EL COMANDANTE MANAGEMENT COMPANY LLC

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

IN RE: CASE NO. 04-10938 (ESL)
EL COMANDANTE MANAGEMENT CHAPTER 11
COMPANY, LLC, et al.,
(Jointly AdnitikEEN ENTERED
Debtors.
MAY 3 0 2006

OPINION AND ORDER yg. sanknuptcy couRT

SAN JUAN, PUEATO RICO
This case came before the court on April 25, 2006, to consider the approval of Caribbean
Thoroughbred Racing Company, Inc.’s Second Amended Disclosure Statement For Second
Amended Joint Plan Of Reorganization For Debtors And Debtors-In-Possession E] Comandante
Management Company, LLC, Housing Development Associates, SE, and El Comandante Capital
Corporation (“Caribbean’s Second Amended Disclosure Statement”) filed on April 22, 2006 (Docket
No. 1091);! and the objections to Caribbean’s First Amended Disclosure Statement filed by Wells
Fargo Bank, National Association, in its capacity as Indenture Trustee (the “Indenture Trustee”)
(Docket entries No. 1047, 1084), the Treasury Department of the Commonwealth of Puerto Rico

(“Treasury”) (Docket No. 1048), and the Horse Racing Administrator of the Puerto Rico Horse

Racing Industry and Sport Administration (the “Horse Racing Administrator”) (Docket No. 1052).

_ Caribbean replied to the objections to the First Amended Disclosure Statement (Docket No. 1090),

and filed the Second Amended Disclosure Statement. For the reasons set forth below, Caribbean’s
Second Amended Disclosure Statement is hereby approved.
Jurisdiction

This court has jurisdiction to entertain Caribbean’s request for approval its second amended

l Caribbean Thoroughbred Racing Company, Inc.’s (“Caribbean”) First Amended Disclosure Statement
was filed on March 16, 2006 (Docket No. 980), Caribbean informed the court that the Second Amended Disclosure
Statement addresses all the objections raised by Treasury, and the Indenture Trustee. Caribbean filed the Second
Amended Plan on April 22, 2006 (Docket No. 1092).

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disclosure statement, pursuant to 28 U.S.C. §§ 1334 and 157. This contested matter is a core

2 proceeding under 28 U.S.C. § 157(b)(2)(A), and venue of debtors’ jointly administered cases is

proper in the District of Puerto Rico, pursuant to 28 U.S.C. § 1408(a), and the Order entered by the

5 United States Bankruptcy Court for the District of Delaware, on October 22, 2004, wherein venue

6 || was transferred to this District, pursuant to 28 U.S.C. § 1412 (Docket No. 42).

7 Background

8 El Comandante Management Company, LLC (“ECMC”), Housing Development Associates,

° S.E. (“HDA”), El Comandante Capital Corporation (“ECCC”) (collectively the “debtors”), filed for
. bankruptcy under Chapter 11 of the Bankruptcy Code on October 15, 2004. On January 25, 2006,
2 Caribbean filed its disclosure statement (Docket No. 781). A hearing was held on February 21,
13 |] 2006, to consider Caribbean’s disclosure statement, and the objections filed by creditors and parties
14 | in interest (Minutes of February 21, 2006, Docket No. 921). On March 3, 2006, the court entered
ID an Opinion and Order denying Caribbean’s request for approval of the disclosure statement , because
. ihe proposed Chapter 11 plan failed to comply with the requirements of 11 U.S.C. § 1123(@)(4),
18 making the proposed Chapter 11 plan unconfirmable (Docket No. 945). The court allowed
19 || Caribbean twenty (20) days to file an amended disclosure statement and plan.
20 On March 16, 2006, Caribbean filed its first amended disclosure statement and plan (Docket
21 No. 980). The Indenture Trustee, Treasury, and the Horse Racing Administrator filed objections to
. Caribbean’s first amended disclosure statement and plan. Caribbean replied to the objections, and
, filed a Second Amended Disclosure Statement and Plan addressing the objections raised by the
95 || parties (Docket entries No. 1091, 1092). A hearing was held on April 25, 2006. The matter was
26 || taken under advisement.
27
98 2 Caribbean’s disclosure statement and plan classified the general unsecured creditors and the unsecured

deficiency claim of the Indenture Trustee in the same class albeit with a different treatment (Docket No. 781).

