Bankrupt owner gets 'Lipstick' collateral

The Royal Bank of Canada forced the sale of the 34-storey tower. Photo / Bloomberg

The owner of Lipstick Building, the midtown Manhattan tower where Bernie Madoff ran the biggest Ponzi scheme in US history, won interim court permission to use cash collateral of lenders during its bankruptcy.

Bankruptcy Judge Shelley Chapman in Manhattan granted Metropolitan 885 Third Avenue Leasehold's access to cash, on an interim basis, subject to entry of a final order.

She also agreed yesterday to allow Metropolitan to pay pre-bankruptcy claims, bar utilities from discontinuing service and give protection to lenders.

Royal Bank of Canada is Metropolitan's biggest creditor, under a secured loan of US$210 million ($272 million).

"The cash collateral motion and prepetition payments are part and parcel of the intricate puzzle that forms the basis of this mutually consensual plan," Marc Richards, a lawyer for Metropolitan, told Chapman.

Metropolitan, in its November 16 petition for Chapter 11 bankruptcy, listed both assets and debt of as much as US$500 million.

In June, RBC sued to force a sale of the 34-storey tower after the landlord defaulted on its US$210 million loan.

Metropolitan cited lower lease renewal rates, and put forward a prepackaged reorganisation plan that already had RBC's support.

The skyscraper, between East 53rd St and 54th St, was designed by John Burgee Architects with Philip Johnson. It gets its name from its elliptical shape, which resembles a tube of lipstick, and the red granite on its exterior.

Goldman Sachs owns Metropolitan 885 Third Avenue Leasehold, according to court papers.

Latham & Watkins is the building's largest tenant, occupying about two-thirds of its total rentable area as of July 2008, according to a statement that year.

Court papers said the law firm's lease lasts until June 2021.

Bernard L. Madoff Investment Securities rented the 17th, 18th and 19th floors.

Federal investigators seized Madoff's offices when he was indicted in 2008, and ran their investigation from the property.

The plan gives RBC 61 per cent recovery on its US$130 million secured claim, according to an outline of its terms.

RBC supports the Chapter 11 plan by allowing use of its cash collateral in exchange for protections, and reducing its claim to $130 million from $210 million, according to court papers.

- BLOOMBERG