1020-00005 · Greenfield Agricultural Partners · Receivership

memo-receivership-claim-priority.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

CALDERWOOD & HARKNESS LLP 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606

INTERNAL MEMORANDUM

I. Purpose and Summary

The purpose of this memorandum is to analyze the priority of Greenfield Agricultural Partners LLC's ("GAP") claim in the receivership of Prairie Basin Grain Co. ("PBGC") and to assess the likely range of recovery for GAP as an unsecured trade creditor in that proceeding. This memorandum is intended to inform the engagement team's strategy recommendations to the client and to support the separate client memorandum being prepared regarding the voluntary dismissal of the Cook County collection action.

Based on my review of the relevant transactional documents, the receivership filings, publicly available financial information, and applicable Illinois law, I have reached the following preliminary conclusions:

1. GAP's claim is unsecured. GAP's claim of $4,870,050.00 in principal (plus accrued interest and attorneys' fees totaling approximately $794,378.85) is properly classified as a general unsecured trade creditor claim. GAP does not hold a security interest, lien, or any other form of priority claim against PBGC's assets. The claim arises from ordinary-course trade obligations — specifically, five unpaid invoices for grain delivered and accepted under the Master Grain Purchase and Off-Take Agreement dated March 15, 2019.

2. Heartland Prairie Bank holds a senior secured position. Heartland Prairie Bank, N.A. ("HPB") holds a senior perfected security interest in substantially all of PBGC's assets pursuant to a Revolving Credit and Term Loan Agreement dated June 1, 2018. HPB's outstanding balance at the time of default was approximately $31.4 million. HPB's security interest, which has been perfected under Article 9 of the Illinois Uniform Commercial Code, attaches to grain inventory, elevator facilities, accounts receivable, equipment, and general intangibles. HPB is the petitioning creditor in the receivership proceeding.

3. GAP's claim is subordinate. GAP's claim ranks below both the administrative expenses of the receivership and HPB's secured claim. Under the standard priority framework applicable to Illinois equity receiverships, general unsecured trade creditors such as GAP receive distributions only after all senior claims have been satisfied in full.

4. Recovery is expected to be minimal. Given PBGC's estimated total liabilities of $58–62 million and estimated total assets of $35–40 million, the shortfall is substantial — on the order of $18–27 million. After satisfaction of administrative costs and HPB's secured claim, the residual estate available for pro rata distribution among unsecured creditors is estimated to yield a recovery in the range of approximately 5–15 cents on the dollar, and may be negligible depending on actual asset realizations.

5. The Musgrave guaranty may provide additional recovery. Darren K. Musgrave, PBGC's president and majority shareholder, executed a limited personal guaranty of PBGC's payment obligations under the Off-Take Agreement, capped at $2,000,000. This guaranty is a separate personal obligation that may not be subject to the receivership stay, and it represents a potentially meaningful supplemental source of recovery. However, Musgrave's personal financial condition is currently unknown, and collectability requires further investigation.

6. Insurance proceeds are a potential but uncertain source. PBGC has pending coverage litigation against Triton Mutual Insurance Co. relating to the Macon County elevator fire of October 17, 2021 (estimated loss approximately $3.2 million). If resolved favorably, the resulting insurance proceeds could augment the receivership estate, though it is likely that HPB's security interest extends to such proceeds, meaning they would first satisfy HPB's secured claim before becoming available to unsecured creditors.

Each of these conclusions is discussed in greater detail below.

II. Background

A. The Receivership Proceeding

On November 28, 2022, Heartland Prairie Bank, N.A. ("HPB"), acting as PBGC's senior secured lender through its Agribusiness Lending division under the direction of Kenneth W. Aldrich, Senior Vice President, filed a Verified Petition for Appointment of Receiver over Prairie Basin Grain Co. in the Circuit Court of Sangamon County, Illinois. The petition was docketed as Case No. 2022-CH-001247. HPB's petition was supported by declarations and documentary evidence establishing PBGC's default under the Revolving Credit and Term Loan Agreement dated June 1, 2018, as well as the inadequacy of PBGC's assets to satisfy its outstanding indebtedness to HPB.

On December 12, 2022, following a hearing on the petition, the Honorable Court entered an Order Appointing Receiver (the "Receivership Order"), designating Gareth J. Whitmore, CPA, CIRA, of Whitmore Strauss Advisory LLC, as receiver for all assets and operations of PBGC. Mr. Whitmore's firm is located at 500 East Monroe Street, Suite 300, Springfield, Illinois 62701. Mr. Whitmore is a Certified Insolvency and Restructuring Advisor with experience in agricultural and commodity-sector receiverships.

