A slew of creditors – representing more than $783 million in defaulted debt of John Q. Hammons’ trust, subsidiaries and affiliates – have lodged a scathing objection to the recent bankruptcy settlement signed by the late hotelier’s co-trustees.
The settlement filed Feb. 13 offers compromise with Hammons’ largest creditor, JD Holdings LLC, which is owned by Jonathan Eilian. The New York investment firm now is securing a $1 billion loan to buy most, if not all, of the remaining nearly 150 assets of the Hammons estate.
JD Holdings’ loan would pay off all allowed creditor claims, granted Eilian and company could reject certain liabilities and be freed of those payments if validated by the presiding U.S. Bankruptcy Court District of Kansas.
The defaulted debt is tied to 26 of Hammons’ remaining 35 hotels. Those assets and droves of others – such as Hammons Tower, the U.S. Courthouse in Springfield and the now-shuttered Joplin Convention & Trade Center – would be included in the pending sale.
The bankruptcy court on Feb. 15 granted a motion by Hammons’ estate to allow a shortened settlement-objection deadline and expedited hearing in an effort to save some $95 million in potential litigation fees.
The creditors, collectively referred to as commercial mortgage-backed securities lenders in their Feb. 21 objection, say they’ve assumed a hands-off approach to the case, but now, the several hundred million dollars of Hammons’ unpaid debt is threatened.
“This case has been difficult since day one because there has not really been a debtor, but instead, what appear to be two ‘trustees’ who answer to no one and determine their own duties,” the creditor objection reads. “Now, having subjected the creditors to a two-year side show, they ask the court to allow them to walk away and sacrifice the creditor classes and the trust they represent to the whims of (JD Holdings) seeking an even greater windfall than the (right-of-first-refusal) amendment it negotiated in 2008.”
As part of the multifaceted settlement signed by Dowdy and Groves, the Hammons trust and its associated debtors would “have no further fiduciary duty to the estates or their creditors,” based on JD Holdings’ payment of allowed creditor claims.
Court records show severance and benefits packages would go to the co-trustees of the Revocable Trust of John Q. Hammons: Jacquie Dowdy, in the sum of roughly $550,000, and Greggory Groves, to the tune of roughly $330,000.
Neither JD Holdings nor Dowdy and Groves have fielded inquiries from Springfield Business Journal. The Texas-based public relations firm representing JQH Hotels & Resorts also did not answer SBJ’s interview requests.
A $500 million claim
The CMBS lenders claim the agreed upon plan and settlement “go beyond a settlement of the differences between (JD Holdings) and the debtors, and seek impermissibly to fundamentally alter the rights of creditors on shortened notice.”
The objection goes on to take issue with a nearly $500 million claim awarded to JD Holdings, per the agreement, against all associated debtors, “without any evidentiary support and in direct contravention of the facts of these cases.”
Privatizing JQH Hotels & Resorts, a 2005 transaction – amended in 2008 – between Hammons and Eilian resulted in JD Holdings acquiring indirect ownership of 43 of Hammons’ hotels and management of 15 others.
The transaction formed what proved to be a troublesome right-of-first-refusal agreement between both parties. According to JD Holdings’ 87-page disclosure statement, Eilian ultimately secured the right to purchase certain assets from Hammons’ estate if an associated debtor defaulted on obligations set forth in agreement.
Eilian claimed a breached agreement in 2012. After Hammons’ May 2013 death, the Delaware Court of Chancery upheld the right of first refusal in 2014, and Eilian followed up with a supplemental complaint the following year, seeking to purchase Hammons’ assets.
Under the agreement, Eilian could purchase those assets at a 20 percent discount, with debtor financing at no less than 22.5 percent, according to the court filings.
Hammons’ estate subsequently filed bankruptcy in 2016, just one month before the Delaware Court proceedings began. The bankruptcy court later rejected the right-of-first-refusal agreement, a decision Eilian appealed, for which litigation remains pending.
Per the Feb. 13 settlement, however, Eilian agreed to stay all pending appeals and settle for the nearly $500 million claim – though he previously sought much more.
Two more objections
On Feb. 27, the CMBS lenders filed a second objection, this one centered on JD Holdings’ breach claims concerning the right-of-first-refusal agreement.
The objection noted that, at one point, JD Holdings filed two sets of damages claims against all associated debtors: the first totaled more than $587 million for breaching the agreement and the second sought more than $565 million for debtors’ rejecting it.
According to the CMBS objection, “the claims treat the ROFR as if it created joint and several liability and made all of the borrowers liable for each other borrower’s debts. That is incorrect.”
The filing specifically objects to the more than $587 million in breach claims, according to the filings.
The objection also declared that if JD Holdings could prove damages, “it must do so on a debtor-by-debtor basis,” the subject of a third objection recently lodged by the lenders.
If confirmed by the court, the settlement stands to allow JD Holdings, as one lone creditor, to secure $200 million in profit from the bankruptcy, according to the CMBS lender filings.
In an objection response filed Feb. 26, JD Holdings fired back in its first-page introduction, noting the company “does not understand what the CMBS lenders hope to achieve by opposing the settlement,” also questioning what alternatives exist.
“What is wrong with a plan that pays all allowed claims in full? How could the CMBS lenders fare better under another plan?” the response asserts, later alluding the objection could be “just a crude attempt” by the lenders “to improperly try to obtain leverage” for their claims.
Rather than a “windfall,” the settlement reflects “the value of JD Holdings’ claims given the facts available and the risks inherent in litigation for both parties,” the filings later states. “It appears to JD Holdings that the objection lacks any discernible purpose other than to harass the debtors and JD Holdings, increase the cost of these bankruptcy cases and unnecessarily delay their resolution,” it says.
A nonevidentiary hearing on the compromise was held Feb. 28 in Kansas City, Kansas, with no resulting filings available as of press time. A confirmation hearing for the settlement has yet to be set.
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