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PJ Finance Company - Owner of Almost 10,000 Apartments - Files for Chapter 11 Protection

On Monday, PJ Finance Company, LLC and six affiliates voluntarily filed for bankruptcy protection in Delaware.  The companies own a portfolio of 32 apartment communities located in Arizona, Florida, Georgia, Tennessee and Texas.  A third party, WestCorp Management Group One, Inc. (not a debtor), manages the apartment complexes.  The companies owe over $475 million to secured creditors pursuant to a November 2006 loan agreement with Column Financial, Inc.  That loan was subsequently sold to Credit Suisse First Boston Mortgage Securities Corp., which then contributed the loan to a trust for purposes of including it in a portfolio of loans to be securitized through the issuance of commercial mortgage-backed securities (or CMBS).  The resulting mortgage pass-through certificates are identified as Credit Suisse Commercial Mortgage Pass-Through Certificates, Series 2007-C2.  The debtors also have outstanding trade debt of approximately $4.4 million.

According to court filings, the portfolio of apartment communities "yields insufficient rents to service both its suffocating monthly debt service obligations and those obligations related to its day to day operations."  The debtors also now state that the value of the portfolio is "dramatically less" than the outstanding secured debt.  The companies' cash flows, which are further hampered by a "waterfall" mechanism of cash management and mandatory reserves, are insufficient for them to be able to perform necessary maintenance to relet apartments as leases turn over.  This has resulted in over 1,700 of the portfolio's 9,500 apartments currently being unable to be rented, according to court documents. 

The PJ Finance companies have obtained a commitment from Gaia Real Estate Investments, LLC to invest $42 million of new equity into the debtors, but have not been successful in engaging the servicers on the secured debt (Wachovia Bank and Torchlight Loan Services) in discussions on a consensual restructuring of the debt.  They intend to use the chapter 11 cases to locate any competing equity offers and access cash collateral to fund their operations. 

Key court filings to date include the following:

To access copies of all major court filings from this case, please visit: http://www.chapter11cases.com/PJ-Finance-Company-LLC_c_23376.html#axzz1FzfhsJIy

Read more: Bankruptcy News & Analysis: PJ Finance Company - Owner of Almost 10,000 Apartments - Files for Chapter 11 Protection http://blog.ch11cases.com/2011/03/pj-finance-company-owner-of-almost.html#ixzz1Fzu75phv