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Caribbean’s Second Amended Disclosure Statement and Plan

Pursuant to the Second Amended Joint Plan Of Reorganization For Debtors And Debtors-In-
Possession El Comandante Management Company, LLC, Housing Development Associates, SE,
And El Comandante Capital Corp. (“Caribbean’s Second Plan”), Caribbean will pay $67 million for
the purchase of substantially all of debtors’s assets (“Asset Purchase Agreemen »y, and a deferred
compensation under the Earn-Out Agreement (“Earn-Out Compensation”).* The bondholders will
receive $59-$60 million from Caribbean’s purchase price for debtors’ assets. The tentative

breakdown provided by Caribbean is as follows:

Value of Wells Fargo’s security interest: $64,000,000
Adequate protection payments: (8,700,000)

Face value of ECMC’s notes: (6,700,000)
Estimated Rent paid, as of September 2006: (3,000,000)
Payment of deficiency claim: 13,700,000
(Unidentified funds) 750,000
Estimated total distribution amount: $59-60 million

Caribbean’s second plan also provides to pay in full all the allowed administrative claims,
allowed other secured claims, allowed priority tax claims, and other allowed priority unsecured
claims; and, an initial distribution to the allowed general unsecured claims against creditors
of ECMC and HDA. The reserve funds to pay these claims have been increased under the second

plan, and Caribbean has indicated that the company and its investors have the resources to adjust

3 Caribbean’s Asset Purchase Agreement is $3 million more than the one proposed by the Indenture

Trustee in its proposed plan and sale to Camarero.

4 The Earn-Out Agreement contemplates the creation of a trust by the purchaser of the racetrack and
other assets. The funding of the trust is contingent on the Puerto Rico Government’s approval of regulations to govern
the installation and operation of the video-games machines. Otherwise the new owner will have to fund the trust. The
trust must be established within five (5) years from the effective date of the plan. However, the Earn-Out Agreement
requires that Caribbean must obtain a license to operate the racetrack. Distribution to the beneficiaries of the trust will
be made within ten (10) years from the “Trigger Event” date, which is the date when the purchaser of the debtors’ assets
has installed at least 500 VGMs on or off the premises of the racetrack; provided, that the new legislation is enacted and
the purchaser has obtained all the necessary governmental permits for the installation and operation of the equipment.
The court notes that Caribbean’s request for a license to operate El Comandante Racetrack has been denied by the Horse
Racing Board.

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and/or increase the reserves, if necessary. The second plan also contemplates an extension of the
preliminary injunction issued on behalf of the debtors, in order to operate the racetrack
under ECMC’s management up to the effective date of the plan, which is 90 days from the date that
ihe confirmation order becomes final and unappealable. The source of funds to close the Asset
Purchase Agreement is a credit facility by Westernbank Business Credit in the amount of $73 million
dollars. The financing is not contingent on Caribbean obtaining a license to operate a racetrack.

Applicable Law and Discussion

L Standards to approve 2 disclosure statement under 11 U.S.C. § 1125(a)(1).

Pursuant to 11 U.S.C. § 1125(a)(1) adisclosure statement must contain adequate information
for its approval. “The determination of what is ‘adequate information’ in a disclosure statement is
a practical and variable inquiry made on a case-by-case basis.... Beyond the statutory guidelines
described in § 1125(a)(1), the decision to approve or reject a disclosure statement is within the
discretion of the bankruptcy.” (Citations omitted.) In re Aspen Limousine Service, Inc., 193 B.R.
325, 334 (D. Colorado 1996). When determining whether the information provided in the disclosure
statement is adequate the court should evaluate the information in light of the particular
circumstances of the case and the “need for a quick solicitation and confirmation.” 4 Norton
Bankr, L. & P. 2d § 86.22, In this case there are now three competing plans. Each plan proponent
has, as of the date that their respective disclosure statements were approved, the financial resources
to fund the plan proposed and offer a payment plan to the bondholders and other creditors. The route
to approval of each of the disclosure statements, as well as most of the motions in this case, have

been marked by substantial litigation. The proposed plans should all zeach the confirmation stage

5 Section 1125(a)(L) of the Bankruptcy Code defines adequate information as “information of a kind,

and in sufficient detail, as far as is reasonably practicable in light ofthe nature and history of the debtor and the condition
of the debtor’s books and records, that would enable [a creditor] ofthe relevant class to make a judgment about the plan,
but adequate information need not include such information about any other possible or proposed plan.”

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as soon as possible, and allow the bondholders, creditors, and parties in interest, to express their
opinion as to which plan they prefer.

