Chapter Closed: Brooklyn Mirage is Officially Out of Bankruptcy Court

By Scott Enman

Following months of messy and complicated court battles, Brooklyn Mirage, its bankrupt parent company Avant Gardner, and its new owner Axar Capital Management are officially out of bankruptcy court as of Thursday morning. 

“I’m happy to confirm the plan,” Judge Mary Walrath said at a hearing in the Bankruptcy Court for the District of Delaware, where she thanked all of the parties involved, including the debtor, “for resolving all the issues that were raised so this can be a consensual process.”

“I note that the debtor has obtained the requisite votes in favor of the plan,” Walrath confirmed. “There are no outstanding remaining objections. The debtor has met the requirements for confirmation under the bankruptcy code, and I’m happy to give final approval to the disclosure statement and the plan.”

Walrath’s confirmation allows for Pacha New York’s takeover of the Avant Gardner complex to move forward in earnest.

Things were going somewhat smoothly in the bankruptcy process until a Brooklyn Magazine article, exclusively reported on January 1, announced that FIVE Holidings, the parent company of Pacha, was expected to enter into a deal with Axar to take over Avant Gardner and turn its flagship venue into Pacha New York. The problem? A group of unsecured creditors—the artists, vendors, employees, and ticketing companies owed money and hoping to be reimbursed through AG’s bankruptcy proceedings—were unaware of that agreement, saying they only found out about the agreement through BKMAG’s report.

They alleged that Axar, who bought Avant Gardner for $110 million at a discount following its Chapter 11 bankruptcy filing in August, had brokered the deal “under the cover of darkness” with FIVE Holdings. 

The original deal between Axar and FIVE included a “purchase option,” according to court documents submitted by Axar, that “if exercised,” may have resulted “in there being no payment made” on a contingent value right, or CVR. The CVR allows for creditors to recoup some of their money if Avant Gardner was sold and proved to be “wildly successful,” a term used in separate court documents. This was a major point of contention for the creditors, who said, more bluntly in their own court filings, that the original deal with FIVE was “simply structured to avoid payment on the CVR.” The creditors subsequently pulled their support for the bankruptcy agreement.

Last week, however, the two groups reached an agreement to put all of that in the past, but the amendments to the agreement weren’t made public until this week. “Recently, as I’m sure Your Honor saw, there were some issues that arose between the Committee and the purchaser regarding a go-forward deal that the purchaser had reached with a third party who will operate the venue once the sale closes,” said Avant Gardner counsel S. Alexander Faris. “After some extensive and fairly hard-fought negotiations, the purchaser, the committee, and the debtors entered into a modification of the global settlement, which provides certainty around the CVR.”

Under the initial agreement, the creditors would share in the proceeds if Avant Gardner were sold and did, in fact, prove to be “wildly successful,” a value of around $175 million. In the modified settlement, the threshold demand has been reduced to $90 million. It “simply provides greater assurance that the CVR will be in the money should a monetization event occur,” Faris said.

Another amendment is that the global settlement will also provide a guaranteed minimum distribution on the CVR, which is set at $3.5 million, meaning “no matter what a monetization event yields, the purchaser with backing from Axar will fund $3.5 million to the trust,” Faris said. Altogether, the unsecured creditors will receive a minimum of $6.8 million.

Both changes basically give the creditors a better chance of making their money back after the outdoor East Williamsburg venue, which underwent a $30 million renovation last offseason, never opened due to failed safety inspections, and forced AG to declare bankruptcy in August. An application for the demolition of the Mirage was then filed in October. Shortly after the permits were submitted, the city’s Department of Buildings issued objections, but ultimately approved the permits in January. Demolition was slated to start on February 2 and run until April or May.

FIVE Holdings, the Dubai-based company behind Pacha, announced last week that Pacha New York would open at the (former) Brooklyn Mirage location this June, assuming demolition of the current Mirage and rebuilding of a new stage goes according to schedule, which, as we know by now, is not exactly a guarantee.