SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 23, 1996
California Seven Associates Limited Partnership,
a California Limited Partnership
(Exact name of registrant as specified in its charter)
California 0-14581 94-2970056
(State of Organization) (Commission (IRS Employer
File Number) Identification No.)
900 Cottage Grove Road, South Building
Bloomfield, Connecticut 06002
(Address of principal executive offices) (Zip Code)
(203) 726-6000
(Registrant's telephone number, including area code)
California Seven Associates Limited Partnership,
a California Limited Partnership
ITEM 3. (a) Bankruptcy
The confirmation hearing for California Seven Associates Limited
Partnership, a California Limited Partnership (the "Partnership") proposed Plan
of Reorganization was concluded on February 1, 1996. On Friday, February 23,
1996, an Order Denying Confirmation and Granting Travelers' Motion for Relief
from Stay was entered by the United States Bankruptcy Court.
The letter to investors describing the outcome of the confirmation hearing, the
status of the Partnership and the scheduled foreclosure of the Partnership's
properties is filed as an exhibit hereto and is incorporated herein by
reference.
ITEM 7(C). Exhibits
(20) Investor letter issued February 15, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
California Seven Associates Limited Partnership,
a California Limited Partnership
By: CIGNA Realty Resources, Inc. - Seventh,
General Partner
Date: February 29, 1996 By: /s/ John D. Carey
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John D. Carey, President and Controller
(Principal Executive Officer)
(Principal Accounting Officer)
FORM 8-K
California Seven Associates Limited Partnership,
a California Limited Partnership
EXHIBIT INDEX
Exhibit
Number
20.2 Investor letter issued February 15, 1996.
California Seven Associates Limited Partnership,
a California Limited Partnership
CIGNA Realty Resources, Inc. - Seventh, General Partner
February 15, 1996 S-313
900 Cottage Grove Road
Hartford, CT 06152-2313
Telephone 1-800.255.5876
Dear Investors:
On December 22, 1995, California Seven Associates Limited Partnership (the
"Partnership") filed the second modification to its Second Amended Plan of
Reorganization (the "Plan") incorporating changes to the claim of the secured
creditor, Travelers Insurance Company ("Travelers") and the term of the Plan as
requested by the United States Bankruptcy Court (the "Court"). The Court had
scheduled a continued confirmation hearing for January 9, 1996 on the second
modification to the Plan. The January 9, 1996 hearing was subsequently continued
to January 30, 1996.
Travelers objected to the second modification to the Plan, challenging the
validity of the capitalization rates used by the Partnership's independent
appraiser to calculate residual sales prices of the Partnership's six
properties. The capitalization rates were the same rates which were used by the
Partnership's appraiser in the appraisals used by the Court to establish the
value of the Partnership's properties. Travelers accepted the appraisals for
purposes of this valuation.
Although the Court stated that it would not allow a collateral attack on the
appraisals, it did allow Travelers to present evidence on capitalization rates.
In addition, although both the Partnership and Travelers had performed residual
sales price calculations based on operating cash flows projected by the
Partnership, the Court opined that the residual sales price calculation must be
executed using cash flow projections contained in the Partnership's appraisals.
Subsequent to the presentation of evidence, the Court ruled on the
capitalization rates to be used to determine the residual values for each of the
Partnership properties. While the Court found that the residual capitalization
rates were different than those used to determine the value of Travelers'
secured claim, the Court declined to revisit the valuation which it had already
determined. The confirmation hearing was continued to February 1, 1996.
At the continued confirmation hearing, the Partnership informed the Court that
based on the residual capitalization rates and cash flows established by the
Court, there was insufficient residual value from the sale of the Partnership
properties to pay Travelers' allowed secured claim as required by the Court. On
February 1, 1996, at the continued hearing, the court denied confirmation of the
Plan and granted Travelers relief from the automatic stay allowing Travelers to
proceed with a foreclosure of the Partnership's properties. An order has not yet
been signed by the Court officially denying the plan or granting Travelers
relief from the automatic stay. Once the order is entered by the Court,
Travelers may appoint a receiver to take control of the property cash accounts
and operations. Travelers has previously filed "Notices of Default" and has now
posted "Notices of Sale" scheduled for March 8, 1996.
The Partnership has reviewed the available alternatives within the bankruptcy
proceeding, including motions for reconsideration of previously decided issues
and an appeal. The Partnership is evaluating the likelihood of success in either
of these options. We have turned our immediate attention toward a purchase or
refinance of Travelers' mortgage note before foreclosure by pursuing potential
money partners. Please indicate your consent to the potential refinancing by
executing the enclosed consent form. You will be deemed to have consented if we
do not receive your completed consent form by March 25, 1996. Although the
outcome of the refinancing effort is unknown, we must assume at this time that
the foreclosure will occur and the Partnership will be liquidated and dissolved,
causing the loss of ownership interests held by all investors.
The Court's rulings have an impact on 1995 tax allocations. Although the
Partnership's Plan included the repair of the Sherman Oaks property, the Court's
ruling on the Plan will most likely lead to a foreclosure, and therefore, the
Partnership will not repair the property. During 1995, the Partnership received
$10,000,000 in a partial settlement of the earthquake insurance claim. The
Partnership's independent accountants have determined that since a repair is now
not likely to occur, the Internal Revenue Service will treat the receipt of the
insurance proceeds as a partial sale of the property. Since the net tax basis of
the Sherman Oaks building and building improvements is less than insurance
proceeds received in 1995, a gain must be recorded on the deemed partial sale
for 1995. The Partnership's independent accountants calculated the gain to be
approximately $3,500,000. The Partnership agreement states that the allocation
first goes to eliminate negative capital account balances of Class B limited
partners and then to remaining partners in proportion to their negative capital
account balances.
The allocation of gain to Class B limited partners is expected to be
approximately $1,230,000 or $369,000 per $150,000 Class B unit. The allocation
of gain to Class A limited partners is expected to be approximately $1,500,000
or $4,000 per $150,000 Class A unit. For 1995, Class A limited partners will
also receive an allocation of loss from operations. Class B partners will
receive no other allocations for 1995.
For 1996 tax reporting, a foreclosure will result in income allocations to Class
A limited partners. Class B will not receive additional income allocations in
1996. The Class A income allocation will approximate existing negative capital
account balances inclusive of syndication costs approximating $90,500 per
$150,000 Class A unit. If a Class A limited partner's ownership interest in the
Partnership is the partner's only passive activity and the limited partner has
been suspending passive loss allocations as required by the Tax Reform Act of
1986, the suspended losses available are estimated to be more than the potential
foreclosure income allocation, resulting in an available net loss. In a year in
which the Project is disposed of and the Partnership dissolved, any accumulative
suspended loss will be available for use by a limited partner to offset ordinary
income. In addition, in the case of a Partnership termination, each limited
partner would be allocated a pro rata share of syndication expenses equivalent
to approximately $14,150 which may be deductible.
Once the Partnership status is more certain, we will provide you with an update.
If you have any questions about this report on the bankruptcy or your
investment, please contact our Investor Relations Unit at 1-800-255-5876. We
also welcome written inquiries which may be sent to CIGNA Financial Partners,
Inc., Cal-7, Investor Relations S-313, 900 Cottage Grove Road, Hartford, CT
06152-2313.
Sincerely,
John D. Carey
President