PDS gaming, the international gaming firm currently embroiled in a legal battle with Baha Mar over $16 million of casino equipment, yesterday announced that it will "reluctantly" accept Baha Mar's 90-day timeline to determine whether it would honor or reject its lease with PDS - provided that Baha Mar amend its budget to provide for "timely" post-petition lease payments from and after the petition date on August 28.
Although court documents filed yesterday in Delaware's bankruptcy court reveal that PDS did not agree that a timeframe of 90 days is necessary for Baha Mar to make its decision, PDS stated that the debtors' indication that it would determine whether to assume or reject PDS' master lease and two lease schedules within 90 days is a "good starting point", as PDS hopes for a swift opening of the $3.5 billion resort. Absent the protections of post-petition payment and modification to the budget, PDS cannot be protected while the debtors make their determination of whether to assume or reject the master lease and lease schedules - a determination that PDS submits essentially is a foregone conclusion if the debtors intend, as they say, to complete the project as soon as possible.
"The court should therefore disregard the debtors' rhetoric and focus on the issue at hand: protecting PDS and its valuable equipment and operational system from post-petition default and subordination to debtor-in-possession (DIP) financing accorded a superpriority administrative expense in the amount of $80 million," read the court documents.
PDS argued that Baha Mar's opposition to PDS' earlier bid to have the court force Baha Mar to make its decision on the lease was "long in rhetoric and broad generalizations, but short on specific facts".
The company argued that Baha Mar's budget extended well beyond the first five weeks of the case, making future provisions for monthly lease payments to PDS more difficult to attain. The debtors' current budget runs through April 1, 2016. However, Baha Mar earlier conceded that the line items budgeted in the development's $80 million DIP financing did not include lease payments to PDS. Furthermore, the budget cannot be changed without the consent of the DIP lender. PDS' reply noted that the debtors have yet to modify the budget to provide for the lease payments, which Baha Mar's counsel conceded are required to be paid starting 60 days after the commencement of the case.
"The fact of the matter is that every missed post-petition payment is subordinated to the superpriority administrative expense afforded the DIP lender up to $80 million. The debtors do not and cannot refute this fact." In sum, PDS maintains that the debtors must remain current post-petition if they wish to retain and enjoy the equipment. PDS therefore requests that the debtors be ordered to make lease payments from and after the petition date while they consider whether to assume or reject the lease and that the budget should be modified accordingly," reads the reply.
Nevada-based PDS earlier asked the U.S. Bankruptcy Court in Delaware to force Baha Mar to accept a $16 million master lease and two accompanying lease schedules or terminate its lease agreement and allow the gaming company to reclaim over 1,000 pieces of gaming equipment on lease to the resort. PDS had previously argued in its initial filing earlier this month that Baha Mar defaulted on the equipment's master lease by failing to pay just over $700,000 in interim and basic rent. PDS held that Baha Mar had ceased making any payments following its Chapter 11 bankruptcy filing on June 29, 2015 and feared that it would bear the risk, given Baha Mar's apparent lack of provisions to pay PDS under its DIP financing.
PDS Chief Financial Officer Peter Cleary earlier stated in court filings that PDS' first lease schedule required Baha Mar to pay interim rent of just over $59,000 monthly from March to May 2015, after which basic rent would increase to nearly $170,000 for four years. The second lease schedule began in March 2015 with interim rent of $105,542 from April to June 2015, after which it would increase to $172,221 for the remaining 48 months.
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