The Receivership Order vested Mr. Whitmore with broad powers over PBGC's assets and operations, including the authority to take possession and control of all PBGC property, to continue or wind down business operations as appropriate, to investigate and prosecute claims belonging to the estate, and to marshal assets for distribution to creditors in accordance with their legal priorities.

Critically, the Receivership Order included an automatic stay of all pending litigation against PBGC. The stay operates as a blanket injunction prohibiting the commencement or continuation of any action, suit, or proceeding against PBGC or its assets, except with leave of the Sangamon County Court. This stay is broadly analogous to the automatic stay that arises under Section 362 of the Bankruptcy Code in federal bankruptcy proceedings, though it derives its authority from the equitable powers of the Illinois circuit court rather than from federal statute.

The receiver has retained as his legal counsel Joanna M. Lockridge of Lockridge Payne LLP, with offices at 120 South Sixth Street, Suite 1800, Springfield, Illinois 62701. All communications with the receiver regarding claims against the estate are to be directed through Ms. Lockridge's office.

GAP received formal notice of the Receivership Order and the automatic stay on December 19, 2022, via certified mail from the receiver's counsel. Upon receipt of this notice, our firm confirmed the applicability of the stay to the Cook County collection action.

As a result of the receivership stay, the Cook County collection action captioned Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. et al., Case No. 2022-L-004831, pending before the Honorable Patricia Delacroix in the Circuit Court of Cook County, is currently stayed. No further proceedings may be taken in that action against PBGC without leave of the Sangamon County Court. The implications of this stay for the separate guaranty claim against Darren K. Musgrave are discussed in Section VI below.

B. GAP's Claim Against PBGC

GAP's claim against PBGC arises from the Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), pursuant to which GAP, as Seller, agreed to sell and deliver specified quantities of grain commodities — principally #2 Yellow Corn and #1 Yellow Soybeans — to PBGC, as Buyer, at PBGC's elevator facilities located in Champaign, Macon, and Piatt Counties, Illinois. The Off-Take Agreement established pricing mechanisms, delivery schedules, payment terms, quality specifications, and other standard commercial terms governing the ongoing commodity purchase relationship between the parties.

PBGC's payment obligations under the Off-Take Agreement became due and payable within thirty (30) days of the date of each invoice. PBGC failed to pay the following five invoices, all of which remain outstanding in full:

Total principal outstanding: $4,870,050.00

The Off-Take Agreement provides for interest on overdue amounts at a rate of 1.5% per month (18% per annum) pursuant to Section 7.3. Accrued interest through December 31, 2022, calculated on each unpaid invoice from its respective due date, totals approximately $492,341. This figure will continue to accrue and will need to be updated at the time of any distribution or resolution.

Additionally, Section 12.4 of the Off-Take Agreement contains a prevailing-party attorneys' fees clause, which provides that the prevailing party in any action to enforce the agreement shall be entitled to recover its reasonable attorneys' fees and costs of suit. Through January 31, 2023, Calderwood & Harkness has incurred fees and costs in connection with the collection action and the receivership claim as follows:

• Attorney fees: $287,415.50

• Costs and disbursements: $14,622.35

• Total fees and costs: $302,037.85

Accordingly, the total receivership claim asserted on behalf of GAP is approximately $5,664,428.85, comprising the sum of principal ($4,870,050.00), accrued interest ($492,341.00), and attorneys' fees and costs ($302,037.85).

On January 10, 2023, our firm transmitted a formal letter to Joanna M. Lockridge of Lockridge Payne LLP, as counsel to the receiver, asserting GAP's claim in the receivership proceeding in full. A formal Proof of Claim was subsequently prepared and filed with the receiver on January 30, 2023, in accordance with the claims procedures established by the Receivership Order and any supplemental orders entered by the Sangamon County Court.

C. The Musgrave Personal Guaranty

In connection with the execution of the Off-Take Agreement, Darren K. Musgrave — who serves as President and sole director of PBGC and holds a 72% equity interest in the company — executed a limited personal guaranty of PBGC's payment obligations to GAP. This guaranty instrument is attached as Exhibit D to the Off-Take Agreement (the "Musgrave Guaranty").

The Musgrave Guaranty provides that Musgrave personally, unconditionally, and irrevocably guarantees the prompt and full payment of all sums due and owing by PBGC to GAP under the Off-Take Agreement, subject to an aggregate cap of $2,000,000. The guaranty is a guaranty of payment and not merely of collection, meaning that GAP is not required to exhaust its remedies against PBGC before proceeding against Musgrave under the guaranty.

Importantly, the Musgrave Guaranty is a separate personal obligation of Darren K. Musgrave. It is not an obligation of PBGC, the entity in receivership. As such, the automatic stay imposed by the Receivership Order — which by its terms applies to actions against PBGC and its assets — does not necessarily extend to claims against Musgrave in his individual capacity. This issue, including the practical considerations involved in pursuing the guaranty claim, is addressed separately in Section VI below.

