Judge’s Ruling a Blow to Souki, Ajax Holdings
The $30.5 million auction sale of Aspen Valley Ranch, the unloading of 25 million shares of stock in a gas company he co-founded for $28 million and the sale of a luxury yacht he once raced were not enough to offset Aspen and Houston businessman Charif Souki’s debt of at least $100 million to a lending group, according to a ruling delivered Monday by a bankruptcy court judge in Texas.
The ruling was in stark contrast to Souki’s bid to have both his debt discharged and a court-ordered award of $100 million in damages from the lending group. Judge Chris Lopez of the U.S. Bankruptcy Court for the Southern District of Texas (Houston) also denied Souki’s claim seeking injunctive relief to stop the lending group from selling off the assets owned by Ajax Holdings, which are owned by Souki-controlled entities.
Lopez’s anxiously awaited decision, coming in at 32 pages, was delivered after a trial in December. The trial was the product of an adversarial proceeding in Aspen Valley Ranch’s Chapter 11 bankruptcy case, which was declared by Souki-controlled AVR AH and Strudel Holdings in Houston in July.
In the adversarial proceeding, AVR AH and Strudel Holdings were seeking a court order to stop the lender group’s sale of Ajax Holdings on the contention that it was over collateralized and failed to sell both the yacht and company shares through “commercially reasonable” means. The judge disagreed.
“Based on the evidence and applicable law, the Secured Parties acted in good faith and a commercially reasonable manner in every aspect of disposing the collateral. So Plaintiffs lose on all their claims. The Court also finds that the lenders are still owed at least $100 million in damages,” Lopez’s ruling said.
The debt amount does not include the sale of the ranch, proceeds of which go toward the balance. Minus the ranch, the figure stands at $69.5 million.
The lending group — Nineteen77 Capital Solutions of New York, Bermudez Mutuari Ltd. of the Cayman Islands, Chicago-based UBS O’Connor LLC and Delaware-based Wilmington Trust National Association — acquired the ranch in February through an affiliate called Chiron AVR. Chiron AVR won the ranch with a credit bid of $30.5 million at an auction authorized by the bankruptcy court and held in October.
Aspen resident Karim Souki, who has served as the family spokesman; Will Herndon, president of Coldwell Banker Mason Morse and managing director of Ajax Holdings; and lawyers did not respond to messages. Attorneys for the lenders also did not reply.
The dispute’s background goes to when Souki received loans of $50 million and $70 million respectively in April 2017 and March 2018, pledging as collateral the 800-acre Aspen Valley Ranch, his luxury racing yacht called “Tango” and 25 millions shares in Tellurian, a liquid natural gas (LNG) developer he co-founded in 2016.
Additionally, he pledged the assets of the Souki Family 2016 Trust and Strudel Holdings LLC as collateral — the trust and LLC are 50-50 owners of Ajax Holdings.
What Ajax Holdings owns
Multifamily, retail and office properties in downtown Aspen make up the portfolio of Ajax Holdings.
An Ajax Holdings affiliate, AH Durant, owns just over 4,000 square feet of commercial space occupied by Performance Ski in Aspen Square Hotel. The commercial condo space has a free-market value of $14.7 million, according to the Pitkin County Assessor’s Office.
Ajax Holdings’ assets also include three parcels on the Hyman Avenue pedestrian mall and the building at 514 E. Hyman Ave., which houses the Mason Morse Coldwell Banker real estate firm. The firm also is an asset of Ajax Holdings. The assessor’s office gives the 514 E. Hyman building a free-market value of $12.9 million.
A previous attempt by Souki, as well as by his family members and Souki trustees, to stop the sale of Ajax Holdings was unsuccessful in New York County Supreme Court, where a judge denied motion in May 2023 for injunctive relief.
In July, Aspen Valley Ranch (also called AVR AH LLC) and Strudel Holdings LLC declared Chapter 11 bankruptcy, which effectively placed a stay, or pause, on putting the Ajax Holdings’ assets up for sale; Lopez’s ruling now allows the lenders to proceed with selling the assets.
In its initial filing in the adversary proceeding, the Souki entities argued that selling the assets of Ajax Holdings would “cause irreparable harm for which there could be no adequate compensation (to the family-owned real estate business). … As a result, Ajax Holdings will have no choice but to file for bankruptcy or otherwise liquidate.”
The judge was not persuaded by that argument.
“The Ajax Shares have not been sold,” the ruling said. “There was not even close to sufficient evidence to show that Ajax would be forced into bankruptcy.”
LNG project goes south, not in a good way
Souki, the original owner of Mezzaluna restaurant in Aspen, was counting on Tellurian’s Driftwood project, a multibillion-dollar export plant in Lake Charles, Louisiana, to be a profitmaker. Yet Souki lost the confidence of the Tellurian board, which fired him in December, for the slow progress of Driftwood, a project that has struggled to raise capital.
“If it reached what is known as final investment decision (‘FID’), his shares would be worth hundreds of millions of dollars,” Lopez’s ruling said. “Tellurian’s potential to achieve FID was not unfounded. Before Tellurian, Souki co-founded Cheniere Energy and achieved great success. But this time Souki defaulted on his loans before Driftwood reached FID. This started several years of negotiating and renegotiating with his lenders. He wanted to work with them, and they wanted to work with him.”
While Souki was failing to meet conditions of bridge agreements he made with the lenders, Tellurian stock closed at $6.19 a share on April 1, 2022 and at $4.61 a share on May 26, 2022, the judge’s ruling noted.
During that period, the shares “reached a value that, if sold, could have repaid the debt in full. But that didn’t occur for many reasons,” Lopez wrote in the ruling. “By the time the lenders foreclosed on the collateral, the Tellurian share price had declined, and the ranch couldn’t be sold for a price sufficient to cover Souki’s debt either. Souki and related guarantors remained liable for at least $100 million.”
Instead, the stocks were sold over a course of six weeks on the New York Stock Exchange, starting in February 2023 while they were trading below $2.
Lopez introduced his written 32-page ruling with remarks describing the case as one “about the relationship between a sophisticated borrower and sophisticated lenders.”
Missing yacht found
The lending group had difficulty seizing Souki’s yacht, but its investigators found it “completely dismantled” in a shipyard in the Cayman Islands in late 2022, the ruling said. Investing around $2 million, the lending group had the ship rebuilt and marketed for sale. It sold for 8 million euros in May 2023, roughly the equivalent of $8-9 million USD at the time.
“Souki helped design the Tango. It is a unique yacht in a niche market. You can’t just go buy one anywhere. Souki bought the Tango in 2018 for $17 million or €15 million. He spent $1 million to $2 million a year to maintain it and raced it with a team across the world,” the ruling said. “For Souki, the Tango was a passion.”
But it was not worth the value Souki placed on it, the order said.
“At trial, Souki opined that the replacement value of the Tango was $25 million. He based this valuation on his experience and from talking to yacht owners on the racing circuit. The Court gave little weight to this testimony.”
By: Rick Carroll| Aspen Daily News I April 4, 2024