Anticipating a number of questions regarding the MLLA settlement, the town published the following expected questions.
1. Why did the Town decide to settle after declaring bankruptcy? Wouldn’t bankruptcy erase or substantially reduce the MLLA judgment?
The Town, including its elected leaders, management, legal counsel, and financial
advisors spent countless hours over many weeks on an extensive analysis of the
costs and benefits of the settlement versus staying in bankruptcy. As a result, we
have determined that a settlement was a far better alternative, creating
certainty but also reducing the $43 million outstanding debt to $29.5 million.
The Town has taken the following factors into account:
1. There was a possibility that the bankruptcy judge would find the Town ineligible for Chapter 9 relief, or would not approve our proposed debt restructuring plan. It became clear that the Town would be required to increase financial support for its litigation efforts in order to try to win eligibility and plan confirmation. These increases were estimated between $2.5 million and $5 million. Without a massive cash infusion (and, quite possibly, even after spending additional millions), there was a strong potential for a dismissal of the Town’s bankruptcy case by the bankruptcy judge. This would immediately make the Town subject to the $43 million State court writ, ordering the Town to pay the $43 million immediately, or request a 10-year payment term (resulting in approximately $6 million annual payments for 10 years, after applying the 7% interest set by California State law). The Town simply cannot afford to pay $43 million immediately or $6 million annually.
2. A prolonged legal battle with MLLA and other major creditors was anticipated in bankruptcy court. Such a battle would require spending millions of dollars in legal fees, with a very uncertain outcome as to the eventual payment to MLLA.
3. Even if the Town eventually received the U.S. Bankruptcy Judge’s approval of its debt adjustment plan, a payment to MLLA under that plan would likely be similar to the $29,5 million negotiated under this settlement. And even then, the Judge’s decisions could have been appealed by MLLA and others, resulting in yet more litigation and additional cost.
4. To finance litigation and eventual payment to MLLA, it was likely that the Town would be forced to use high-priority but discretionary spending sources such as Measures A and T, which currently fund tourism promotion, housing and transit programs.
5. The uncertainty of the ultimate decisions by the Federal Aviation Administrationand/or the State Department of Transportation regarding the remainder of the
Airport Development Agreement posed great risk. The Development Agreement,
signed by the Town in 1997, still requires major approvals, including an
environmental study, the access road extension and other onsite improvements.
The Town concluded that the settlement, including prompt dismissal of the
bankruptcy case, was in the best interests of the Town. There are multiple benefits
to the Town of this settlement:
1. The settlement provides certainty on the amount to be paid by the Town to MLLA
and Ballas entities, and the duration of such payments; no such certainty could
be possible in the context of a heavily litigated chapter 9 bankruptcy case.
2. The settlement, at its current present value of $29.5 million, is considerably less
than the $43 million that the Town currently owes to MLLA under the legal
judgment. The Town could raise funds and pay off MLLA immediately by writing
a $29.5 million check. Alternatively, the Town has 23 years to pay $2 million
annually, reflecting the equivalent of a loan with a 5.17% fixed interest charge,
which is likely lower than what the Town could currently obtain in an open
market. The Town could also prepay at any time during the 23-year financing
term, if it has sufficient funds. Partial prepayments are also allowed, as low as
$250,000 in any given year.
3. It provides for payments over the course of 23 years — far longer than the 10-year
period allowed under the State law.
4. It amicably resolves potential disputes with Ballas and the other DA Creditors
with respect to the Development Agreements and related contracts and leases
that were not assigned to MLLA.
5. The Town will be getting back numerous property and development rights, as
well as the water system, as a result of the termination of the Development
Agreement and certain related contracts, and these recaptured rights have both
financial and strategic value to the Town.
6. The settlement avoids the cost, delay, distraction, and risk that would accompany
extensive eligibility and plan confirmation litigation and permits a prompt
dismissal of the Town’s Chapter 9 case, further limiting costs.
7. A number of settlements reached with third parties during the pre-bankruptcy
mediation process are contingent on effectuation of a plan of restructuring or a
settlement with the Ballas entities. The settlement with the Ballas entities will
result in the Town receiving the benefit of those third-party settlements.