Count II of GAP's Complaint filed in the Cook County collection action (Case No. 2022-L-004831) asserts a claim for breach of the Musgrave Guaranty against Darren K. Musgrave individually. The status of that count in light of the receivership stay is discussed further below.

III. Analysis of Claim Priority

A. Framework for Claim Priorities in Illinois Receiverships

At the outset, it is important to note that the PBGC receivership is a state-court equity receivership proceeding under Illinois law. It is not a federal bankruptcy proceeding under Title 11 of the United States Code. As such, the priority of claims is governed by Illinois statutory and common law, as well as by any specific provisions of the Receivership Order, rather than by the priority scheme set forth in Section 507 of the Bankruptcy Code. That said, many of the fundamental principles of claim priority are analogous between state-court receiverships and federal bankruptcy proceedings, as both derive from longstanding equitable principles governing the distribution of an insolvent debtor's assets.

Under Illinois law, the receiver's fundamental duty is to marshal the assets of the receivership estate, preserve and protect those assets for the benefit of creditors, liquidate assets in an orderly and commercially reasonable manner, and distribute the proceeds to creditors in accordance with their legal priorities. The receiver acts as a fiduciary of the estate and is subject to the supervision and direction of the appointing court.

The general priority framework applicable to an Illinois equity receivership is as follows:

1. Costs of administration. The expenses of the receivership itself take first priority. These include the receiver's fees and expenses, the fees and expenses of the receiver's counsel, and all costs incurred in operating, preserving, and liquidating the assets of the estate. Administrative expenses are paid first because the receivership cannot function without them, and parties who provide services to the estate in reliance on administrative priority would not do so without assurance of payment. In the PBGC receivership, administrative costs have not yet been fully quantified, but they could be significant given the complexity of PBGC's operations (six grain elevator facilities across three counties) and the anticipated duration of the proceeding.

2. Secured claims (to the extent of their collateral). Secured creditors — those holding properly perfected security interests, liens, or encumbrances on specific assets of the estate — are entitled to receive payment from the proceeds of their collateral, up to the value of that collateral, before any distributions are made to unsecured creditors. If the value of the collateral exceeds the secured claim, the surplus is available to satisfy lower-priority claims. If the secured claim exceeds the value of the collateral, the deficiency (i.e., the unsatisfied portion of the secured claim) becomes a general unsecured claim sharing pro rata with other unsecured creditors. In this case, HPB holds the senior secured position, as discussed in Section III.B below.

3. Priority unsecured claims (if any). Certain categories of unsecured claims may be entitled to priority over general unsecured claims under applicable law. Under Illinois law, these may include certain unpaid employee wages (under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq.) and certain tax obligations owed to federal, state, or local taxing authorities. The existence and magnitude of any such priority unsecured claims in the PBGC receivership are not yet fully known. GAP's claim does not fall into any priority unsecured category.

4. General unsecured claims. This category encompasses all creditors who do not hold security interests or liens and whose claims are not otherwise entitled to priority treatment. Trade creditors, including GAP, fall squarely into this category. General unsecured claims share pro rata in any residual estate remaining after satisfaction of administrative costs, secured claims, and priority unsecured claims. Pro rata distribution means that each general unsecured creditor receives a proportional share of the available funds based on the ratio of its allowed claim to the total pool of allowed general unsecured claims.

5. Equity interests. Shareholders of the insolvent entity — in this case, Darren K. Musgrave (72%), Lydia R. Musgrave (18%), and Victor P. Novotny (10%) — are the residual claimants and receive distributions only after all creditor claims have been paid in full. In an insolvent receivership such as this one, equity holders will almost certainly receive nothing.

This priority framework is well established in Illinois common law and has been consistently applied by Illinois courts in receivership proceedings. See, e.g., Reconstruction Finance Corp. v. Central Republic Trust Co., 1 N.E.2d 379 (Ill. 1936); Bowman v. Integrity Fin. Corp., 508 N.E.2d 519 (Ill. App. 4th Dist. 1987). While the Sangamon County Court retains equitable discretion in administering the receivership, it is expected that the Court will adhere to this standard framework absent exceptional circumstances not present here.

