In Re Greate Bay Hotel & Casino, Inc.
251 B.R. 213, 2000 WL 1052099 (2000)
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Rule of Law:
When two competing Chapter 11 reorganization plans both meet the statutory requirements for confirmation, a court must confirm the plan that it determines is superior, considering creditor preferences but ultimately selecting the plan that offers better treatment to creditors and a more feasible financial structure for the reorganized entity.
Facts:
- Greate Bay Hotel and Casino, Inc. ('GBHC'), owner of the Sands Hotel & Casino in Atlantic City, and its related corporate entities were debtors in a Chapter 11 bankruptcy.
- The debtors' largest liability was approximately $185 million in First Mortgage Notes ('Old Notes').
- The primary holders of the Old Notes were High River (representing Carl Icahn's interests), Merrill Lynch Asset Management (MLAM), and Park Place Entertainment Corporation.
- Initially, the debtors proposed a 'stand-alone' reorganization plan.
- MLAM, a major noteholder, opposed the debtors' plan partly due to New Jersey gaming regulations that limited the amount of equity an institutional investor like MLAM could hold without special licensure.
- To resolve its regulatory issue and pursue a different outcome, MLAM collaborated with Park Place Entertainment to propose a competing reorganization plan.
- This led to a competitive bidding process, resulting in two formal competing plans being submitted to the court: one by High River and the other by Park Place.
Procedural Posture:
- Greate Bay Hotel and Casino, Inc. and its affiliated entities ('the debtors') filed voluntary petitions for relief under Chapter 11 in the U.S. Bankruptcy Court.
- The debtors operated their businesses as debtors-in-possession.
- After the debtors' exclusivity period to file a plan expired, they filed a joint plan of reorganization.
- Following opposition from MLAM, a major creditor, the debtors suspended proceedings on their own plan to allow for a bidding process.
- High River and Park Place Entertainment Corporation then each submitted competing plans of reorganization.
- The court approved the disclosure statements for both plans and submitted them to creditors for a vote.
- Neither plan achieved the requisite votes for acceptance from the Class 2 Old Noteholders, rendering both plans non-consensual.
- The Bankruptcy Court then held a consolidated confirmation hearing to determine if either or both plans were confirmable under 11 U.S.C. § 1129 and, if so, which plan to confirm.
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Issue:
When two competing Chapter 11 reorganization plans are both confirmable under the Bankruptcy Code, must a court confirm the plan that offers greater financial recovery to creditors and a more sound capital structure for the reorganized debtor, after considering the preferences of creditors?
Opinions:
Majority - Wizmur, J.
Yes, when two plans are confirmable, the court must select the one that better serves the interests of creditors and the estate's future viability, after considering creditor preferences. In this case, the court determined that although both the High River plan and the Park Place plan were confirmable under § 1129 of the Bankruptcy Code, the High River plan was superior. The court first analyzed both plans against the statutory requirements. It found the High River plan confirmable, upholding its classification of claims as having a valid business justification and finding it feasible and non-discriminatory. The court also found the Park Place plan confirmable, rejecting arguments of artificial impairment and concluding that Park Place's violation of a court order regarding sealed ballots was not severe enough to warrant denial of confirmation. In choosing between the two, the court is guided by § 1129(c) to consider creditor preferences, but found the votes were mixed and not dispositive. The court then compared the substance of the plans, concluding the High River plan offered higher financial recoveries for creditors, provided a better capital structure with less debt and more cash flexibility, and was based on more credible financial projections. The court criticized Park Place's projections as 'bidding through projections' and noted a disconnect between its low purchase price for equity and its high valuation of that same equity post-reorganization. Therefore, the High River plan was confirmed as it provided better treatment to creditors and a more sound basis for the debtor's future success.
Analysis:
This decision exemplifies a bankruptcy court's critical role in evaluating and choosing between competing reorganization plans. It establishes that technical confirmability is not the end of the inquiry; the court must perform a qualitative comparison to select the plan that maximizes value and ensures the reorganized entity's viability. The ruling underscores the court's authority to scrutinize and discount unrealistic financial projections, preventing proponents from 'bidding through projections' to win confirmation. Furthermore, it affirms that while creditor preference under § 1129(c) is a key consideration, it is not determinative and can be outweighed by a plan that offers demonstrably superior financial terms and a more stable future for the estate.
