While support from survivors of clergy sexual abuse appeared to be coalescing around the settlement proposal in the long-running Archdiocese of New Orleans bankruptcy case, a group of bondholders is now threatening to upend the plan.
The bondholders are owed nearly $30 million by the local church and have argued in court filings that the archdiocese has negotiated with them in bad faith. They say the proposed settlement, which would pay them $3 million, or 10% of what they are due, is unfair.
Last week, their attorneys questioned Archbishop Gregory Aymond and several of his top financial advisors under oath, seeking to learn more about the value of church assets. More depositions are scheduled in the coming days.
It’s unclear if the bondholders want to derail the settlement altogether, which could force U.S. Bankruptcy Judge Meredith Grabill to dismiss the case, or whether the latest maneuvers are part of the continued negotiations in the years-long bankruptcy case.
Either way, close watchers of the case say the objections are complicating matters ahead of an expected confirmation hearing, scheduled for late November.
“They have the ability to stop the plan confirmation, which is a significant bit of leverage,” said Marie T. Reilly, a law professor at Penn State Dickinson Law, who has tracked more than 40 church bankruptcies around the U.S. “Could they be posturing? Yes. We will see.”
Attorneys for the bondholders declined to comment.
The archdiocese also declined to comment, but Aymond has recently said he is praying for a swift resolution to the case.
“I remain very hopeful and committed to bringing this bankruptcy to a conclusion that benefits the survivors of abuse,” he said last month. “I know there remains much work to be done and I continue to hold this work in prayer.
Lone holdouts
Throughout much of the five-and-a-half-year-long bankruptcy case, most of the opposition to the archdiocese, its proposals and court filings came from attorneys representing more than 600 survivors who have filed abuse claims.
That all changed in July, when the official court-appointed committee that represents the interests of all abuse survivors announced it had agreed to a proposed settlement with the archdiocese.
The plan, since updated several times, would create a trust that would pay survivors $180 million over several years. It would be funded by the archdiocese, three of its insurers and its affiliated parishes and charities. An estimated $50 million would be added to the settlement following the sale of Christopher Homes, the church’s low-income senior apartment complexes.
The plan would also establish stricter protocols and reporting measures designed to protect children from future abuse.
In early September, a vocal group of trial attorneys that represent as many as one-third of the abuse survivors individually, dropped their opposition to the settlement. Their support all but ensures the necessary supermajority of survivors will vote to accept it.
Offerings are taken during Mass at St. James Major Roman Catholic Church in New Orleans, Sunday, Oct. 29, 2023. (Photo by Scott Threlkeld, The Times-Picayune)
Another key group in the case, the “commercial committee” that represents vendors and small businesses, also supports the plan.
Bondholders, meanwhile, have been increasingly vocal in their opposition. They lent the church $40 million through a municipal public bond offering in 2017, when Aymond was seeking to restructure church debt. The debt was not secured.
In bankruptcy cases, secured creditors are typically paid first, and often in full, while unsecured creditors are more at risk of only receiving a portion of what they are owed. Under the proposed settlement, the bondholders are being offered 10 cents on the dollar.
In recent months, they have filed court documents accusing the archdiocese of securities fraud, negotiating in bad faith and treating them unfairly under the plan, arguing that the church “is solvent and has the ability to pay its proposed settlement with the survivors and all of its other creditors including the bondholders in full.”
What now?
The escalating argument could lead to what is known in bankruptcy law as a “cramdown” scenario. In order for a bankruptcy settlement to be confirmed by the court, at least two-thirds of each group, or “class,” of creditors must approve it. Already, the abuse survivors and trade creditors appear likely to reach that threshold. The bondholders do not, which means the plan proponents will ask the court to force the bondholders to accept it.
At the confirmation hearing, Grabill will have to determine whether the plan meets several criteria that would justify a “cramdown” over the bondholders’ objections, Reilly said. Those criteria include whether the plan has been proposed in good faith, satisfies the financial interests of the bondholders and is “fair and equitable.”
The depositions of Aymond and others currently are intended to gather information in preparation for the hearing to help determine “whether the plan does or does not satisfy the ‘cramdown’ confirmation criteria,” Reilly said.
Among the specific issues bondholders are focused on is how the plan proponents and their financial advisors arrived at the value of church real estate.
The bondholders have said in recent court documents they are still struggling to “understand the debtor and its affiliates’ complex financial web.”
The bondholders are also challenging the way financial consultants determined the value of an abuse claim.
Unique case
The Archdiocese of New Orleans bankruptcy has been noteworthy among the dozens of church bankruptcies for a number of reasons, including its cost, duration and a number of contentious side arguments.
New Orleans Archdiocese Administration offices on Walmsley Avenue
If Grabill confirms the plan over the objection of the bondholders later this year, it will notch another first. Though there have been other proposed cramdowns where abuse survivors objected to the settlement, this would be the first time a “non sex abuse unsecured creditor “objects, Reilly said.
Bondholders can appeal a cramdown to the U.S. District Court.