B. Heartland Prairie Bank's Senior Secured Position

Heartland Prairie Bank, N.A. holds a Revolving Credit and Term Loan Agreement with PBGC, dated June 1, 2018, with an aggregate commitment of $45 million. Under this facility, HPB extended revolving credit and term loan financing to PBGC to fund its grain purchasing, storage, and trading operations. The loan documentation granted HPB a comprehensive security interest in substantially all of PBGC's assets, including but not limited to:

• All grain inventory (including grain in storage at PBGC's elevator facilities);

• All elevator facilities, structures, and improvements;

• All accounts receivable arising from the sale or disposition of grain and related commodities;

• All equipment, machinery, fixtures, and rolling stock used in PBGC's operations;

• All general intangibles, including contract rights, intellectual property, permits, and licenses; and

• All proceeds of the foregoing, including cash proceeds, insurance proceeds, and proceeds of proceeds.

HPB's security interest has been perfected under Article 9 of the Illinois Uniform Commercial Code (810 ILCS 5/9-101 et seq.) by the filing of appropriate UCC-1 financing statements with the Illinois Secretary of State. We have confirmed the existence of HPB's UCC filing through a search of the Illinois Secretary of State's UCC records. The financing statement covers all of the asset categories described above and includes a "proceeds" clause that, in standard UCC practice, extends the security interest to all proceeds of the collateral — including, notably, insurance proceeds.

HPB declared PBGC in default under the Revolving Credit and Term Loan Agreement in approximately April 2022. At the time of default, the outstanding balance owed by PBGC to HPB was approximately $31.4 million. This balance includes outstanding principal on both the revolving credit and term loan facilities, plus accrued and unpaid interest, and may also include default interest, late charges, and HPB's own attorneys' fees and expenses as provided under the loan documentation. The precise total of HPB's secured claim as of the date of the receivership filing has not been confirmed but is understood to be in the range of $31.4 million.

HPB is the petitioning creditor that initiated the receivership proceeding by filing the Verified Petition for Appointment of Receiver on November 28, 2022. As the senior secured creditor and petitioning party, HPB's secured claim has first priority (after administrative expenses) against the receivership estate.

The significance of HPB's position cannot be overstated. HPB's secured claim of approximately $31.4 million, measured against PBGC's estimated total assets of $35–40 million, means that HPB's secured claim alone consumes a substantial majority — potentially 78% to 90% — of the total asset base. After deducting administrative costs (which could be significant), the remaining assets available for all other creditors, including unsecured trade creditors such as GAP, may be de minimis or negligible.

Moreover, to the extent that HPB's collateral value proves insufficient to fully satisfy HPB's $31.4 million secured claim — which is entirely possible if the actual liquidation value of PBGC's assets falls below current estimates — HPB would hold a deficiency claim for the unsatisfied portion. That deficiency claim would be reclassified as a general unsecured claim and would share pro rata with all other unsecured creditors, including GAP. The entry of HPB's deficiency claim into the unsecured creditor pool would further dilute the recovery available to other unsecured creditors, as the total pool of unsecured claims would increase while the funds available for distribution would remain constant.

C. GAP's Classification as Unsecured Trade Creditor

GAP's claim against PBGC arises from ordinary-course trade obligations under the Off-Take Agreement. Specifically, GAP delivered grain commodities — #2 Yellow Corn and #1 Yellow Soybeans — to PBGC's elevator facilities in the ordinary course of business, and PBGC accepted those deliveries but failed to pay the corresponding invoices. This is a straightforward breach of contract claim for the price of goods sold and delivered, and it gives rise to a general unsecured trade creditor claim.

GAP does not hold a security interest, lien, or other encumbrance on any assets of PBGC. The Off-Take Agreement did not include any provision granting GAP a lien or security interest in PBGC's assets to secure PBGC's payment obligations. GAP did not file any UCC-1 financing statements or otherwise perfect a security interest against PBGC's property. Accordingly, GAP has no basis to assert a secured claim in the receivership.

Furthermore, GAP's claim does not fall into any category of priority unsecured claims recognized under Illinois law. GAP is not an employee of PBGC, a taxing authority, or any other category of claimant entitled to priority treatment. GAP's claim is therefore properly classified as a general unsecured trade creditor claim, ranking at Level 4 in the priority framework described above.

As a general unsecured trade creditor, GAP's claim is on par with the claims of all other unsecured trade creditors of PBGC. Based on available information, PBGC ceased paying trade creditors generally in January 2022, suggesting that there are likely numerous other trade creditors with outstanding claims. The total pool of general unsecured claims is estimated to be in the range of $26.6–30.6 million (calculated as total estimated liabilities of $58–62 million minus HPB's secured claim of approximately $31.4 million). GAP's claim of $4,870,050 in principal would represent approximately 16–18% of the total unsecured creditor pool (before accounting for any HPB deficiency claim), assuming these estimates are accurate.

