In re Westport Holdings Tampa, L.P.

Westport Holdings Tampa, L.P. (Westport) (debtor) owned and operated the Independent Living Facility at University Village (facility), a continuing-care community in Florida. In 2016, Westport filed for Chapter 11 bankruptcy. CPIF Lending, LLC (CPIF) (creditor) filed a $9.8 million secured claim, backed by a first-priority lien on substantially all of Westport’s assets, including the facility. The bankruptcy court valued the facility at $12.9 million. In April 2018, SouthPoint Global Investments, LLC (SouthPoint) (creditor) 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. After disbursing $488,000, SouthPoint refused further funding, halting a critical roof-replacement project. The bankruptcy trustee sought replacement funding and, after approaching several lenders, secured financing from CPIF on substantially the same terms as those proposed by another lender. The proposed $2.5 million line of credit granted CPIF a first-priority priming lien under § 364(d)(1). The trustee requested court approval, arguing that a priming lien was justified because the financing was necessary, negotiated in good faith, and adequately protective of existing lienholders, including SouthPoint. The trustee asserted that the capital expenditures would increase the collateral’s value by at least the amount spent, generate $276,000 annually through increased service fees, attract four new renters per month at an average rent of $1,854 plus a $2,500 move-in fee, and improve resident morale. The bankruptcy court agreed with the trustee and approved the financing. SouthPoint appealed.