## Facts

- Westport Holdings Tampa, L.P. (Westport) owned and operated the independent-living facility at University Village, a continuing-care retirement community in Florida.
- Westport filed for Chapter 11 bankruptcy in 2016.
- CPIF Lending, LLC (CPIF) held a first-priority lien on substantially all of Westport’s assets, including the facility, securing a claim of about $9.8 million.
- The bankruptcy court valued the facility at $12.9 million.
- In April 2018, SouthPoint Global Investments, LLC (SouthPoint) agreed to provide up to $2 million in postpetition financing for capital improvements and received a second-priority lien behind CPIF on Westport’s encumbered assets.
- SouthPoint advanced only about $488,000 and then refused to fund further draws, stopping work on a roof-replacement project and other planned improvements.
- The Chapter 11 trustee sought replacement financing, approached multiple potential lenders, and obtained a proposal from CPIF on substantially the same terms as another lender had offered.
- The proposed postpetition facility was a $2.5 million line of credit and required granting CPIF a first-priority priming lien under 11 U.S.C. § 364(d)(1), senior to existing liens including SouthPoint’s.
- The trustee sought bankruptcy-court approval and supported the request with projections that the capital expenditures would preserve or increase collateral value by at least the amounts spent, increase annual service-fee revenue by about $276,000, attract new renters (about four per month) at an average rent of $1,854 plus a $2,500 move-in fee, and improve resident morale.
- The bankruptcy court approved the financing and authorized the priming lien.
- SouthPoint appealed to the district court.

## Issues

1. Whether the bankruptcy court erred in authorizing postpetition financing secured by a priming lien under 11 U.S.C. § 364(d)(1).
2. Whether the trustee proved the estate could not obtain credit on other terms without priming existing liens.
3. Whether the record supported a finding that SouthPoint, whose lien would be subordinated, received adequate protection.

## Decision

- The district court affirmed the bankruptcy court’s order approving the $2.5 million postpetition credit facility and granting CPIF a § 364(d)(1) priming lien.
- The court held that the bankruptcy court applied the correct statutory requirements for priming liens.
- The court found sufficient support for the finding that replacement credit was not available on comparable terms without priming, given the trustee’s efforts to obtain other financing and the terms offered.
- The court concluded that the bankruptcy court did not clearly err in finding adequate protection for SouthPoint, relying on evidence that the loan proceeds would fund repairs and improvements (including the roof project) expected to prevent decline and support increases in value and operating revenue.
- Applying appellate standards (de novo for legal questions, clear error for factual findings, and abuse of discretion for the financing decision), the district court declined to reweigh the evidence and upheld the order.

## Legal Principles

- Under 11 U.S.C. § 364(d)(1), a bankruptcy court may authorize postpetition borrowing secured by a lien senior to existing liens only if:
  - the trustee or debtor in possession cannot obtain credit otherwise; and
  - the interests of existing lienholders whose liens are primed are adequately protected.
- “Unable to obtain credit otherwise” is a factual determination that may be shown by evidence of the trustee’s efforts to obtain financing and the market’s refusal to lend without a priming lien.
- Adequate protection focuses on guarding against a decline in the value of the primed creditor’s interest and may be supported by record evidence that the proposed borrowing will fund repairs or capital work reasonably expected to preserve collateral value and cash flow.
- On appeal from a bankruptcy order approving DIP financing, the district court reviews legal conclusions de novo, factual findings for clear error, and the ultimate approval decision for abuse of discretion.

## Conclusion

The district court upheld the priming DIP loan because the trustee showed that replacement financing was not realistically available without granting CPIF priority and because the evidence supported the bankruptcy court’s determination that the loan-funded repairs and improvements would protect SouthPoint against a decline in the value of its subordinated lien interest.


In re Westport Holdings Tampa, L.P., 607 B.R. 715 (2019)