The contractual interest rate of 1.5% per month and the prevailing-party attorneys' fees clause of Section 12.4 of the Off-Take Agreement establish the basis for calculating the interest and fees components of GAP's claim. These contractual provisions entitle GAP to assert its full claim — including interest and fees — in the receivership. However, these provisions do not elevate the priority of GAP's claim; they merely increase the quantum of the claim. The interest and fees components remain general unsecured obligations of PBGC and will share pro rata with other unsecured claims if and when any distribution is made.

It should also be noted that the enforceability of the 1.5% per month (18% per annum) interest rate in the receivership context will depend on whether the Sangamon County Court considers such rate to be reasonable and enforceable under Illinois law. While 18% per annum is a common rate in commercial contracts and is generally enforceable between sophisticated commercial parties in Illinois, the receiver or the court could conceivably challenge the rate in the context of the claims adjudication process. For purposes of this analysis, we assume the rate will be allowed as asserted.

D. Estimated Asset Shortfall and Recovery Analysis

The following analysis estimates GAP's likely recovery from the receivership estate, based on the information currently available. All figures are preliminary estimates and are subject to change as the receiver completes his asset inventory, liquidation, and claims adjudication processes.

Estimated Total Liabilities: $58–62 million. This figure is derived from information available in the receivership filings, public records, and information communicated by the receiver's counsel. It includes HPB's secured claim of approximately $31.4 million, as well as the claims of all other creditors — trade creditors, taxing authorities, employees, and any other parties with claims against PBGC.

Estimated Total Assets: $35–40 million. This figure represents the estimated aggregate value of PBGC's assets, including its six grain elevator facilities (one of which, the Macon County facility, is damaged and inoperable), grain inventory on hand, accounts receivable, equipment, and other property. The actual value ultimately realized from the liquidation of these assets may differ materially from this estimate, as asset values in a forced liquidation are typically lower than going-concern values, and the current market conditions for agricultural infrastructure and grain inventories will affect realizable prices.

Shortfall: Approximately $18–27 million. PBGC's liabilities substantially exceed its assets, confirming the company's insolvency and the likelihood that not all creditors will be paid in full.

Illustrative Recovery Calculation:

To estimate the potential recovery for unsecured creditors such as GAP, the following illustrative calculation uses midpoint assumptions:

• Total assets (midpoint): $37,500,000

• Less: estimated administrative costs (receiver's fees, receiver's counsel fees, operating costs): ($2,000,000) (This is a rough estimate; actual administrative costs could be higher or lower.)

• Less: HPB's secured claim: ($31,400,000)

• Residual estate available for unsecured creditors: $4,100,000

This residual of $4.1 million must be shared pro rata among all general unsecured creditors. Estimating the total pool of unsecured claims:

• Total estimated liabilities: $60,000,000 (midpoint)

• Less: HPB's secured claim: ($31,400,000)

• Estimated total unsecured claims: $28,600,000

However, this figure does not account for a potential HPB deficiency claim. If the total value of HPB's collateral (after administrative costs) is less than $31.4 million, HPB would hold a deficiency claim that would also share pro rata with the other unsecured creditors. For example, if HPB recovers only $28 million from its collateral, HPB's deficiency claim would be $3.4 million, increasing the total unsecured claims pool to approximately $32 million and further diluting recovery for other unsecured creditors.

Pro Rata Distribution Estimate:

Based on the foregoing illustrative assumptions, the pro rata distribution to unsecured creditors would be:

$4,100,000 ÷ $28,600,000 = approximately 14.3%

Under less favorable assumptions (lower total asset realizations, higher administrative costs, larger unsecured claims pool, or an HPB deficiency claim entering the pool), the pro rata distribution could be significantly lower — potentially in the range of 5% or less. Under more favorable assumptions, it could reach 15% or marginally higher. For planning purposes, I estimate a range of 5–15 cents on the dollar for general unsecured creditors, with substantial uncertainty.

GAP's Potential Recovery from the Receivership (Principal Only):

Recovery on the interest component ($492,341) and the attorneys' fees and costs component ($302,037.85) would be additional, but subject to the same pro rata reduction. At a 10% recovery rate, for example, the total recovery on the full claim of $5,664,428.85 would be approximately $566,443.

These estimates are, of necessity, highly preliminary. The actual recovery will depend on numerous factors that are currently unknown or uncertain, including:

• The actual liquidation value of PBGC's assets (particularly the elevator facilities and any remaining grain inventory);

• The total amount of administrative expenses incurred during the receivership;

• The total number and amount of claims filed by other creditors;

• Whether HPB has a deficiency claim and, if so, the size of that claim;

• Whether any claims are subject to objection, subordination, or disallowance;

• The outcome of the Triton Mutual insurance coverage litigation (discussed in Section V below); and

• The length of the receivership and the efficiency of the receiver's administration.

