Copia's Exclusivity Period Ends; Nonprofit, Creditors Told to Offer New Plans

A bankruptcy judge last week told bankrupt nonprofit Copia: The American Center for Wine, Food, and the Arts and its creditors to take another shot at formulating bankruptcy plans.

The Chapter 11 exclusivity period that had granted Copia the sole right to submit a plan with creditors came to an end Friday. The termination of the exclusivity period means any party now has the right to submit a plan, with or without Copia's support.

The judge scheduled another hearing for May 1.

Lawyers from Copia, bond insurer ACA Financial Guaranty Corp., and Copia Claims LLC - a bankruptcy claims trader that bought an unsecured $12,000 claim for $4,000 - have fought over what bankruptcy plan is appropriate. Copia first worked with ACA to create a plan, but later ended that agreement to formulate a deal with Copia Claims.

Copia Claims - represented by McGrane Greenfield LLP and Venable LLP - wants to provide financing to Copia in return for the right to propose its plan to creditors. The plan would include filing a fraudulent transfer claim that would attempt to get for the entire estate money held in escrow for the 1999 bondholders, alleging there was a botched defeasance during the 2007 refunding.

Copia Claims says the 2007 bondholders would prefer this plan, because they could get money up front rather than relying on insurance from ACA, which has an uncertain value given ACA's financial condition.

ACA's lawyers, however, argue this would benefit Copia Claims and its lawyers at the expense of other creditors. In addition, even if a fraudulent claim is sustainable - which it may not be - the 2007 bondholders would get a share of the estate, but lose the collateral to the 1999 bondholders, ACA's lawyers said.

The sides have also battled over whether or not the 2007 bondholders or ACA should get to vote on the plan.

Copia Claims has said the 2007 bondholders should get to vote on any plan because of ACA's conflict of interest - it represents both the 1999 and 2007 bondholders - and its "effectively insolvent" financial condition. ACA reported a policyholders' surplus of $101 million and contingent capital of $74 million as of Dec. 31, and said it could lose as much as $40 million to $50 million on a present-value basis as a result of the Copia bankruptcy, for which it has not yet set aside any reserves.

ACA - represented by Nixon Peabody LLC - says that it still has the right to vote for the plan based on the 2007 bond documents. The 2007 bondholders may deserve notice, but ACA should ultimately have the right to vote on the Copia Claims plan, which it would oppose, ACA's lawyers said.

"The McGrane Group plan would benefit a contingency lawyer bent on extorting settlement value through the threat of baseless litigation, but would leave both the debtor's estate and its creditors in a materially worse position," lawyers wrote. "ACA, as the largest creditor in the case, cannot and will not support such a plan."

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