A financial dispute over developer Leo Pustilnikov’s Redondo Beach power plant project is amping up.
Tensions reached a fever pitch after a recent last-minute bankruptcy filing that drew a sharp rebuke from the legal team for AES, the national energy corporation that sold the site and is expected to close the decades-old operation later this year.
The conflict, which centers on interest rates and involves a loan discrepancy to the tune of tens of millions of dollars, could have major implications for one of the most unusual — and significant — redevelopment projects in California. Pustilnivok bought the roughly 50-acre waterfront power plant site in 2020 for around $150 million. Last year, the 37-year-old developer filed a builder’s remedy application in an effort to transform the aging facility into a mixed-use village-style project with 2,700 housing units. The development would also add hundreds of affordable units and serves as a major test case for the state’s obscure affordable housing provision.
“I’ve never lost in court,” Pustilnikov said on Tuesday, “and I don’t anticipate this being the first time.”
But the shrewd developer is still mired in a serious financial battle with high stakes for his signature project.
The dispute between Pustilnikov and AES over the site’s financing and repayments dates back longer, but hit a flash point last October, when AES filed a default notice, alleging it was owed $37 million in back payments. The foreclosure proceedings led the court to schedule a public auction of the power plant site for February 22, but less than 24 hours before it was scheduled, Pustilnikov and his legal team filed for bankruptcy protection, which triggered a delay in the proceedings.
The bankruptcy filing was specifically for an entity called 9300 Wilshire LLC, one of many that were involved with the power plant purchase. On the filing form, Pustilnikov’s team checked boxes that indicated 9300 Wilshire has between $100 million and $500 million in assets and between $50 million and $100 million in liabilities, as well as unsecured credit claims from CBRE, an architectural firm and a law firm, among others. The entity owns a 21 percent stake in the AES property, according to a legal filing, which accounts for the majority of its assets.
AES provided only a vague statement to The Real Deal, which reiterated the company’s foreclosure move “to collect outstanding amounts owed in connection with the sale” and said it was “exercising its rights under the transaction agreements.”
A legal response filed this week by the company’s lawyers was more explicit.
“The Debtor’s bankruptcy was filed on the literal eve of a scheduled foreclosure sale of its primary asset, solely to prevent AES as a secured creditor from exercising its remedies under contract and state law,” the firm’s lawyers wrote.
“[Pustilnikov’s extension application] openly admits that the Petition was filed ‘on an emergency basis’ solely to ‘stop the … foreclosure sale’” AES’s legal response continued. “This assertion of an ‘emergency,’ however, is plainly disingenuous. The Debtor had full notice of AES’s intent to foreclose on the AES Property for many months, following several years of concessions by AES.”
On Tuesday, Pustilnikov countered that it was AES that had been unreasonable. He has offered to pay the company the full $28 million in principal due, but because AES is insisting on roughly $10 million in interest payments he claims it’s not entitled to, he instead opted to file the bankruptcy as a way to move the issue into the courts.
“I’m not going to pay them in full and still have them try to foreclose,” he said. “There was no way of stopping it other than this.”
Additionally, Pustilnikov claims AES owes him $14 million in remediation fees, which brings the total discrepancy between the two parties to around $24 million.
“It’s unfortunate that AES took this position,” the developer added, “but I’m sure the courts will show that I’m correct.”
The dispute could play out for weeks or months, even as Pustilnikov is also engaged in a parallel battle with the City of Redondo Beach over his plans for the site.
So far it appears the tension is only rising. Late last week, according to a filing on behalf of Pustilnikov, a lawyer for AES contacted the developer’s lawyer to introduce himself, and the two sides had a “courteous and cooperative interaction.” But then Pustilnikov’s team filed for what it described as a routine deadline extension related to the case, but AES countered by filing a hardened objection.
It amounted to “a massive overplaying of their hand or an egregious overreach,” Pustilniov’s lawyers shot back in another filing, that was “nothing more than a pretext to castigate the Debtor and attempt to ‘poison the well.’”
The judge granted the extension, with a creditors meeting scheduled for later this month.
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