IV. PBGC's Financial Distress — Contributing Factors

Understanding the factors that contributed to PBGC's financial collapse is relevant to assessing the likely trajectory of the receivership and the potential for asset recoveries. The following factors are noteworthy:

Macon County Elevator Fire (October 17, 2021). On October 17, 2021, a fire at PBGC's grain elevator facility located at 2200 County Road 1400 East, Decatur, Illinois 62521 (Macon County), caused an estimated $3.2 million in property damage. The fire destroyed a significant portion of the facility's grain storage infrastructure and rendered the Macon County elevator inoperable. The facility has not been repaired or returned to service. The fire reduced PBGC's operating capacity and storage throughput at a critical time during the fall harvest season. PBGC carried property insurance with Triton Mutual Insurance Co. covering its elevator facilities, but Triton Mutual has disputed coverage on the basis of an alleged lapse in PBGC's premium payments. The resulting coverage litigation is discussed in Section V below. The fire not only reduced PBGC's asset base but also deprived PBGC of the insurance proceeds it expected to receive, compounding the company's liquidity problems.

Failed Hedging Strategy (Q4 2021). In the fourth quarter of 2021, PBGC maintained short corn futures positions as part of its hedging program. During this period, corn and soybean prices experienced significant volatility, and the basis levels between cash and futures prices moved sharply against PBGC's positions. The resulting mark-to-market losses on PBGC's short positions were estimated at approximately $6.8 million. These losses had a severe and immediate impact on PBGC's cash flow and liquidity, as margin calls required PBGC to post substantial additional cash or collateral with its futures commission merchant. The hedging losses appear to have been a principal catalyst for PBGC's liquidity crisis.

Cessation of Trade Payments (January 2022). In January 2022, PBGC ceased paying its trade creditors. This broad cessation of payments affected numerous grain suppliers, equipment vendors, service providers, and other trade counterparties. The timing of the payment cessation — coming shortly after the hedging losses and the unresolved fire loss — is consistent with a comprehensive liquidity collapse. GAP's unpaid invoices, all of which had due dates between October 2021 and February 2022, coincide precisely with this period of financial distress.

Loss of Counsel (November 2022). On November 4, 2022, Bartlett, Reyes Linley CPAs LLP & Harkin LLP, through Douglas M. Harkin, the lead partner handling PBGC's defense in the Cook County collection action, filed a motion to withdraw as counsel for PBGC in Case No. 2022-L-004831, citing non-payment of legal fees. The motion was granted on November 18, 2022. PBGC's inability to pay even its own defense counsel's fees further evidences the depth of its financial distress and its inability to fund basic operational and legal expenses.

Operational Overview. PBGC operates six grain elevator facilities across Champaign, Macon, and Piatt Counties in central Illinois. The Macon County facility remains damaged and inoperable following the October 2021 fire, effectively reducing PBGC to five operating locations. PBGC's fiscal year 2021 annual revenue was estimated at approximately $185 million, reflecting the scale of its grain purchasing, storage, and trading operations. However, the combined impact of the hedging losses (approximately $6.8 million), the uninsured fire loss (approximately $3.2 million), and the broader margin compression in the grain trading business during this period severely eroded PBGC's financial viability. By the time HPB declared a default in April 2022 and commenced the receivership proceeding in November 2022, PBGC was deeply insolvent.

These factors are relevant to the recovery analysis because they suggest that PBGC's asset values may be further impaired relative to book value. The damaged Macon County facility, for example, will likely sell at a significant discount to its pre-fire value if it is sold in its current condition. Similarly, if the Triton Mutual coverage dispute is resolved unfavorably, the estate will lose a potential $3.2 million recovery. The hedging losses have already been realized and are not recoverable. These considerations reinforce the conclusion that unsecured creditor recovery will be at the lower end of the estimated range.

V. Potential Recovery from Triton Mutual Insurance Co. Proceeds

PBGC carried property insurance with Triton Mutual Insurance Co. (headquartered at 820 South Neil Street, Champaign, Illinois 61820) covering its grain elevator facilities, including the Macon County facility that was damaged in the October 17, 2021 fire. The estimated loss from the fire is approximately $3.2 million.

Triton Mutual has disputed coverage under the applicable policy, alleging that PBGC's premium payments had lapsed prior to the date of the fire and that the policy was therefore not in force at the time of the loss. PBGC has contested this denial, and coverage litigation is pending in a separate proceeding. The specific court and case number of the coverage litigation have not been identified in the materials available to us, but we understand the matter to be pending in state court.

With the appointment of the receiver, the receiver has succeeded to PBGC's rights and interests in the coverage litigation and has the authority to prosecute the claim on behalf of the receivership estate. The outcome of the coverage dispute will depend on the specific facts regarding the alleged premium lapse — including whether PBGC in fact failed to make timely payments, whether any grace period under the policy was applicable, and whether Triton Mutual properly notified PBGC of any cancellation or lapse.

