A Chapter 11 bankruptcy involving a bond-financed Arizona participant sports venue will continue to move forward in an effort to sell the property after a federal court judge denied a motion to appoint an independent trustee for the debtor or dismiss the case.
Judge Daniel Collins’ Wednesday order acknowledged disputed allegations of mismanagement and infractions on the part of Legacy Cares, the venue’s nonprofit owner, that were cited in the motion filed in June by the U.S. trustee in the case.
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“The court smells smoke” and expects the bond trustee, bondholders, and others “to eventually determine whether there is fire,” the order said.
“The court (and the U.S. trustee) intend to make sure any party engaged in wrongdoing before or after the petition date will be held to account,” it added. “In the meantime, however, all efforts must be made by the debtor and its professionals to bring this case to a successful sale.”
U.S. Trustee Ilene Lashinsky, who is monitoring the case, asked the court to appoint an independent entity to assume control of Legacy Cares’ assets and operations or dismiss the bankruptcy, citing “dishonesty, incompetence, or gross mismanagement,” as well as the possible misuse of bond proceeds.
Legacy Cares, the venue’s owner, which filed for bankruptcy May 1 in Arizona federal court, along with bond trustee UMB Bank and the official committee of unsecured creditors argued against the motion, contending efforts to sell the 320-acre Legacy Park in Mesa would be derailed and $9 million of debtor-in-possession financing that is allowing the facility to continue to operate would be exhausted before a sale could be consummated.
Noting that appointing a trustee in a Chapter 11 bankruptcy is “an extraordinary measure,” the judge concluded such a move “at this crucial time would gravely jeopardize the ongoing sales process.”
Last week, attorneys for Legacy Cares proposed bidding procedures for the venue’s sale that include a Sept. 18 deadline for competitive bidding or, if necessary, an auction on Sept. 27.
Legacy Cares sold $284 million of mostly tax-exempt, unrated revenue bonds in 2020 and 2021 through the Arizona Industrial Development Authority to build Legacy Park, which hosts youth and amateur competitions in sports including soccer, basketball, volleyball, and pickleball.
Last year, bond trustee UMB Bank declared events of default because Legacy Cares failed to make scheduled monthly payments toward the revenue fund that supports debt service on the bonds.
A bond payment default occurred in January when only $2.68 million was available in the bond fund to make a $10.3 million interest payment.
In February, bondholders rejected a plan to refinance the bonds and generate funds to settle claims from contractors and others.