SNOWMASS VILLAGE — Attorneys for The Related Cos. have responded to charges in a lawsuit by its European lenders that it fraudulently moved $32.5 million tied to bonds issued by the Base Village metro districts from one corporate entity to another.
An attorney for Related, Mark Walfish, of Katskey Korins LLP, filed an answer on Jan. 18 to a Dec. 28 lawsuit filed by the banks over the $32.5 million, which was loaned to Related by the banks to use as collateral against bonds issued by two Base Village metro districts that effectively function as one district.
One of the banks is Hypo Real Estate Credit Corp., a subsidiary of Hypo Real Estate Group, a German bank that was nationalized by the German government after the 2008 financial crash.
“Hypo had full knowledge of, was a willing participant in, and in fact authorized in writing the very transactions about which it now complains,” Walfish wrote in his response to the court.
Hypo and other European banks had lent $520 million to entities controlled by Related, which was used to buy and develop Base Village in Snowmass Village.
Related defaulted on the Base Village loan in April 2009, leaving Hypo and three other banks to foreclose and assume ownership of the unfinished project, which they did last year.
Today, Hypo and Related are battling each other in court over the Base Village loan and various guarantees.
And recently added to the list of lawsuits is one brought by the banks against Related on Dec. 28 over $32.5 million used to guarantee the bonds, which were issued by the metro districts to construct portions of the project.
Fighting over $32.5M
Attorneys for Hypo claim that the $32.5 million was lent by the bank to Base Village Owner as part of the larger Base Village construction loan.
But the bank says Base Village Owner then improperly gave the money to Related WestPac, which then deposited it with U.S. Bank as collateral against the metro district bonds.
When the bonds were called last month — after Related declined to endorse a third extension on a required letter of credit — U.S. Bank paid off the investors in the bonds and laid claim to the $32.5 million deposited as collateral.
Now the bank is seeking the $32.5 million it loaned to Base Village Owner LLC.
“Related WestPac initiated the events … to try and prevent the lenders from recovering those funds,” Hypo’s lawsuit claims. It also says the money transfer was a “fraudulent conveyance.”
In an answer to the suit, Walfish calls Hypo’s allegations “utterly specious” and said they have a “complete lack of merit.”
“Hypo specifically agreed, in writing, to the transfer by BVO of legal ownership of $32.5 million to WestPac; Hypo further agreed in writing that those monies would be deposited with U.S. Bank; (and) Hypo further acknowledged in writing that … such monies were owned by WestPac lien free, with Hypo having no rights … ,” Walfish told the court.
“ … Hypo further understood … that in the event that U.S. Bank made a mandatory purchase of the metro bonds, U.S. Bank would issue guarantor bonds to WestPac – which is precisely what occurred. … Hypo was at all times represented by counsel in connection with entering into the various written agreements and with every facet of the transaction,” Walfish wrote.
Walfish further claims that because Hypo has foreclosed on the unfinished Base Village project, it has, in essence, gotten its money worth as the proceeds from the bonds were spent on infrastructure improvements at the project, such as the parking garage and internal streets.
“ … Hypo has received the benefit of the $32.5 million in infrastructure improvements paid for through the proceeds of the metro bonds,” Walfish stated.
He also asks the court to dismiss Hypo’s lawsuit with prejudice and award Related legal fees.
Related affirms its rights
Dwayne Romero, president of Related Colorado, which still owns substantial property in Snowmass Village, issued a statement regarding the lawsuit over the bond money.
“We have recently filed an answer to the metro bond complaint affirming our rights under agreements that were negotiated with the banks back in 2008 and under relevant agreements that have been signed by the banks since that time,” Romero said.
In addition to spurring the lawsuit from the banks, Related’s decision to not grant a third extension on a letter of credit backing the metro bonds brought sharp criticism from James DeFrancia, an executive with Lowe Enterprises who has been serving as the court-appointed receiver for Base Village while it has gone through a foreclosure process.
“They are causing the metro district and owners considerable harm,” DeFrancia said earlier this month about Related’s actions on the bonds. “I don’t think it is very ethical business behavior.”
DeFrancia said that Related’s recent response to Hypo’s lawsuit doesn’t change his opinion of the transaction and its negative effects on the metro districts, which are now looking at paying 10 percent interest on the $32.5 million in bonds instead of one percent.
“Their complaint with Hypo is between them,” DeFrancia said about the lawsuit over the $32.5 million. “My view is that of the district. (Related’s) disruption of a bond restructure plan in process, and an action contrary to the interests of the district and its taxpayers — without necessity — is my complaint.”
DeFrancia said that in his role as receiver, and as chair of the metro district boards, he was working on a comprehensive restricting of the bonds when Related surprisingly — at least to him — refused to grant an extension on the letter credit past Dec. 31, which kicked off to the series of events described by attorney Walfish above.
Romero, representing Related, has defended his company’s actions, and said it put forward a proposal last fall regarding the bonds that the metro district rejected.
Romero released a copy of the proposal on Jan. 30, which company officials have said is still on the table.
“We … remain very interested in helping the metro district renegotiate new terms (on the bonds),” Romero said in a statement. “And we have offered a proposal which would provide funding that would safeguard operations and maintenance in the future, a safeguard that the district does not currently have. Effectively, our proposal offers the district the ability to continue operations of the Base Village transit center, parking garage, and conference center into the future, absent any interference of debt repayments.”
DeFrancia said the proposal from Related and Romero was too complicated to deal with on a tight deadline last fall, and said this week that the proposal is still not in the district’s best interests.
“It does nothing for the district except increase its debt burden and effectively strip it of all its cash,” DeFrancia said.
DeFrancia added that the district is now searching for a way to comprehensively restructure its debt load and said that while core operations of the village — including the transit center, parking garage and conference center — are not currently in jeopardy, they could be in the future.
Editor’s note: This story was also published in The Aspen Times on Feb. 1, 2012