Opinion ID: 717547
Heading Depth: 2
Heading Rank: 3

Heading: Modification of the B & H Line of Credit

Text: 11 Prior to April of 1990, Hutensky and Bronson each had $2.5 million of outstanding personal unsecured credit from Central. On April 23, 1990, the board of directors of Central approved a $9.5 million line of credit for B & H. The line of credit was secured by B & H's 12.5% ownership interest in a shopping mall known as the Pavilions at Buckland Hills in Manchester, Connecticut (the Mall). 3 The purpose of the line of credit was to secure $3.5 million of the existing $5 million unsecured debt and to provide $6 million as working capital for B & H projects. 12 In May of 1990, Connecticut State banking authorities began an investigation into whether the line of credit to B & H violated state lending limits. The banking authorities later notified Central of three apparent violations of federal and state banking laws and regulations. 13 By August of 1990, $5.7 million of the $9.5 million line of credit had been advanced by Central and was outstanding. On August 27, 1990, at a joint board meeting of Central and Cenvest, Hutensky presented a proposal to restructure the debt obligations of B & H to Central. According to Hutensky's proposal, Central would release its security interest in the Mall, and B & H would sell this interest. B & H then would pay Central $2.2 million of the sale proceeds to reduce the outstanding debt to $3.5 million. 14 Hutensky acknowledges that he participated in a discussion with the Central board concerning the proposed modification of the line of credit. He stated: 15 There was a lengthy discussion of what it was we were trying to do, and I, no question, participated in that discussion and explained it, because most of the people on the board really didn't have a clear understanding as to what they did in April and what the obligations of the bank were and what the proposal was. 16 Following this discussion, Hutensky was asked to leave the room. 17 After the board engaged in further discussion, it requested that Hutensky prepare a written summary of his proposal. In the written summary, Hutensky stated that B & H is in the process of selling [its] interest in the partnership presently held as collateral. The sale will take place in the latter part of 1990 or early 1991. After reviewing the written summary and engaging in additional discussion, the board voted to accept Hutensky's proposal. Hutensky did not participate in the vote. 18 On October 3, 1990, B & H and Melvin Simon & Associates, Inc. (Simon) signed a purchase and sale agreement, in which Simon agreed to buy B & H's Mall interest and another property interest for $5.8 million. On October 6, 1990, Central entered into a $3 million participation agreement with Mechanics Savings Bank (Mechanics), in which Mechanics took a participation interest in the B & H line of credit, with a priority position. 19 However, B & H's sale of its Mall interest to Simon did not close. Instead, Simon entered into an agreement with Homart, in which Homart agreed to buy out the Manchester Partnership's interest in the Mall. As a result of this agreement, the October 3rd purchase and sale agreement between Simon and B & H was nullified. Under the terms of Homart's buy-out agreement, B & H received only about $4.6 million for its interest in the Mall. Mechanics was wired approximately $3 million of this sum to pay off its participation interest, and Central received the balance of about $1.6 million. As a result, Central received approximately $600,000 less in proceeds from the sale of B & H's Mall interest than had been anticipated at the time of the August 27, 1990 modification. 20 On December 31, 1990, Hutensky resigned from his positions at Cenvest and First Central, after new management assumed control of the companies.