This note was written by Richard Sommerfeld. He sent it to the entire MCA board this morning and posted it on Facebook. It has a lot of important information to help the MCA Board and MCA Homeowners better understand our situation.
Yesterday’s email update from MCA included this paragraph: “Also on the agenda is the new Contract with Troon/Icon that will require a Board vote for continued operations of all amenities. This has been a long and complicated process that has included multiple attorneys and many negotiations. It has been an arduous task for the MCA Board. Now we are at a critical juncture – approving an agreement with TMCC to avoid bankruptcy, which will shut down all amenities for an unforeseeable period of time.”
There have also been statements by MCA leadership that things get tangled and complicated if TMCC goes into bankruptcy. MCA leadership has indicated that TMCC is using this as a threat/leverage over MCA as a negotiating tool.
I am by any standard an expert on dealing with distressed/insolvent/bankrupt companies with 27 years of workout, receivership, liquidation and company turnaround experience with 2 major American banks and running my own turnaround company. I understand the accounting and legal implications of bankruptcy because I have been through the process multiple times.
This may be counter-intuitive, but the TMCC going into bankruptcy (i.e., Chapter 7) is not a bad thing. In fact, it should seriously help the MCA and the assessment paying residents. This is how it would likely play out.
A Chapter 7 bankruptcy is a matter of liquidation (Chapter 11 is to continue negotiate a business continuation which is much more complicated). The TMCC has no operations, no revenues, no members but a lot of known and unknown liabilities which means that Chapter 11 is not an option.
First, MCA is the legal owner of equipment, furniture and other assets on the premises since May 1 under the terms of the terminated lease (Clauses 8(B) and 16). According to MCA’s lawyers this includes licenses, trademarks, member lists and other intangibles. It also has possession and control of all the equipment. There is no stopping it from utilizing the equipment. If MCA is allowing TMCC to stop it from using the equipment in some way either now or through the threat of bankruptcy, that makes no sense. It also means that whatever legal advice they are receiving is questionable. The overseeing bankruptcy trustee, who is always an accountant, will easily realize MCA’s position and priority over all other unsecured creditors.
The only parties ranking ahead of MCA are the equipment lessors who have filed no less than 11 liens on the equipment which we did not know until after the TMCC terminated the lease. For those lessors whose equipment MCA chooses to retain, MCA will negotiate the lease assignment with them to take over the leases. The Transition Committee highlighted this as a top priority more than 2 months ago. The lessors will be keen to do this as they’ll move from a lessee who is unable to make the payments to one who is willing to. All of this is used equipment, much of it several years old, so the lessors will be happy to have a new lessee paying for it. There was room for the MCA to negotiate better rates in April but that ship has sailed.
FYI there are 3 basic groups of leased equipment:
1. Greenkeeping equipment. We want these leases.
2. Golf carts and GPS systems. If we aren’t operating the courses (which we shouldn’t do until a qualified lessee is signed), we don’t need them. But they are an in-demand item so if we are able to make a deal with an operator this will be a desirable asset.
3. 200 banquet chairs and 4 printer/scanners. Yes, TMCC leased banquet chairs for the clubhouse. We don’t need these and TMCC can deal with the lessors who will reclaim their assets.
There may be certain assets like licenses that would be easier to transfer with TMCC’s cooperation, but ultimately this can’t be held as leverage by TMCC if they are in Chapter 7 bankruptcy. The liquor license is already assignable under state law anyway. The overseeing accountant will get it figured out.
And things are more complicated if MCA chooses to re-open the courses and needs to do a LOT more than just maintain the courses. But MCA should be leaving the courses closed and just doing minimal maintenance. Opening the courses will cost MCA homeowners an extra $300,000 per month over the remainder of the year. RE-opening the courses is a lot more complicated and a lot more expensive. DON’T DO IT!
Also, the TMCC, an insolvent company threatening bankruptcy to intimidate our board, is wanting the MCA to indemnify the company and its directors. This is insane and would be irresponsible of the MCA to do so. I don’t care what the MCA lawyers say. It’s a very bad decision if the board agrees. Why does the TMCC want indemnifications? In 27 years of doing this work, I have never seen a bankrupt company receive indemnifications from another company that acquires its assets.
To recap: all the equipment necessary to maintain the facilities does rightfully belong to MCA (or will readily become leased by MCA) and MCA has possession of all of the equipment (again taking over the leases should have already happened long ago and is easier to achieve with TMCC in Chapter 7). MCA has all the capability and equipment it needs to maintain the facilities. Anyone who believes or says otherwise is misinformed or deliberately misleading.
If by some fluke we are short some equipment, Palm Aire has one of their 2 courses shut down for the summer due to renovation and has offered to lend MCA equipment to help out a golfing neighbor.
Letting TMCC file for bankruptcy makes them the ongoing owners of what is estimated to be $500,000 to $600,000 of net unpaid liabilities and unknown legal risks on top of either operating the golf complex or even just minimally maintain the courses until a lessee is signed. I could see a scenario when the MCA could conceivably burn through $2M+ of funds between now and the end of the year. We have no budget for the sport complex. We have no cash flow forecast from the treasurer. We have no contingency plan if their gamble fails. The TMCC made those decisions and they can live with them. But, if MCA owns the risks, then it makes a lot more sense for someone to take a shot at legal claims because MCA has deep pockets (which are actually MCA homeowners’ pockets!).
It would take some months for the liquidation to be resolved. But it would not prevent MCA from possessing (it already does possess it) and using the equipment.
Richard Sommerfeld
Meadows resident since 2020
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