A Louisiana bankruptcy judge on Tuesday told bondholders they cannot argue for consolidating the bankruptcy cases of the Roman Catholic Archdiocese of New Orleans and its parishes at the ongoing confirmation hearing for the archdiocese's Chapter 11 plan.

U.S. Bankruptcy Judge Meredith S. Grabill told the bondholders that the second day of the two-week confirmation hearing is too late to add new arguments from an adversary action the bondholders filed late Monday afternoon.

"We're not going to use it to hijack this issue," she said.

The adversary action seeks to consolidate the Chapter 11 cases of the archdiocese — which filed for bankruptcy in May 2020 under the weight of hundreds of claims of child sexual abuse — and the cases of 156 affiliated parishes and other institutions that filed for Chapter 11 last week in support of the archdiocese's Chapter 11 plan.

The archdiocese and the unsecured creditors' committee, representing abuse claimants, reached a deal in May on a plan that in its current version would create a $230 million abuse settlement trust funded with approximately $65 million from the archdiocese, $135 million from affiliates and $29.3 million from insurance settlements approved by Judge Grabill on Monday.

The plan is facing an objection from bondholders with $41.9 million in claims, who argued it improperly crams them down by recharacterizing $9.3 million in prepetition interest payments as principal payments and paying off the balance over 12 years with a combination of cash and real estate transfers.

The bondholders are arguing that after making the trust payments, the archdiocese will have enough assets to repay the bonds in full, and that they are being unfairly singled out among creditors by being repaid in installments.

At the opening of Tuesday's hearing, archdiocese counsel Mark Mintz said the archdiocese has filed a revised plan to answer some of the bondholders' objections by proposing to pay them entirely with $20.3 million cash by making interest payments for 12 years and a final balloon payment at the end.

Late Monday, the bondholders filed an adversary action seeking to consolidate the bankruptcy filings of the archdiocese and its affiliates — arguing the archdiocese has total administrative and financial control of its parishes — and the bondholders asked to make consolidation arguments at the confirmation hearing.

Yet Mintz argued it is too late to "fold in" consolidation arguments to the ongoing hearing, saying there has been no opportunity for discovery and that the bondholders have had months to raise the issue.

"They've known this is the plan and this was the idea since May," he said.

Yet bondholder counsel Christopher Marks argued they could not have filed to consolidate the debtors until the affiliates actually filed for Chapter 11 and became debtors. He also argued the consolidation action ties into their argument that the archdiocese is solvent because it can tap into assets held by its affiliates.

Judge Grabill said the witnesses and evidence for the confirmation hearing have already been set, and that the adversary action hasn't been served yet.

"We can try this when it's ripe," she said.

The remainder of Tuesday's hearing consisted of testimony on the archdiocese's operations and finances, with the Rev. Patrick Carr, the archdiocese's vicar of finance, testifying the trust fund payment will leave the archdiocese insolvent, taking into account the need to fund operations and be prepared to deal with future hurricane damage.

Archdiocese financial adviser Lloyd Egan Jr. said properties sustained $50 million to $60 million in uninsured damage in 2021's Hurricane Ida and that it has still only received 60% of the Federal Emergency Management Agency funds it was due from Hurricane Katrina in 2005.

He also said the archdiocese is facing rising insurance costs and considerable deferred maintenance costs.

Both he and Carr testified the archdiocese plans to deal with this insolvency by selling unused real estate, streamlining operations, closing parishes, and selling archdiocese-operated nursing homes and assisted living centers, saying operating them had led to "overwhelming debt."

"We should not have been a nursing home operator," Egan said.

The hearing is scheduled to continue through Dec. 2.

The archdiocese is represented by R. Patrick Vance, Elizabeth J. Futrell and Mark A. Mintz of Jones Walker LLP.

The parishes are represented by Douglas S. Draper, Leslie A. Collins, Greta M. Brouphy and Michael E. Landis of Heller Draper & Horn LLC.

The bondholders are represented by Colleen A. Murphy, Kevin J. Walsh, Charles W. Azano, Christopher Marks and Annette Jarvis of Greenberg Traurig LLP and David S. Rubin of Butler Snow LLP.

The case is In re: The Roman Catholic Church for the Archdiocese of New Orleans, case number 2:20-bk-10846, in the U.S. Bankruptcy Court for the Eastern District of Louisiana.