News for the Hospitality Executive |
Security Interest in Golf Course Revenues Cut Off by Bankruptcy |
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recent update on this topic, click
here By Jim Butler and the Global Hospitality Group® Hotel Lawyers | Authors of www.HotelLawBlog.com January 16, 2013 Hotel Lawyer with
lender problems on a problem golf course. Veteran workout specialists will be reminded of the old "rents versus accounts" issue on hotel revenues that was finally resolved by an amendment to the Bankruptcy Code. Double Bogie: Bank's Security Interest in Green Fees
Are golf course
revenues "rents"? But what happens if the owner of the course files a bankruptcy case? In that event, the lender will want to control the borrower's cash flow. Does the lender's lien extend to the green fees and driving range fees paid by golfers after the course's owner files a bankruptcy case? Premier Golf
Properties -- new
appellate panel
decision on security interest in golf course revenues In Premier Golf, the debtor owned two 18-hole golf courses and a driving range and its revenues were generated by the green fees and driving range fees. The lender made a loan to the debtor secured by a blanket security interest in all of the debtor's real property and personal property. The lender's loan documents granted it a security interest in all accounts and contract rights. The loan documents specifically included in the lender's collateral all green fees and driving range fees and all rents, issues, revenues and profits arising from any rental, license, concession or other grant of a right of possession, use or occupancy of the real property or from any agreement affecting the use, enjoyment or occupancy of the real property. Bankruptcy cuts
off security interest in post-petition revenues from the golf course The Bankruptcy Appellate Panel agreed. The court determined that the green fees and driving range fees were not rents because those fees derived primarily from the services performed by the golf course owner, not from the real property. These services included repositioning holes, planting, seeding, mowing, watering, fertilizing and maintaining the course. The court concluded that "Unlike hotel cases where the revenue from room rental derives primarily from the usage of real property as shelter or occupancy, a golf course derives its revenue primarily from the usage of real property as entertainment." Similarly, because the fees were generated by the services performed by the course's owner, the fees were not proceeds of the lender's collateral. What does this all
mean? The obvious consequence is that a lender cannot rely on holding a security interest in green fees and driving range fees to protect it in a bankruptcy case. Because these fees are a primary source of a golf course's revenues and cash flow, a lender's inability to obtain a bankruptcy-proof security interest will make it much more difficult for course owners to obtain financing. The decision may have broader implications as well. Premier Golf held that cash collected on the lender's collateral was not subject to the lender's security interest because that cash was generated from the debtor's performance of services and was not merely the passive conversion of the lender's collateral into cash. As a result, a lender to any business that incorporates a strong services component in its revenue generation will want to consider the potential impact of Bankruptcy Code section 552 in the event of the borrower's bankruptcy filing. For more information on workouts, bankruptcies and receiverships of hospitailty properties For more articles about dealing with distressed hospitality assets, go to www.HotelLawyer.com and scroll down the right hand side. Then click on red link to the topic that says, "Workouts, Bankruptcies & Receiverships." There is a rich library of materials there, including free access to The Lenders Handbook for Troubled Hotels. JMBM's Global Hospitality Group® has deep experience in all aspects of golf course, resort and hospitality finance -- as well as in workouts, bankruptcy and receiverships. We would be pleased to discuss the implications of this case with you and help you to evaluate your options for protecting your interests. Bennett Young is a partner in JMBM's Bankruptcy, Insolvency and Restructurings Group and a senior member of the Global Hospitality Group®. His clients include lenders, financial institutions, secured and unsecured creditors, distressed investment funds, businesses, receivers, special servicers and creditors' committees. Ben recently represented the owner of a partially completed multi-billion dollar resort property in the restructuring of its finances and has represented lenders to hotels and casinos. For more information, contact Ben Young at 415.984.9626 or [email protected]. __________________________ This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. We've done more than $60 billion of hotel transactions and have developed innovative solutions to unlock value from hotels. Who's your hotel lawyer? __________________________ Our Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
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solutions for more than $60 billion of hotel transactions, involving
more than
1,300 properties all over the world. For more information, please
contact Jim
Butler at [email protected] or
+1
(310) 201-3526.
Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE "hotel lawyer" and you will see why. Jim and his team are more than "just" great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them. |
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