Parties in a bankruptcy case involving a bond-financed Arizona participant sports venue objected to a motion to either appoint an independent Chapter 11 trustee or dismiss the case, arguing either move would be detrimental or premature.
Legacy Cares, the venue’s owner, which filed for bankruptcy May 1 in Arizona federal court, along with bond trustee UMB Bank and the official committee of unsecured creditors raised concerns Thursday that efforts to sell the 320-acre Legacy Park in Mesa would be derailed and $9 million of debtor-in-possession (DIP) financing that is allowing the facility to continue to operate would be exhausted before a sale could be consummated.
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U.S. Trustee Ilene Lashinsky, who is monitoring the case, asked the court last month to appoint an independent entity to assume control of Legacy Cares’ assets and operations or dismiss the bankruptcy, citing “dishonesty, incompetence, or gross mismanagement,” as well as the possible misuse of bond proceeds on the part of the nonprofit owner.
A hearing on the motion is scheduled for Thursday.
In its objection, Legacy Cares, which sold $284 million of mostly tax-exempt, unrated revenue bonds in 2020 and 2021 through the Arizona Industrial Development Authority, warned the appointment of an independent trustee would delay the venue’s sale for months and likely lead to its shutdown. It also disputed many of the claims made by the U.S. trustee.
Legacy Cares contended it did not make improper loans, although it pointed to $26,000 Legacy Sports, the venue’s operator, needed to pay back for the unauthorized use of funds for two of its entities that were developing sports complexes in other states.
Legacy Sports also requested and received draws from bond proceeds for operating expenses that exceeded amounts it was entitled to receive, which led to the depletions of available construction funds and subsequent mechanic’s lien claims from contractors, Legacy Cares said in the filing.
Earlier this year, Legacy Cares split with Legacy Sports and entered into a qualified management agreement with Elite Sports Group.
As for missing financial audits, Legacy Cares said it incorrectly understood annual audits were only required once the venue opened in early 2022 and that Legacy Sports’ attempt to seek alternative financing or a debt restructuring with the help of Loop Capital Markets last summer stalled a forensic audit required by its auditor in order to opine on 2022 financial statements.
Bondholders in February rejected a plan to refinance the bonds, which incurred a payment default in January.
UMB Bank called the U.S. trustee’s remedy “premature” and noted the venue has never been profitable and is currently losing more than $1 million monthly.
“The appointment of a trustee would likely exhaust the DIP facility before a sale can be fully consummated, potentially erasing value and adding tremendous cost at the expense of creditor recoveries,” the bond trustee’s filing stated.
The official committee of unsecured creditors said “appointing a Chapter 11 trustee now would defeat rather than enhance the estate’s ability, at the appropriate time, to commence a rigorous investigation of the allegations contained in the trustee motion and pursue causes of action that emerge from that investigation.”
Legacy Park was built to host youth and amateur competitions in sports including soccer, basketball, volleyball, and pickleball.