If PBGC (or the receiver on behalf of the estate) prevails in the coverage litigation, insurance proceeds of up to approximately $3.2 million could flow into the receivership estate. This would augment the total assets available for distribution and could marginally improve recoveries for creditors. However, several important considerations temper the potential benefit of this outcome for GAP and other unsecured creditors:

First, it is unclear — but likely — that HPB's security interest extends to insurance proceeds. HPB's UCC-1 financing statement is understood to cover "proceeds" of the collateral, which is standard language in UCC filings and which, under Article 9 of the Illinois UCC (810 ILCS 5/9-315), would encompass insurance proceeds received on account of the loss or destruction of collateral (here, the Macon County elevator facility). If HPB's lien attaches to the insurance proceeds, those funds would first be applied to satisfy HPB's secured claim before becoming available to lower-priority creditors.

Second, given that HPB's total secured claim (approximately $31.4 million) substantially exceeds the amount of the insurance proceeds ($3.2 million), HPB's secured claim would not be fully satisfied by the insurance proceeds alone. HPB would absorb the insurance proceeds in partial satisfaction of its secured claim. Insurance proceeds would benefit unsecured creditors only if HPB's total secured claim were already fully satisfied from other assets — which, based on current estimates, appears unlikely.

Third, the outcome and timing of the coverage litigation are uncertain. Triton Mutual is contesting coverage and may have meritorious defenses. Even if the claim is ultimately successful, it could take months or years to resolve, delaying the receivership process and increasing administrative costs. Alternatively, the claim could be settled for an amount less than the full $3.2 million loss.

In light of these considerations, the Triton Mutual insurance proceeds should be viewed as a potential but uncertain and likely subordinate source of recovery for unsecured creditors. We recommend monitoring the coverage litigation through the receiver's periodic reports to the Sangamon County Court and raising the issue with the receiver's counsel if it appears that the proceeds could be available for distribution to unsecured creditors in any scenario.

VI. Status of the Musgrave Personal Guaranty Claim

The Musgrave Guaranty, executed by Darren K. Musgrave and attached as Exhibit D to the Off-Take Agreement, represents a separate and potentially significant avenue of recovery for GAP. This section addresses the legal status of the guaranty claim in light of the receivership, the practical considerations involved in pursuing it, and our preliminary recommendations.

Legal Status. The Musgrave Guaranty is a personal obligation of Darren K. Musgrave, not an obligation of PBGC. The guaranty creates a direct contractual relationship between GAP (as beneficiary) and Musgrave (as guarantor) that is separate and distinct from the underlying debtor-creditor relationship between GAP and PBGC. As such, the receivership stay imposed by the Sangamon County Court — which by its terms applies to PBGC, the entity in receivership, and to actions against PBGC's assets — does not necessarily bar GAP from pursuing its guaranty claim against Musgrave in his individual capacity.

The Cook County Complaint (Case No. 2022-L-004831) includes Count II, which asserts a claim for breach of the Musgrave Guaranty against Darren K. Musgrave individually. While the Complaint as a whole was subject to the general stay order, there is a reasonable argument that Count II — directed solely at Musgrave personally and not at PBGC — could be severed from the stayed PBGC claims and prosecuted independently. This argument is strongest if Musgrave's personal assets are not part of the receivership estate (which they should not be, as the receivership covers only PBGC's assets). However, the receiver or Musgrave himself could argue that prosecution of the guaranty claim during the pendency of the receivership would interfere with or prejudice the receivership proceedings, particularly if it involves discovery that overlaps with the receivership process or if any judgment against Musgrave could indirectly affect the estate.

We have not yet sought leave from the Sangamon County Court to proceed against Musgrave on the guaranty claim and have not filed a separate action on the guaranty. These options should be evaluated as the receivership progresses.

Guaranty Cap. The Musgrave Guaranty is capped at $2,000,000 in the aggregate. This cap limits GAP's potential recovery under the guaranty to $2,000,000, regardless of the total amount owed by PBGC to GAP. The $2,000,000 cap represents approximately 41% of the total principal outstanding ($4,870,050) and approximately 35% of the total claim including interest and fees ($5,664,428.85). While the guaranty cap is significant, it does not fully cover GAP's exposure.

Practical Considerations. Several practical factors will affect the viability and value of the guaranty claim:

• Musgrave's personal financial condition. As a 72% shareholder of an insolvent company, Musgrave's personal financial condition is uncertain and potentially compromised. His personal assets may consist primarily of his equity interest in PBGC (which is worthless) and his personal residence at 1188 Windermere Lane, Champaign, Illinois 61822. We do not currently have information regarding other assets, including bank accounts, investment accounts, real property holdings, or other sources of personal wealth. An asset investigation is recommended before committing resources to pursue the guaranty claim.