Whether or not the information provided in the disclosure statement is adequate is
determined by the Bankruptcy Code, and “is not governed by any otherwise applicable
nonbankruptcy law, rule or regulation, ... .”. 11 U.S.C. § 1125(d). See also In re Public Service
Company of New Hampshire, 43 F.3d 763, 766 (1st Cir. 1995). In In re Phoenix Petroleum Co.,
278 B.R. 385, 393 (Bankr. E.D. Pennsylvania 2001), the court held that “adequacy of the disclosure
is dependent upon various factors including: the size and complexity of the chapter 11 case, the type
of plan proposed, the type of creditors and claims impaired by the proposed plan, and the access by
impaired creditors to relevant information from other sources.” (Citation omitted.) In this case the
adequacy of the information disclosed hinges on how creditors will be paid and the source of funds
to make the payment. Caribbean’s second amended disclosure statement and plan provide adequate
information on how the claims are classified and how much each class will receive. There is also
adequate information regarding the source of funds to purchase the debtors’ assets, that is, the credit
facility by Westernbank Business Credit. Those are the same key factors in the disclosure statements
submitted by the Indenture Trustee and the debtors, and which were approved by the court, All three
plans will fund payment to creditors through the purchase of debtors’ assets.

The approval of a disclosure statement requires due notice and a hearing, See 11 U.S.C.
§ 1125(b), and Rules 2002(b)(1), 3017(a) and (b) of the Federal Rules of Bankruptcy Procedure
(“Fed.R.Bankr.P.”). “A disclosure statement may only be approved after notice and hearing,
Fed.R.Bankr.P. 3017(a), and then only if it includes ‘adequate information.’” Phoenix, 278 B.R.

at 392, and Fed.R.Bankr.P. 3017(b). Although the second amended disclosure statement was filed

only three days prior to the hearing, the court finds that creditors and parties in interest had a

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1 || meaningful opportunity to oppose, and in fact did so.

2 At the hearing on the approval of a disclosure statement, the court may consider issues
pertaining to the plan, and may rule upon such issues, when the plan defects will make it
5 unconfirmable, Inre Felicity Associates, Inc., 197 B.R. 12, 14 (Bankr. D. Rhode Island 1996), that
6 || is, when the “plan is so fatally, and obviously flawed that confirmation is impossible.” Jn re
7 || Mahoney Hawkes, LLP, 289 B.R. 285, 294 (Bankr. D. Massachusetts 2002). See also Phoenix,
8 278 BR. at 394. The court may disapprove a disclosure statement that contains adequate
? information, when the proposed plan “cannot possibly be confirmed.” Jn re Criimi Mae, Inc.,
7 251 B.R. 796, 799 (Bankr. D. Maryland 2000). Relevant issues pertaining to the plan are

12 || classification of claims, an artificial classification ofa claim, whether the plan unfairly discriminates
13 || against a class of claims, and the solicitation procedure. See Inre Hillside Park Acts., L.P., 205 B.R.

14 | 177 (Bankr. W.D. Missouri 1997). Thus, it is within this court’s discretion to address these issues

I prior to the confirmation of the plan.
16
This court is conscious that based on the above legal premise, it denied Caribbean’s original
17
18 disclosure statement. However, the second amended plan is not plainly unconfirmable.

19 || Confirmation issues will be considered at the confirmation hearing. This matter is addressed more

20 || fully below.

21 TI. Standing to file a Chapter 11 Plan
22
A crucial issue before the court is whether or not Caribbean has standing to propose a plan
23
54 of reorganization for HDA and ECCC, when Caribbean is not a creditor in these cases.

95 || Section 1109(b) provides that any party in interest “may raise and may appear and be heard on any

26 || issue in a case under this chapter.” Section 1121© provides that any party in interest may file a plan
27
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provided that a trustee has been appointed; the debtor has not filed a plan within 120 days from the

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date of the order of stay; or the debtor’s plan has not been accepted before 180 days after the date
of the order of stay, by each class of claims or interests that is impaired under the plan.
Section 1121© of the Bankruptcy Code provides the circumstances when a party in interest may file
aplan. “If the debtor loses his or her exclusive right to file a plan, then ‘any party in interest’ may
file one.” 4 Norton Bankr. L. & P. 2d § 88:4. The Legislative History of section 11210 is silent as
to who is a party in interest, aside from the persons or entities enumerated in the statute. Congress
only states that the list that appears under section 1121© of the Code, is not exhaustive, allowing the
courts a broad discretion to consider any relevant factors in order to determine who is a party in
interest. See Bankruptcy Reform Act of 1978, P.L. 95-598, U.S. Code Cong. & Admin. News 1978,
p.p. 5963 et_seq..

