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Delaware diocese says bankruptcy plan requires loan

WILMINGTON, Del. — The chief financial officer for the Catholic Diocese of Wilmington told a federal bankruptcy judge Thursday that the diocese needs to borrow nearly $10 million to make its bankruptcy reorganization plan work.

But Joseph Corsini said the diocese, which includes the Eastern Shore of Maryland, has yet to reach a final agreement with a commercial lender, even as the diocese is asking Judge Christopher Sontchi to approve its reorganization plan.

Meanwhile, attorneys for the diocese and its non-debtor Catholic entities did not reveal which real estate holdings of the church would be put up as collateral for the 25-year loan, which carries a variable interest rate starting at 4.5 percent.

When Sontchi asked Corsini which property would be used to secure the loan, an attorney representing the Catholic Diocese Foundation and other non-debtor Catholic entities, which have offered the bulk of the funding for the reorganization plan, jumped up and indicated that he did not want the property identified in court.

After meeting privately with attorneys, Sontchi resumed the hearing to consider approval of the diocese’s reorganization plan with no further mention of the proposed loan collateral.

The plan centers on a $77.4 million settlement with some 150 alleged victims of priest sex abuse. The Catholic Diocese Foundation, a charitable foundation that is separate from the diocese, would provide about $54 million of that total, with another $15.5 million coming from insurers.

In return, the diocese, its parishes and affiliated entities would be released from legal claims related to the church sex abuse scandal.

Meanwhile, attorneys for the diocese and abuse victim Joseph Curry told Sontchi they had reached a tentative agreement resolving his objections to the reorganization plan.

Curry reached a $1.7 million settlement with St. Dennis Church parish in Galena, Md., in January, months after church officials already had decided to accept the money from the Catholic Diocese Foundation on condition that all parishes would be released from liability.

Curry’s attorney accused the diocese of acting with “unclean hands” and giving Curry an “empty promise” because Bishop Francis Malooly agreed to the settlement with Curry after having already determined that all parishes, including St. Dennis, would be released from liability under the bankruptcy plan.

Under the tentative agreement, which needs approval from St. Dennis and the Catholic foundation, Curry would be allowed to seek additional money from the parish if his recovery in the bankruptcy case and his share of proceeds from any litigation or settlement in sexual abuse lawsuits against Catholic religious orders amount to less than what he was promised by St. Dennis.

The plan also requires church officials to turn over internal documents detailing how the diocese handled pedophile priests, who in many cases were allowed to continue to prey on children for years after their abuse became known.

But Corsini said the diocese needs to borrow money to meet obligations for lay employee pensions under the reorganization plan, and to cover remaining fees for attorneys and other professionals in the bankruptcy case, which are estimated at about $5 million and include a current unpaid fee balance of about $930,000.

Corsini said the diocese has a “willing” lender, but that the lender wants the diocese’s external auditor to finish a review before entering into a formal loan agreement. He said the auditor’s review will take another week or two to complete.

If the loan arrangement falls through, the diocese has a backup plan involving a one-year $8.4 million bridge loan at 6 percent interest that has been arranged with non-debtor Catholic entities, which he also did not identify. That loan could be extended another five years with a 2 percent extension fee, Corsini said.

While the diocese’s plan is supported by abuse survivors who constitute its official committee of unsecured creditors, attorneys representing the majority of abuse survivors in an ad hoc committee have accused the diocese of trying to renege on the settlement terms.

The ad hoc committee claimed that a settlement term sheet requires the diocese to pay the $77.4 million into a trust within 60 days of confirmation of the reorganization plan. The diocese argued that the Catholic Diocese Foundation and insurers would not contribute the money needed to fund the plan until a final order had been entered and any possibility of an appeal had been eliminated.

Sontchi ruled Thursday in favor of the ad hoc committee, saying the settlement needs to be fully funded within 60 days of confirmation, and that only upon full funding will the plan contributors get the legal releases they demand.

“It’s a two-way street,” said the judge, noting that if the non-debtor entities aren’t willing to fund the diocese’s reorganization plan on those terms, then the plan is not feasible and cannot be confirmed.

Attorneys for the insurers and the non-debtor entities told Sontchi they would need time to consult before deciding how to proceed.