Ackman/Winthrop on Stuy Town Foreclosure: Yes We Can
The activist investor team of Bill Ackman and Winthrop Realty Trust has fired back in the ongoing creditor fight over the control of Stuyvesant Town. The team, which is trying to wrest control of the 80-acre East Side property amid a legal challenge by the holders of a first mortgage, filed papers in court today saying essentially that they do indeed have the ability to foreclose. (The first mortgage’s special servicer, CW Capital, sued earlier this month, making the opposite argument by alleging that the Ackman/Winthrop team’s contract explicitly says they cannot foreclose without first ponying up $3.6 billion.)
This he-said, she-said on the wording of the contract is significant, given that the judge on the case, Richard Lowe III, made clear that he was going to rule simply based on “whether you [PSW] are bound by the intercreditor agreement,” according to a transcript of a court appearance.
The two parties are due in court on Sept. 2. The Ackman/Winthrop team–known as PSW–has scheduled a tentative foreclosure for Sept. 8, but CW Capital is arguing for an injunction, a point on which the judge will rule.
CW Capital’s main argument is that “Section 6(d)” of the intercreditor agreement requires any second mortgage holder to pay off all the first mortgage ($3.6 billion, with interest) before foreclosing. The PSW team denies this, saying in its brief that CW Capital’s brief engaged in “efforts to mangle Section 6(d) beyond recognition.”
From PSW’s brief:
“CWCAM needed to delete more than half of the language of the latter [the section], including both the subject and the verb, to attempt to make its argument based on the remaining nonsensical sentence fragment.”
Further, PSW accuses CW Capital of itself bidding on the debt that PSW bought up (for 15 cents on the dollar), a sign suggesting that CW Capital may indeed have been concerned about the ability of PSW to foreclose. (Winthrop CEO Michael Ashner says in an affidavit that CW Capital offered the same $45 million that PSW paid.)
Should the judge grant the injunction, then the case would continue and the foreclosure would be averted. Should he deny it, it would be a huge loss for CW Capital. At that point, PSW could foreclose on the equity, take control of the property and throw it into bankruptcy in an attempt to restructure in court. Either that, or PSW and CW Capital could make nice and negotiate a restructuring of the debt outside of court.
Here’s a statement from PSW attorney Edward Weisfelner:
“We are confident that the language of the contracts that govern this transaction support our foreclosure plan. We look forward to a successful outcome and are eager to move ahead to meet tenants’ needs with a permanent affordable housing solution.”
The brief is here.