Caribbean purchased a claim postpetition, thus becoming a creditor of ECMC’s estate
pursuant to section 101(10)(A) of the Bankruptcy Code.® A creditor is specifically listed as a party
in interest in section 1109(b); thus, Caribbean is a party in interest in ECMC’s case. The Indenture
Trustee alleges that Caribbean is not a creditor of HDA’s and ECCC’s estates, and may not propose
a plan in theit cases. Caribbean argues that it is a party in interest in debtors’ estates because it
holds a direct financial stake in all the debtors’ estates, as the proposed second amended plan

contemplates the purchase of substantially all the debtors’ assets, including HDA’s and ECCC’s.

6 “The term [party in interest] has been held to include general and limited partners who owned over 99

percent of the debtor, a party who purchased a claim and became a creditor even if it was acquired postpetition for the
express purpose of acquiring standing to file a plan, ....” Id. In Jn re Rook Broadcasting of Idaho, Inc., 154 B.R. 970,
972 (Bankr. D. Idaho 1993), the court held that the term “party in interest is expandable, and its application must be
determined on a case-by-case basis.” (Citation omitted.) In Rook, the debtor and a creditor filed competing plans. The
debtor alleged that the creditor did not have standing to file a plan, as it became a creditor by purchasing claims
postpetition. The court held that the creditor was a party in interest with standing to file a plan under section | 121{c),
regardless of whether the proponent of the plan became a creditor and a party in interest through transfers of claims
postpetition. Rook followed the analysis of in re First Humanics Corp., 124 B.R. 87, 91-93 (Bankr. W.D. Mo. 1991),
and held that “a party who purchased claims against the debtor postpetition had standing to present a plan of
reorganization, even though the sole reason for the purchase of the claims was to insure such standing.” In First
Humanics, the court also held that the determination of whether an entity qualifies as a party in interest “must be made
in light of the specific reorganization context for which the determination is sought.” (Citations omitted.) 124 B.R. at 90.

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1 |} We agree.
2 The Bankruptcy Code does not define the term “party in interest,” it only lists who may be
a party in interest. Sections 1109(b) and 1121© provide that “party in interest” includes the debtor,
5 | 2 chapter 11 trustee, creditor, creditors’ committee, equity security holders’s committee or indenture
6 || trustee. The list sections 1109(b) and 1121© is non-exclusive.” 4 William L. Norton, Jr. Norton
7 || Bankruptcy Law And Procedure 2d § 80:2 (2006). See also In re Amatex Corp., 755 F.2d 1034,
8 | 1042 (3d Cir, 1985). Generally, any person or entity, who holds a financial stake in the outcome of
° the debtor’s estate, is a party in interest. See 7 Lawrence P. King, Collier on Bankruptcy,
(1109.02[1] 15" Revised Edition 2006. A person who hasa “significant legal stake” in the debtor’s
12 || estate, as opposed to a financial stake, is also a party in interest. Collier § 1109.02[1]. In x re
13 || Overview Equities, Inc., 240 B.R. 683, 686-687 (Bankr. E.D.N.Y. 1999), the court followed the test
14 |! set forth in Amatex, to determine whether a party qualifies as a “party in interest,” a determination
IS to be made on a case-by-case basis. “The test employed under section 1109(b) is ‘whether the
. prospective party in interest has a sufficient stake in the outcome of the proceeding so as to require
18 representation.’” (citing from In re Amatex Corp., 755 F.2d 1034, 1042 (3d Cir. 1985)). Thus, the
19 || right of “individual stakeholders to have a voice in the chapter 11 process is fundamental.” Collier
20 | 4 1102.02[2]{al.
21 While the concept of “party in interest” should be interpreted broadly io allow parties
02 affected by the outcome of the case, to appear and be heard, Overview, 240 B.R. at 686-687,
, “principles of standing do properly apply to limit the scope of section 1109(b).” Collier
45 || {1109.01[3]. The concept of “party in interest” under sections 1109(b) and 1121© are the same.
26
27 ? Other parties not included in section 1109(b), but who may be considered a party in interest is “a
regulatory agency with supervisory responsibilities over the debtor’s business or financial affairs.” Collier J 1109.02[1].
28 || Such is the case of the Horse Racing Administrator and the Horse Racing Board.

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Collier 4 1121.05[2]. The determination of who is a party in interest, is made by the court on a fact
finding process, and it is determined on a case-by-case basis, after considering whether or not the
person has sufficient stake in the outcome of the case. Id. Pursuant to Caribbean’s plan, the outcome
of each of the debtors’ cases directly affects the outcome of ECMC’s Chapter 11 case, wherein
Caribbean is acreditor. Such combined effect places Caribbean within a “zone of interest” sufficient
to grant it standing to appear in the three cases and propose a consolidated plan for the purchase of
all assets. Collier 7 1109.04[4}].

