Cosmoledo gets further exclusivity extension to settle PPP loan issue

By Sarah Lizee

Olympia, Wash., March 30 – Cosmoledo, LLC received another extension of its exclusive periods to file and solicit votes on a Chapter 11 plan, according to an order filed Tuesday with the U.S. Bankruptcy Court for the Southern District of New York.

Specifically, the court extended the plan filing period through May 12 and the solicitation period through June 14.

The company said in its motion that it is unable to propose a fair and complete liquidation plan without resolution of the issues raised by the company’s use of a Paycheck Protection Program loan.

“Funds in the debtors’ possession that are directly attributable the PPP loan represent a substantial source of recovery to creditors in this case,” the company said.

“As of the date of this motion, PPP loan funds represent over 60% of the funds available for distribution to creditors.”

The company said that while the bar date has not passed, the debtors have some preliminary recovery estimates. Those estimates show that creditor recoveries, including those to any potential separate PPP class of creditors, would decline by over 20% if the PPP loan were repaid in full, without distribution of any portion of the PPP loan funds.

“This makes any non-consensual resolution of the PPP motion a $5 million gamble for creditors and the [Small Business Administration] alike,” the company said.

“Any plan the debtors could propose before the expiration of the current exclusive deadlines would be incomplete and subject to wholesale revision depending on how the issues in the PPP motion are resolved.”

The position of the official committee of unsecured creditors is that the PPP loan is a general unsecured obligation of the debtors and that the PPP loan funds should be distributed to all creditors pro-rata.

The debtors and the Small Business Administration have posited the opposite – that the PPP loan funds should be distributed in line with the aims of the CARES Act or repaid to the Small Business Administration to be distributed to other parties in need of assistance.

The parties believe there are grounds to resolve the dispute in a way that benefits all creditors and respects the congressional intent of the CARES Act, the company said.

New York-based Cosmoledo operates fine casual dining restaurants. It filed Chapter 11 bankruptcy on Sept. 10, 2020 under case number 20-12117.

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