A federal bankruptcy court judge in Manhattan responded yesterday to a group of creditors frustrated over the speed of the potential BGC Partners acquisition of Grubb & Ellis, and postponed a hearing scheduled for today until next Monday, court records show.
The creditors complain that Howard Lutnick’s Midtown-based brokerage BGC Partners is forcing through a sale of nearly all of Grubb & Ellis’ assets at an accelerated pace so that BGC will be the sole bidder.
“If approved, the bidding procedures would ‘lock-in’ a sale to BGC and result in BGC being the only possible buyer of some or all of [Grubb & Ellis'] assets,” leaving the unsecured creditors with nothing, the court filing filed Monday says.
The delay, while hardly substantial, marks the opening salvo in the effort by unsecured creditors to get paid something on their investments. While the total amount of unsecured debt was not immediately available, Zazove Associates, based in Incline Village, Nev., believes it is the largest unsecured creditor, and is holding $12.1 million in convertible bonds, the court papers show.
BGC announced Feb. 20 that it was the stalking horse bidder in a so-called section 363 bankruptcy sale to buy most of the assets of the distressed real estate brokerage Grubb & Ellis, using a credit bid valued at about $35 million.
BGC bought about $30 million in debt Feb. 17, for what the Zazove filing says was less than par, and is lending up to $4.8 million in additional funds to keep Grubb solvent. BGC Partners bought Newmark Knight Frank last October for $63 million plus stock.
Zazove filed an objection this Monday to Grubb’s motion seeking the court’s approval of its sale plan to BGC. In addition, a committee of creditors, who were not identified, filed a similar objection the same day. Zazove and BGC did not respond to a request for comment. Grubb declined to comment.
The unsecured creditors chafe at the speed of the process and the terms such as the $1 million break up fee, which they say is tilted in favor of locking in BGC as the buyer, the filings from the unsecured creditors says.
Scott Markowitz, a partner at Tarter Krinsky & Drogin, who heads the firm’s bankruptcy and corporate restructuring practice group, said it was typical that an unsecured creditors committee would try to slow down a 363 sale.
Markowitz, who is not involved in the Grubb bankruptcy, said “A committee will [often] try and negotiate some type of carve-out for the unsecured creditors. It could be the price you pay for getting the transaction cleansed through the [bankruptcy] sale.”