San Jose Fairmont files Chapter 11 plan; statement hearing April 29

By Sarah Lizee

Olympia, Wash., March 23 – FMT SJ LLC and SC SJ Holdings LLC, which own the San Jose Fairmont Hotel in California, filed a Chapter 11 plan of reorganization and related disclosure statement Monday with the U.S. Bankruptcy Court for the District of Delaware.

On March 9, the debtors entered into a restructuring support agreement with their pre-petition secured lender, CLNC 2019-FL1 Funding, LLC, on the material terms of a Chapter 11 plan.

Under the plan, the debtors intend to transition from Fairmont to a new hotel operator that is willing to provide mezzanine financing, which will in turn enable the debtors to extend the maturity date of the $173.49 million pre-petition secured loan by up to five years, carry the ongoing costs of preserving the Fairmont hotel through the pandemic, and pay all claims against SC SJ, including the liquidated damages for the termination of the hotel management agreement, in full.

The restructuring support agreement provides that if the debtors are successful in raising $45 million in mezzanine debt or equity contribution, the pre-petition secured loan will be extended by three years from the effective date of an agreed Chapter 11 plan, with options for two one-year maturity extensions.

The extension of the maturity date, which is currently set to occur on April 9, means that the debtors will not be required to pay in full or refinance their secured debt until after the pandemic has passed and the hotel industry has begun recovering.

By then, the hotel will likely have better access to the capital markets than it does today, the debtors said.

Even if the debtors are unable to raise $45 million of mezzanine debt or equity contribution, the pre-petition secured loan would be extended nine months after the effective date.

Under the plan, holders of other priority claims and other secured claims will be paid in full in cash or otherwise be unimpaired.

Holders of SC SJ pre-petition secured loan claims will receive payment in cash of any unpaid interest on the pre-petition secured loan accrued prior to the effective date at the non-default rate, minus the FMT collateral payment, and any unpaid reasonable costs and expenses owed; and payment in full over time of the post-effective date secured loan amount by reorganized SC SJ.

The pre-petition secured lender will receive the FMT collateral payment, and all pre-petition FMT collateral, other than cash collateral, will be delivered in kind to reorganized SC SJ and repayment of the debt secured by the pre-petition FMT collateral will be made over time by reorganized SC SJ.

Holders of SC SJ general unsecured claims and Fairmont general unsecured claims will receive payment in full in cash plus interest at the federal judgment rate.

Holders of FMT general unsecured claims will receive their pro rata share of the FMT GUC cash pot. If this class accepts the plan, the pre-petition secured lender will voluntarily waive its right to receive a pro rata share of the FMT GUC cash pot on account of the FMT deficiency claim.

Inter-debtor claims and FMT subordinated claims will be discharged.

Holders of SC SJ subordinated claims will receive payment in full in cash.

SC SJ equity interests will be reinstated.

Holders of FMT equity interests will not receive or retain any property on account of their interests.

A hearing on approval of the disclosure statement is scheduled for April 29.

The San Jose, Calif.-based hotel owner filed bankruptcy on March 5 under Chapter 11 case number 21-10521.

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