Edgemere Dallas committee blasts bondholders’ attempt to ‘influence’ litigation

By Sarah Lizee

Olympia, Wash., Aug. 23 – Northwest Senior Housing Corp.’s motion to amend a debtor-in-possession financing provided by UMB Bank, NA and bondholders drew an objection from the official committee of unsecured creditors, according to court documents filed with the U.S. Bankruptcy Court for the Northern District of Texas.

The company, which does business as Edgemere Dallas, is litigating with its landlord, Intercity Investment Properties, Inc.

The resolution or settlement of the landlord litigation will be the single most important factor in determining the future viability of Edgemere, the committee said.

“The bondholders are apparently not willing to allow the debtor, as a fiduciary of the estate, the authority to prosecute, and to negotiate the potential settlement of, the landlord litigation on behalf of the estate without their material participation, influence and indirect control,” the committee said in its objection.

The bondholders first requested permission to intervene in the landlord litigation to assert their own causes of action. Intervention would have effectively provided the bondholders with veto power over any attempt by the debtor to settle the landlord litigation without their consent, the committee said.

The court denied the intervention, finding that the debtor, as a fiduciary to all creditors of the estate, adequately represented the interest of the estate in the prosecution of that litigation.

“The bondholders are now making a second attempt to obtain improper influence and indirect control over the landlord litigation,” the committee said.

The bondholders will only approve the debtor’s plan if the debtor agrees to amend the DIP loan agreement to allow the bondholders improper influence and indirect control over the litigation, the committee said.

Specifically, the proposed DIP order amendments provide the bondholders the right to review and comment on pleadings before filed; the right to review discovery and attend depositions; the right to participate in all settlement discussions and mediations; and the debtor’s promise that it will not settle the landlord litigation without the bondholders’ prior consent.

Also, the debtor has agreed to not settle the litigation without bondholder approval, unless it is compelled to do so in the fulfillment of its fiduciary duty owed to the estate.

“The bondholders, apparently concerned about this ‘fiduciary out,’ have therefore required the debtor to agree to terminate plan exclusivity for the bondholders only if the debtor exercises its fiduciary out and settles the litigation without the bondholders’ consent,” the committee said.

The committee said this appeared to be an attempt to make an “end run” around the court’s order denying the bondholders’ intervention motion.

“The bondholders are concerned that the debtor will compromise and settle the landlord litigation in a way that is not as advantageous to the bondholders as they might like,” the committee said.

The Dallas-based luxury senior living community filed Chapter 11 bankruptcy on April 14 under case number 22-30659.

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