Caribbean became a creditor and a party in interest of ECMC’s estate through a postpetition
claim transfer. Clearly, Caribbean has standing to propose a plan for ECMC as a party in interest
under section 1121©. The plan proposed by Caribbean directly affects the estates of ECMC, HDA
and ECCC, as the plan contemplates the purchase of substantially all the debtors’ assets, and the
purchase of the bondholders’ notes. Caribbean’s proposed plan cannot be effective without
considering HDA’s and ECCC’s estates. Under Caribbean’s Second Amended Disclosure
Statement, the three estates are at stake. Upon the closing of the asset purchase agreement, the three
estates will become one, with a new owner who will assume the claims of the debtors. Caribbean
cannot purchase the assets of ECMC without having a direct impact on the estates of HDA
and ECCC, who own and manage the premises where ECMC operates. Caribbean has sufficient
financial stake in the debtors’ estates, as the implementation of the plan depends in the outcome of
all three bankruptcy cases. Based on the provisions of section 1109(b), a broad application of
standing, and the zone of interest test, the court finds that Caribbean is a party in interest in the
estates of HDA and ECCC, as Caribbean holds a direct financial stake in the outcome of the debtors’

cases, and the feasibility of the plan. Therefore, the court finds that Caribbean has standing to

propose a plan in all three cases ECMC, HDA, and ECCC).

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II, Objections

The Indenture Trustee centers the inadequacy of the information on confirmation issues that
willrender the planunconfirmable. The Indenture Trustee alleges that the disclosure statement fails
to provide adequate information on certain critical issues: (1) improper classification and unfair
treatment of claims filed against the debtors; (2) lack of basic information necessary for the typical
investor to determine whether the proposed plan is feasible, such as, (a) the license requirement to
operate the racetrack, (b) the entity that will operate the racetrack in the event that Caribbean does
not obtain a license, © the unlikelihood that said license will be issued to Caribbean, (d) the
prejudicial treatment provided to the Indenture Trustee’s secured and unsecured claims, (¢)
Caribbean’s obligation to satisfy the Indenture Trustee’s administrative expense claim, (f)) the
treatment and estimated amount of allowed claims and the potential impact of allowance of disputed
claims on distributions to be made pursuant to, and. the feasibility of, the amended plan, (g) risks
related to the confirmation of the plan, (h) the terms and conditions regarding the postconfirmation
relation between Caribbean and ECMC, (1D the amount of distribution to be made to creditors and
the timing of such distributions, (j) availability of the $1.5 million to the unsecured creditors, in the
event that Caribbean does not obtain a license, after the appeal process is final, (k) the scope and
extent of the Indenture Trustee’s lien, (1) the impact of the rejection of the lease entered into by HDA
and ECMC, as well as the Indenture Trustee’s pending motion for appointment of a chapter 11
trustee for debtors’ gross negligence in allowing the lease to expire and be deemed rejected, while
under the leadership of Charles Cuprill, (m) Caribbean’s non-compliant and improper balloting and
voting procedure, (n) the future management of Caribbean, and (0) inadequate and unjustified release

provisions.

Treasury claims that: (a) it disagrees and objects to the treatment and/or amount

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1 || acknowledged by Caribbean to Treasury’s claim number 77; (b) the amount anticipated by the
s debtors as tax priority claims is lower than the amount reflected in the Claims Register
against ECMC; © Caribbean claims that the Indenture Trustee has objected to Treasury’s claim
5 number 77, but the record reflects that the court has allowed Treasuty’s claim as filed; (d) Treasury
6 || objects to the funding of the Allowed Priority Tax Claim Reserve as it is insufficient to pay
7 || Treasury’s claim, or any other claims, notwithstanding that Caribbean reserves the right fo increase
8 | the amount of the reserve, if necessary; (ec) Treasury objects that if the amount of allowed claims is
° greater than the amount projected by debtors, then the holders of the allowed claims will receive “a
| reduced percentage of recovery,” no distinction is made as to what class of claims will be adversely
12 || affected by this reduction in recovery, thus, this provision is unacceptable to Treasury; (f) Treasury
13 || claims the Bankruptcy Code does not alter Puerto Rico tax law, thus, Treasury has the right to
14 impose penalties and surcharges, among others, as provided in the Puerto Rico Internal Revenue
15 Code; and, (g) Treasury also objects to the payment terms of the proposed plan because it does not
: provide for creditors to receive a value equal to the allowed amount of their claims, pursuant to
18 11 U.S.C. § 1129(a9)0.
19 The Indenture Trustee argues that even if the plan is confirmed, Caribbean will not be able
20 || to operate the racetrack, as it is unlikely that the Horse Racing Board will issue a license to
2 Caribbean. Treasury claims that: (a) Caribbean fails to set forth in the disclosure statement any legal
* basis or any other reason why the preliminary injunction issued on behalf of the debtors to operate
, the business shall be extended indefinitely to Caribbean by reason of the endeavors of an entity that
75 || isnot the debtors; (b) the effective date of the plan is uncertain and remote, since the “administrative
26
27 8 Caribbean has clarified, and the court has also stated, that Treasury’s claim will be paid as agreed to
by the parties, or as required by applicable law, and in the amounts finally adjudicated in a contested matter or adversary
28 proceeding. Consequently, payment of Treasury’s claim is more a confirmation issue than a disclosure deficiency.
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and judicial efforts in connection to the license, ... may take years,” (c) inconsistencies on the
definition of effective date of the plan that appears in the first amended disclosure statement versus
the definition that appears in the first amended plan, notwithstanding that the effective date of the
plan is not contingent on having a license to operate the business; (d) Caribbean fails to include the
litigation pending between the debtors and Treasury; (e) the “tax exemptions” and the “transfer
taxes” provisions are ambiguous, as they fail to describe what type of transactions may be subject
to tax exemptions and which are not; and, (f) Caribbean reserves the right to modify the confirmed
plan, without any requirement of intervention from the court.

