to raise sufficient funds to exit bankruptcy.

The pressure ratcheted up unexpectedly when the original judge died suddenly in mid-January 2011, and a new judge took over. Rather than delaying the proceedings, the new judge instead applied significant pressure to resolve the case very quickly by setting a tight deadline for Arlie to either confirm a Plan or be forced to convert to a Chapter 7 Liquidation.

Running Out of Time

Arlie's proposed Chapter 11 reorganization Plan offered 100% recovery for creditors, but due to a lack of liquidity, the Plan relied on net proceeds of property sales in order to repay creditors over time. Additionally, there was a critical minimum cash liquidity requirement that had to be met in order for the Plan to be confirmed. The Company had wagered everything on selling 5,200 acres of Hawaii timberland in order to meet the liquidity requirement via a bankruptcy auction.

Despite a very thorough auction process, the only bidder for the Hawaii timberland backed out 45 minutes before the auction deadline with no back up offers, leaving Arlie without a funding source for its Plan and very little time to spare.

Meanwhile, Arlie had reached agreements to restructure its debt with all banks except for BofA, which held more than $15 million of Arlie's total debt. BofA was secured by the Crescent Village project, and was putting up a big fight in an attempt to foreclose on the property. The Company's proposed reorganization Plan offered to repay BofA's loans in full, provided that the loans would be stretched out over 5 years at a fixed interest rate of 4.5%.

BofA rigorously opposed Arlie's Plan, arguing that it was unfair and should not be confirmed. Based upon its expert's reports, BofA contended that its loans were as much as 100% loan-to-value based upon its current market valuations. BofA and its experts argued that it would be bearing undue risk by being compelled to extend these loans for 5 years, and that the blended interest rate on its loans should be 9.1%, as opposed to the 4.5% rate proposed by Arlie.

Time was rapidly running out for Arlie. If a settlement could not be reached with BofA and the required minimum liquidity could not be sourced within a matter of days, the Company faced a costly and uncertain confirmation battle, the potential loss of its crown jewel Crescent Village project, or a disastrous conversion to Chapter 7 liquidation.

The Clock Strikes Twelve

KGI worked closely with Arlie's management team and its bankruptcy counsel to prepare for Interest Rate Expert Testimony in the event of a Plan confirmation battle, while concurrently helping Arlie to negotiate a settlement with BofA.

Fortunately, BofA agreed to terms less than 24 hours before expert witness testimony was scheduled, thereby avoiding a potentially costly and uncertain legal process. The restructured terms were attractive a 4.5% interest for 4 years considering that BofA believed that its secured claim was 100% loan to value.

For its part, BofA stood to recover 100% of its principal over 4 years, and avoided foreclosure and potential sale of its collateral at a substantial loss.

Even though it had reached agreement with BofA, Arlie still faced a second, seemingly insurmountable deadline to raise sufficient funds to meet its critical liquidity requirement in time to confirm its Chapter 11 reorganization Plan.

KGI moved aggressively to tap its investor base, again working in parallel with Arlie's team, canvassing dozens of its different potential exit financing sources in a matter of days. KGI obtained commitments from several of its investors that provided Arlie funding alternatives. Arlie ultimately secured funding from its own sources, just hours before confirmation hearing, thereby avoiding the unthinkable. Arlie's reorganization Plan was confirmed in April 2011, and went effective in May 2011.

Whether a Company is struggling financially or on the cusp of breakthrough growth, KGI can help. Our seasoned experts work alongside management to solve complex cash flow issues, operational challenges and other business crises. If liquidity or sale is needed, KGI provides a powerful combination of services and expertise to achieve outcomes that cannot be duplicated by other standalone consulting firms.