John Rogers of Strasburger & Price, LLP and Ramiro Rangel of Forastieri Abogados, S.C. have published an article entitled Liquidation of Multinational Companies: Implications for Mexican Subsidiaries. Copies are available here and on the website of the National Association of Bankruptcy Trustees.
In the wake of TSD Loreto Partners, S. en C. por A. de C.V.’s June 6, 2009 announcement that it had suspended all operating and construction activities on the Loreto Bay project, I decided to perform an informal internet-based investigation on the companies involved in the development of the project.
At the top level appears to be The Trust for Sustainable Development, a Canadian non-profit corporation. According to its website, the Trust first identifies and provides seed financing for sustainable projects. It then creates a for-profit company to develop each project. The Trust has developed (or commenced the development of) projects in Canada, the U.S., and, of course, Loreto Bay, Mexico. We did not investigate the projects the website says were developed in connection with the Trust.
The Trust created several affiliated for-profit entities to develop the Loreto Bay project. TSD Loreto Partners, S. en C. por A. de C.V., a Mexican partnership, is the principal Mexican development entity.
The Loreto Bay Company, an Arizona corporation, appears to have initially been the principal U.S. sales and marketing arm for the project. Based on public records obtained from the Arizona Secretary of State, Mr. David Butterfield (who is discussed below) served as Chairman of the Board of the Loreto Bay Company, Mr. James Grogan served as Director and President & CEO, and Mr. David J. Shreene served as Senior Vice President and Secretary.
In January 2007, the Loreto Bay Company was merged into Baja Developments, LLC, a New York limited liability company, the Manager of which is The Trust for Sustainable Development. Upon the merger, Baja Developments, LLC likely became the principal U.S. sales and marketing entity for the Loreto Bay project.
Another entity indirectly involved in the project was a British Columbia entity named Baja Developments Limited Partnership, which was probably Mr. Butterfield’s holding company for his investment in TSD Loreto Partners and/or Baja Developments, LLC.
One or more of Baja Developments, LLC, Baja Developments Limited Partnership, and the Loreto Bay Company likely controls a portion of TSD Loreto Partners, but there is no public document by which we could confirm the ownership structure of TSD. The formation documents of TSD filed in the Public Registry of Commerce in Mexico located in its state of organization would show only the initial partners of TSD and not any subsequent changes in ownership structure (we have not sought to obtain copies of TSD’s Public Registry documents).
Based on the press release discussing the formation of a joint venture between the Loreto Bay Company and Citi Property Investors to develop the Loreto Bay project, we speculate that the remaining portion of TSD is owned by Citi and other persons. However, we would have expected that Citi would have preferred to make its equity investment in the Loreto Bay project through a U.S. joint venture entity, such as Baja Developments, LLC, in order to avoid the difficulty of enforcing joint venture obligations under Mexican law.
The Trust for Sustainable Development is led by Mr. Butterfield, whose LinkedIn profile is available here. The profile indicates that Mr. Butterfield is a Director at Arizona State University’s Global Institute of Sustainability and the President of ICC Power, Inc., which the profile says was formerly International Composting Corporation. The Institute’s website no longer names Mr. Butterfield as a Director and ICC Power, Inc.’s website is under construction. International Composting Corporation has a website, which may or may not be the same International Composting Corporation that Mr. Butterfield is referencing on his LinkedIn profile, but we did not find any mention of Mr. Butterfield on that site. Mr. Butterfield probably has not recently updated his LinkedIn profile.
(Note: Loreto Bay’s developers have taken down the original project website, which may now be viewed via the Wayback Machine.)
In a July 24, 2008 post, Mexico Law Blog questioned the viability of the ambitious 6,000-unit Loreto Bay tourist development project called Loreto Bay, located on around 8,000 acres adjacent to the hamlet of Loreto on the east coast of the Baja peninsula. Although the project, particularly its goal of self-sustainability, is impressive, its timing is unfortunate.
The San Diego Times has reported that the project developer, TSD Loreto Partners, S. En C. por A. (”TSD“), has sold fewer than 800 units and suspended construction and operations. The report also said that Fonatur, Mexico’s tourism development agency, was asking for “custody” of the project so that it could reopen a golf course and a hotel while TSD searches for a buyer. The principal lender for the project is Citigroup Property Investors. Whether TSD has breached its loan covenants is unknown, but highly probable.
StarkSilverCreek.com reports that TSD is subject to a lawsuit in Arizona, in which Baja Developments, LLC, a New York limited liability company, alleges breach by TSD of a services agreement and seeks damages in excess of $7,000,000. According to a detailed article about the Loreto Bay project in the Phoenix Business Journal, Baja Developments, LLC was a company formed by The Trust For Sustainable Development (note the “TSD” initials), a Canadian non-profit, federally chartered land and community development corporation, that arranged financing for the Loreto Bay project.