The Horse Racing Administrator alleges that Caribbean conditions the continued operation
of the racetrack on the court’s extension of the preliminary injunction that was issued on behalf of
the debtors to operate the business. However, the “Administrator maintains is highly unlikely to
occur, that is, that the Bankruptcy Court will agree to a-priori extend an indefinite future (that is,
until Caribbean exhausts its procedural, appellate and legal rights in reference to the denial of the
application for a permanent license to operate the Racetrack - which as is well known, and has been
conceded by Caribbean, may be years down the road) ... .” See Party In Interest’s Objection To
Caribbean Thoroughbred Racing Company, Inc.’s, First Amended Disclosure Statement (Docket
No. 1052) at p. 3.” The Administrator also argues that it is his duty to protect the horse racing
industry in Puerto Rico, and “that it has always been the government’s position that if at any time
the Racetrack land and property is at imminent risk of being converted for any use other than for

conducting horse racing, ... it will stand ready to protect the industry by expropriating the land if

The court will not comment on this speculative argument, which, in any event, may be a confirmation
issue.

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need be.” Id, at p. 6.'° Lastly, the liquidation analysis includes the amount of the Poolpote as
property of the estate, and it is the Horse Racing Administrator’s position that the Poolpote funds
are trust funds over which the debtors does not have exclusive signatory authority, and the use of
said funds are governed by specific Resolutions of the Horse Racing Board. To the extent that
Caribbean’s financing and source of funds to complete the Asset Purchase Agreement are not
contingent on obtaining a license, the objection will not defeat approval of the disclosure statement.
Ultimately, it only affects the creation of an earn-out trust. Whether or not the Poolpote is part of
the estate will not be decided at this stage. Particularly, when such a determination may be mooted
by the particular facts existing at a given point in time, whether there will be a liquidation, and
whether it is still unclaimed because no one has won it.!! In any event, the disclosure is made for
liquidation analysis purposes only, and not as a request to determine whether the Poolpote is, at this
time, property of the estate.

The court finds that the above objections are aimed at the confirmation of the proposed plan
than to the adequacy of the information. Hence, they may be presented at such time.
Notwithstanding, the court will address some of the objections herein below.

The Indenture Trustee alleges that the treatment provided to its secured claims is
discriminatory based on the value assigned to its claim, and the proposed distribution under the

second amended plan. Caribbean states that the valuation of debtors’ assets is pending. Ultimately,

10 The court will necessarily address this issue in the pending separate contested matter and adversary

proceeding. However, the statement is not one which impacts the adequacy of the information in the disclosure
statement. Notwithstanding, the court notes that the Administrator’s position is subject to debate in light of the recent
decisions by the Supreme Court of the United States in Kelo v. City of New London, 125 8. Ct. 2655, 162 L. Ed. 2d 439,
___U.S.__ (2005); and Central Virginia Community College v. Katz, 126 8. Ct. 990, 163 L. Ed. 945, _ US. |
(2006).

u There may be a legal difference when there are on going operations of the racetrack and a persou has
won the Poolpote but has not claimed the prize, from the scenario when there is a liquidating debtor, the racetrack is not
operating, and no one has won the Poolpote. .

