Last month, the United States Bankruptcy Court for the Northern District of Iowa in In re Civic Partners Sioux City, LLC denied confirmation of a chapter 11 debtor’s plan of reorganization, in part, because the bankruptcy court rejected the debtor’s valuation and, therefore, found that the plan was not feasible. An examination of the bankruptcy court’s order denying confirmation provides insight into the evidence courts consider when choosing between competing valuations and how courts apply postpetition rental payments made to undersecured creditors.
Events Leading to Chapter 11
More than a decade ago, the City of Sioux City, Iowa selected Civic Partners Sioux City, LLC to develop a retail and movie theater complex. Civic received the bulk of its construction financing from First National Bank, for which it granted the bank a first mortgage on the property and an assignment of rents. Civic also received financing from the City, for which it granted the City a second mortgage on the property. The City’s lien was expressly subordinate to the bank’s lien. Civic soon completed construction of the movie theater space, and even though construction continued on the rest of the property, it leased that space to Main Street Theatres.