I recently assisted my colleagues John Rogers and Mary Rose Brusewitz in the preparation of a paper entitled “The Financial Crisis and Implications for U.S.-Mexico Bankruptcies and Restructurings“, which was published in Latin American Law & Business Report.
On January 15, 2009, John and Mary Rose will join a panel discussion at the U.S.-Mexico Chamber of Commerce in New York, in which they will discuss aspects of the paper and cross-border restructurings amid the current financial crisis. The panel discussion is part of an event hosted by the U.S.-Mexico Chamber called Corporate Restructuring and Distressed Markets in Mexico.
On January 15, 2009, the U.S.-Mexico Chamber of Commerce in New York will host an event entitled Corporate Restructuring and Distressed Markets in Mexico.
The event includes a keynote speech by Luis Manuel Mejan, Director General of the Mexican Federal Institute of Commercial Insolvency Specialists (IFECOM), and a panel discussion led by my Strasburger & Price colleagues John Rogers and Mary Rose Brusewitz, and Steven Kargman, President of Kargman Associates, a restructuring advisory firm.
More information is available here.
Insolvent Mexican supermarket operator Comercial Mexicana, which recently received notice that its second petition for bankruptcy protection in Mexico had been rejected by a Mexican court, will probably present a third petition, according to a Sentido Comun.com report. It continues to negotiate its approximately US$2 billion of debt with creditors. Fortunately for La Comer, there is no three strikes and your out rule in Mexican bankruptcy petition filing.
BBVA’s Mexican subsidiary has commenced the seizure of assets of struggling Mexican supermarket operator Controladora Comercial Mexicana (CCM) (MXK: COMERCIUBC) valued at approximately US$100 million, according to a report in La Jornada.
After two failed attempts to obtain protection from its creditors in Mexican courts, Comercial Mexicana is now trying to negotiate an out-of-court settlement. Comercial Mexicana has not obtained a declaration of commercial competition by the relevant judicial body, so it must confront each of the creditors’ demands for payment.
As we discussed in a November post, JP Morgan Chase, Barclays Bank, and a few other major banks have filed lawsuits in New York state courts against Comercial Mexicana alleging breach of certain exchange-rate and other derivatives contracts. Those banks may also wish to investigate the Mexican remedies, if any, are that are available to them under those contracts because any U.S. judgment obtained against Comercial Mexicana would require enforcement in Mexican courts, which is a protracted process.
As discussed in November 12, 2008 Mexico Law Blog post, JP Morgan Chase and several other banks have filed lawsuits against Mexican supermarket operator Controladora Comercial Mexicana (CCM) (MXK: COMERCIUBC) alleging breach by CCM of its exchange-rate derivative contracts.
We have not yet had the opportunity to review the court filings, but based on our own research, as of November 14, 2008, the claims against CCM in New York state courts appear to consist of the following:
Mexican billionaire Carlos Slim offered his views to reporters regarding U.S. auto industry, health care, and other issues in an interview in San Antonio on November 18, 2008, summarized a Houston Chronicle report.
With respect to the auto industry, Slim suggested that struggling companies should file for Chapter 11 bankruptcy protection and renegotiate uncompetitive labor union contracts in exchange for giving workers company shares. This is a suggestion lawmakers on Capitol Hill may wish to bear in mind today as they listen to pleas from auto industry executives for a US$25 billion slice of the US$700 billion Troubled Asset Relief Program (TARP).
JP Morgan Chase has sued iconic Mexican supermarket operator Controladora Comercial Mexicana (CCM) (MXK: COMERCIUBC) in a New York state court alleging breach of its obligation to maintain collateral in its exchange-rate derivative transactions, according to a Sentidocomun.com report, which cited a Bloomberg report.
The lawsuit seeks US$477.5 million from CCM. CCM said that it had been notified of the lawsuit and that it expected to be the subject of similar actions in the next few days in the wake of its October 9, 2008 petition filed with a Mexico City bankruptcy court seeking creditor protection (concurso mercantil). The report said that Barclays, Goldman Sachs Group, and Merrill Lynch had filed similar lawsuits against CCM.
As Mexico Law Blog reported on October 27 and 29, 2008, CCM’s October 9, 2008 bankruptcy filing was rejected by the Mexican bankruptcy court for undisclosed reasons; following the rejection, the company announced plans to immediately file a new petition, which it did on October 28 or 29, 2008. No news has been issued confirming the acceptance or rejection by the Mexican bankruptcy court of the company’s new petition.
In October 2008, CCM’s debt inflated to US$2 billion following huge losses on exchange-rate derivative bets against the dollar, according to a Reuters report. CCM said in late October that it had obtained loans worth up to MX$3.327 billion to continue paying suppliers. One of the loans, for up to MX$3 billion, is guaranteed by Mexican development bank Nacional Financiera (NAFIN).
Copyright © 2008 by John Dorsey
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