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1 || payment on the Indenture Trustee’s secured claim will depend on the value of the claim as allowed

2 by the court, The greater the amount paid to the Indenture Trustee as a secured creditor, the amount
available for distribution to other creditors is less. Under the second amended plan, the secured
5 portion of the Indenture Trustee’s claim is estimated in $44,330,699.04 based on the purchase offer
6 || of $64 million made by Camarero Race Track, Corp. (“Camarero”), and accepted as the value of the
7 || debtors’ assets by the Indenture Trustee. The deficiency claim of the Indenture Trustee is estimated
8 in $25 million, that is, $89 million (the total amount claimed by the Indenture Trustee)
° less $64 million (estimated value of the Indenture Trustee’s secured claim). In addition, the amount
. for adequate protection payments already made to the Indenture Trustee, including the estimated

12 || Payments to be made until September 2006, and the amount corresponding to the face value
13 || of ECMC’s notes, must also be deducted from the value of the Indenture Trustee’s secured claim.

14 || The second amended plan provides reserve accounts for the payment of the Indenture Trustee’s

15 claims, as follows: $44,330,699.04 for the secured portion of the claim, and $13,471,271.52 for the
16

deficiency claim. The Indenture Trustee may disagree with the treatment of its claim, but the
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18 information related to said treatment is adequate under the circumstances, and sufficient to place the

19 || bondholders in a position to vote on Caribbean’s plan.

20 The Indenture Trustee also alleges that Caribbean’s liquidation analysis shows that certain
21 creditors will receive more under a chapter 7 liquidation that under the second amended plan.
*2 Caribbean argues that the Indenture Trustee’s calculations are based on outdated information, and
, that the deficiency claim will receive more under a chapter 7 liquidation. Caribbean clarifies that

95 || the amount of the Indenture Trustee’s claim as to ECMC has not yet been determined, thus, under

26 || the second plan, the amount has been estimated. Even if HDA’s deficiency claim is attributable
27
28

to ECMC, the amount left for all unsecured creditors, including the deficiency claim, would be

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1 | $7,504,513,00. Under Caribbean’s second amended disclosure statement and second plan, two (2)

2 reserve accounts will be established for the payment of the Indenture Trustee’s secured and

unsecured claims. Over $13 million have been allocated to cover the Indenture Trustee’s unsecured

5 claim. Therefore, the deficiency claim may receive more under Caribbean’s second plan that under

6 || a chapter 7 liquidation. All other unsecured claims will also be paid in full. Lastly, Caribbean

7 || explains that all the calculations were prepared after having discussed them with Mr. Stanley

8 Pinkerton, Debtors’ Chief Financial Officer, and after taking into consideration ail payments made

° or to be made by the debtors, on or before the confirmation of Caribbean’s plan. The payment of
, rent as an administrative expense claimed by the Indenture Trustee will be deducted from the secured
12 | portion of the claim, thus, it was not taken into consideration in the liquidation analysis.
13 The court finds that the disclosure made by Caribbean as to the deficiency claim is adequate
14 | under the circumstances, and when compared to the disclosure statement submitted by the Indenture
1s Trustee. The basis of the value is given, as well as the amount of the deficiency and how it will be
. paid. That the Indenture Trustee disagrees with the treatment does not carry the weight against its
18 approval. To determine with more preciseness the extent of the deficiency will require a valuation
19 || hearing and a determination of the extent of the bondholders’ lien on each of the estates.”
20 The Indenture Trustee also objects to Caribbean’s second amended disclosure statement, as
1 the second amended plan unfairly discriminates against the Indenture Trustee’s claim, because the
% plan classifies the deficiency claim under a separate class from the class of the general unsecured
’ claims. The court already discussed this issue when approving the debtors’ third amended disclosure
95 || statement b. The court already discussed this issue when approving the debtors’ third amended
26 || disclosure statement, based on sections 1122(a) and 1123(a)(4) of the Code, and in fn re Granada
27

R The court still fails to fully understand the Indenture Trustee’s position that $67+ million will cause
28 || a lesser distribution to creditors than the $64 million proposed in the Indenture Trustee’s plan.
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Wines, Inc., 748 F.2d 42 (1st Cir. 1984).(Docket No. 944). The same ruling applies herein. The
classification may be permissible upon the particular circumstances of this case. The Indenture
Trustee is not foreclosed from renewing its objection as one to the confirmation of the plan.

The Indenture Trustee demands payment of administrative expense claim based on the rent
owed by ECMC. Debtors have consistently argued that the Indenture Trustee is not a direct creditor
of ECMC, as any claim for rent will stem from HDA’s assignment of the rent received from the lease
agreement entered into with ECMC. Thus, the amount to be paid to the Indenture Trustee as an
administrative expense, as well as to any other administrative claim, will come from the $67 million
paid by Caribbean to the debtors under the Asset Purchase Agreement. Notwithstanding, Caribbean
claims that the Indenture Trustee does not have an individual administrative claim against ECMC.
This contested matter is before the court and will be ruled upon separately after submission of the
legal memoranda. Such an issue, at best, may affect feasibility, but is not a bar to approval of the
second amended disclosure statement.

