If project's Guarantor, Shanghai-based Greenland Holdings, defaults on debt, could that trigger default? Yes, but only if project agreements were enforced.

I wrote yesterday that the Guarantor of Atlantic Yards/Pacific Park, Shanghai-based Greenland Holdings Corp., does not seem to have filed required annual audited financial statements to Empire State Development (ESD), the state authority that oversees/shepherds the project,

That's important because it leaves big questions as to whether the parent of Greenland USA, which bought 70% of the project going forward from Forest City, and later bought out all but 5% of Forest City's share, has money not just to finish the project, but to pay the required $2,000/month fines for affordable housing not completed by May 2025.

Another issue, as advocate Gib Veconi stated on Twitter, is "Under the project agreements, guarantor's default on its own debt would trigger a default on the agreements. Greenland may be reaching that point." 

Indeed, as I wrote, Greenland's overall credit rating has sunk to Selective Default, with specific notes in Default. If Greenland defaults, then the company--at least if the project agreements were enforced--could not go forward with the project.

Would it be enforced?

The question, though, is whether those agreements would be enforced. As I wrote in June, representatives of both Greenland USA and ESD, played down the implications of potential default, when queried by Veconi, a member of the purportedly advisory Atlantic Yards Community Development Corporation (AY CDC), at the body's most recent public meeting.

In my coverage, I noted that the Development Agreement offers a huge loophole, a "Right To Refrain," which gives it the discretion "to refrain from exercising any of its rights under this Agreement at any time or from time to time."

Then again, those rights are not merely the rights of the state authority (formerly known as ESDC), but represent obligations to the public.

During the discussion, Greenland USA's Scott Solish said they were eager "to move forward with the next significant phase of this project, which is not building housing, it's building the capacity to put the housing there in the form of a platform."

But that platform, despite pre-construction public briefings, has not moved forward, and there's been no cogent explanation why--nor another meeting of the AY CDC, which is supposed to meet quarterly and where questions about the project sometimes do get aired.

Big question

"The reason I'm asking," Veconi said at the meeting, "is because my read of the MDA [Master Development Agreement[ is that if you—if there was a bankruptcy and if there was a proceeding, anything entered against Greenland, against Greenland Forest City Partners, all development--that would be a default under the agreement and basically all new development would stop. That is--"

"There's no one—" Solish said.

Tobi Jaiyesimi, who serves both as AY CDC Executive Director and ESD's Atlantic Yards Project Director, intervened to deflect the issue and support the developer

"I think, Gib, in the situation when we find ourselves needing to address that worst-case scenario, we'll cross that bridge when we get there," she said. "I think we've gotten the assurance from Scott that his team has continued their commitment to the development of the project, and are excited to start work on the platform, which would lead to the future development of the towers over the platform."

That commitment has not continued. So ESD should be asking questions, not simply deflecting the issue.

Drilling down

As I wrote, the Development Agreement states--in my attempt to distill some very complicated legalese--that an Event of Default occurs if the developer or Guarantor seeks relief as debtor or is adjudicated as bankrupt, and that proceeding is not vacated, discharged, or stayed within 90 days.

The Guaranty shall remain until the Guaranteed Obligations are performed or Liquidated Damages delivered.

As I wrote yesterday, at least one of the Guaranteed Obligations remains--fines for the missing Urban Room, which ESD seems completely uninterested in enforcing. Another, the completion of 1.5 million square feet on the arena block, was not fulfilled until early this year.

That means that Greenland should have been delivering documents attesting to its financial fitness, but apparently did not.

I could imagine a scenario in which ESD says that it's waived the requirement for the Urban Room, so Greenland has fulfilled its obligations as a Guarantor.

That said, the project's developer can still face an Event of Default if it goes into bankruptcy. Could Greenland USA be insulated from its parent's bankruptcy status if the latter is no longer an official Guarantor? 

That wouldn't be logical, from the perspective of protecting the public interest. But Atlantic Yards is a "never say never project," so I wouldn't rule out a legal argument stating that.