2. My calculations show that the Town will end up paying to MLLA over $48.5
million at the end of the 23-year term. Is this correct?
The settlement calls for a payment from the Town to MLLA of approximately $2.5
million upfront, and additional $2 million annually for 23 years. If the Town chooses
Responses to Anticipated Questions Regarding Settlement Page 2
to pay according to the schedule, it would end up paying $48.5 million over a 23-
year period. However, if the Town raised funds to pay MLLA right away, it
would only need to write a check for $29.5 million. This is far less than the $43
million judgment held by MLLA against the Town (which the Town would be
obligated to pay to MLLA right away in absence of a negotiated settlement, and
which would continue to accrue interest until paid). This is no different from a
mortgage or a loan, where a principal, or debt, is financed over a period of time, with
interest charges. In the Town’s case, financing over a 23-year term comes with a
fixed “interest” of approximately 5.1% to 5.2%, which may be better than the Town
could obtain in an open market. Moreover, the negotiated debt “principal” of $29.5
million is far lower than the current outstanding “principal” of the judgment the Town
owes to MLLA, at $43 million.
3. How will the Town pay for the settlement? How can we afford it?
What the Town cannot afford is an alternative to the settlement — a prolonged legal
battle in the bankruptcy court, with millions of dollars in legal fees and no certainty
that the Town would win, and a real possibility that the eventual payoff to MLLA
would not be significantly lower than the settlement amount of $29.5 million.
The settlement would require balancing measures to free up $2 million in the Town’s
annual budget. The Town has developed a draft restructuring plan, which will be
presented to the community on September 27, 2012.
4. Why is the Town dismissing its Chapter 9 case? Wouldn’t bankruptcy end all
claims against the Town prior to the filing? Are MLLA and Ballas forcing the
Town to end its case?
The Town is seeking the dismissal of the Chapter 9 case on its own initiative. It is
important to point out that Chapter 9 does not end claims, but simply allows to
restructure them, and in many cases, reduce them. Other than MLLA and Ballas
entities, the Town did not have multi-million dollar claims. Continuing with
bankruptcy now, after we have settled with two largest creditors, is simply not
justified given the cost of the process, very limited benefits, and the continuing
negative impact that bankruptcy has on this community and organization.
5. How does this affect Mammoth Ski Area? Will the resort be open for skiing
Absolutely! The Ski Area is open for business, as is the rest of the Town. The
settlement leaves behind legal issues and pending bankruptcy, and is a positive
thing for the Town and the community.
information. We look forward to seeing you here in Mammoth Lakes.
Responses to Anticipated Questions Regarding Settlement Page 3
6. I was told the lawsuit was purchased from the Ballas entities by a law firm for
$5 million, Is this accurate?
The Town does not know, and has no way of knowing, what was paid by Mammoth
Lakes Land Acquisition (MLLA) to Ballas for the hotel I condominium portion of the
development agreement. (MLLA later sued the Town for the breach of contract and
was awarded $30 million.)
7. How can I receive more information on the settlement and the Town’s plans to
pay for it?
You can receive information, and offer input, in several ways:
a) By calling the Town Manager’s office at (760) 934-8989, extension 223.
c) By attending one of many public meetings, listed below. (All meetings will take
place in the Town Council Chambers.)
Discussion of the Restructuring Plan - Phase 1 (position eliminations)
Wednesday, September 27: 6:00pm
Wednesday, October 3, 2012
Wednesday, October 17, 2012
Wednesday, November 7, 2012
Wednesday, December 5, 2012 (Adoption of the Restructuring Plan Phase 1)
Analysis of Alternative Seivice Deliveiy Models, in Collaboration with Employees
and Outside Partner (Restructuring Plan - Phase 2)
Wednesday, December 5, 2012
Wednesday, December 19, 2012
Wednesday, January 2, 2013
Wednesday, January 16, 2013
Wednesday, February 6, 2013
Wednesday, February 20, 2013
Town reports results of outsourcing RFPs.
Wednesday, April 17, 2013
Town approves outsourcing contracts, new seivice deliver,’ models, and new FY
20 13-14 budget
Meetings in May-June 2013