The Indenture Trustee objects to the lack of feasibility of Caribbean’s second plan based on
Caribbean’s inability to operate the racetrack. The second amended disclosure statement has been
amended to provide that ECMC will continue operating the racetrack under the provisions of the
preliminary injunction issued on behalf of the debtors, until the effective date of the plan. Thus, it
will not be an “open ended” injunction, and no contract will be entered by Caribbean and ECMC.
Caribbean also reaffirms that, regardless of the outcome of the license procedures, payment to
creditors will be made on or before the Distribution Date specified under the plan, that is, fifteen (15)
days after the effective date of the plan. The Indenture Trustee’s allegation that the purchaser must

have a license to operate the racetrack is incorrect. The court has not imposed such a condition to

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confirm a plan. Caribbean’s President, Mr. Charles A. Cuprill Hernandez (“Mr. Cuprill”) testified
that full payment to creditors is not contingent on having a license to operate the racetrack on the
effective date of the plan. Moreover, Caribbean’s financial commitment from Westernbank Business
Credit is not subject to Caribbean obtaining a license to operate E] Comandante Racetrack.
Disclosures as to the future management of the new company emerging from the asset
purchase agreement are not relevant at this juncture, particularly when the new corporation may not
manage or have a license to operate the racetrack. Attempts to insert negative connotations
concerning the role that the Wilson family has had, or may have in the future, have no basis in the
record. As ofthis date no party in interest has brought to the court any evidence of malfeasance, past
or present, by the Wilson family. If any there was, the opposing parties had the opportunity to
present it when Mr. James Wilson took the stand in a prior hearing. At that time not one question
was posed to Mr. Wilson in cross examination." Tn any event, the disclosure is that there is none.
The procedures as to solicitation and balloting, particularly from the beneficial holders ofthe

bonds will be addressed separately. The court notes that the Indenture Trustee and the debtor were

8 This court has repeatedly stated the obvious, that a successful operation requires a licensed horse track,

a licensed operator, and licensed horses. Any combination of two will not suffice. The Indenture Trustee alse stresses
that the resolution by the Horse Racing Board, dated March 24, 2006, denied Caribbean’s request for a license. The
Indenture Trustee cites from said resolution the following: “Certainly, if the Bankruptcy Court allows it, any party can
acquire the assets and close the horse racetrack, provoking the death of our horse racing industry.” Such a quote by the
Indenture Trustee is an unnecessary intimation of jurisdictional tension. The court only repeats what it already stated
in a fooimote when issuing the injunction allowing the debtor to continue operating the horse track for a limited period
of time. The court makes reference to the decision in Parque Ecuestre La Esmeralda, Inc., v. Junta Hipica de ta
Administracién y el Deporte Hipica, 2004 WL 2810837 P.R., 2004 TSPR 178 (2004), wherein the Supreme Court of
Puerto Rico reversed a decision by the Racing Board which denied the issuance of'a license, and remanded the case for
further proceedings. The concurring opinion in Parque Ecuestre states that the Racing Board was created to oversee the
public safety, honesty, and integrity of the horse racing sport; and not to protect the economic welfare of any particular
enterprise, which in the Parque Ecuestre La Esmeralda case was, ironically, El Comandante, In bankruptcy, economic
solvency of the debtor is a key factor. Therein lies the apparent tension in this case, which this court has opted to
overcome by issuing temporary injunctive relief until the licensing process terminates through a final decision. Licensing
is amatter of state law; however, the bankruptcy court has jurisdiction over property of the estates. Bankruptcy law often
creates inherent tension with pending parallel proceedings in other courts and administrative forums. The tension should
not be unnecessarily heightened by the parties

iM See Opinion and Order entered on January 17, 2006, dkt. No. 744.

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going to present to the court a suggested timetable and procedures, using the Altman Group as a
balloting agent. As of this date the parties have not submitted a proposal. In view of the fact that
there are now three competing plans, the court will issue a separate order to establish solicitation and
balloting procedures which are effective and cost efficient for all parties..
Conclusion

For the reasons stated above, Caribbean’s Second Amended Disclosure Statement (Docket
No. 1091), is hereby approved.

SO ORDERED. | the

In San Juan, Puerto Rico, this Aq “day of May, 2006.

QUE 8. LAMOUTTE
.S. Bankruptcy Judge