• Enforcement costs. If GAP obtains a judgment against Musgrave under the guaranty, enforcement of that judgment would require post-judgment discovery and collection efforts, potentially including garnishment, citation proceedings, and proceedings supplementary under Illinois law. These efforts involve additional legal costs and may prove fruitless if Musgrave's personal assets are limited.

• Procedural posture. If the Cook County action is voluntarily dismissed (as is being recommended in the separate client memorandum), the guaranty claim would need to be refiled in a new action or pursued through an independent proceeding. The statute of limitations on the guaranty claim should be confirmed before any dismissal to ensure that refiling rights are preserved.

• Interaction with receivership claim. The guaranty claim is a personal obligation of Musgrave and is not a PBGC liability. As such, it is generally not includable in GAP's proof of claim against PBGC in the receivership. However, any amounts recovered under the guaranty would offset GAP's total loss and should be credited against the total claim to avoid a double recovery. If GAP recovers under the guaranty, the receivership proof of claim should be adjusted accordingly.

Preliminary Recommendation. We recommend that the team preserve the Musgrave Guaranty claim and treat it as a separate, independent avenue of recovery. If the receivership distribution appears likely to be minimal — as current projections suggest — the guaranty claim may represent the most concrete potential source of meaningful partial recovery for GAP. The recommended next step is to conduct a personal asset investigation on Darren K. Musgrave to assess his personal financial condition and the likely collectability of a judgment under the guaranty. This task should be discussed with Francesca Morano, who is coordinating the client relationship and strategic recommendations.

VII. Summary of Estimated Total Potential Recovery

The following table summarizes the estimated range of potential recovery for GAP across all available sources:

Key Observations:

• Combined maximum realistic recovery (assuming the guaranty is fully collectible and the receivership yields a modest distribution at the midpoint of the range): potentially in the range of $2,243,500 to $2,730,500.

• Worst case (guaranty uncollectible, negligible receivership distribution): recovery could be near zero.

• Total amount at risk (principal + interest + fees/costs): approximately $5,664,428.85.

• Probable recovery range (considering the uncertainties): the most likely outcome is a partial recovery that falls well short of the full claim amount. If the guaranty is collectible, GAP may recover approximately $2.0–2.5 million (roughly 35–44% of the total principal). If the guaranty proves uncollectible, GAP's recovery would be limited to its pro rata share from the receivership estate, which could be as low as 5% of the principal, or approximately $243,500.

All of these figures are preliminary estimates subject to change as additional information becomes available through the receivership process. The receiver's periodic reports, the claims bar date and claims adjudication process, and the resolution of the Triton Mutual coverage dispute will all materially affect the ultimate recovery. We will update this analysis as developments warrant.

VIII. Recommendations

Based on the foregoing analysis, I recommend the following actions:

1. File Proof of Claim promptly. GAP's full claim should be asserted in the receivership proceeding in Sangamon County Case No. 2022-CH-001247. The claim should include all components: $4,870,050.00 in principal, approximately $492,341 in accrued contractual interest through December 31, 2022 (to be updated through the date of filing), and $302,037.85 in attorneys' fees and costs through January 31, 2023, for a total claim of approximately $5,664,428.85. As noted above, our firm's letter to the receiver's counsel of January 10, 2023 placed the receiver on notice of GAP's claim, and the formal Proof of Claim was filed on January 30, 2023. We should confirm receipt and acceptance of the Proof of Claim by the receiver's office.

2. Monitor the receivership. We should request copies of all receiver reports, asset inventories, interim accountings, and distribution proposals filed with the Sangamon County Court. We should also request notice of any claims hearings, status conferences, or other proceedings at which GAP's interests may be affected. Active monitoring will enable us to identify any opportunities to protect or advance GAP's position and to flag any issues that may require further legal action (e.g., objections to proposed distributions, challenges to other creditors' claims, or motions for relief from the stay).

3. Investigate Musgrave's personal assets. We should promptly conduct a personal asset search on Darren K. Musgrave to determine the feasibility and likely return of pursuing the $2,000,000 guaranty claim independently of the receivership. The asset search should cover real property holdings (including the residence at 1188 Windermere Lane, Champaign, Illinois 61822), vehicle registrations, business interests, bank and investment accounts (to the extent discoverable), and any other sources of personal wealth. This matter should be discussed with Francesca Morano, who may wish to engage an investigative firm or direct our litigation support team to conduct the search.

4. Monitor Triton Mutual coverage litigation. We should track the status and progress of PBGC's insurance coverage dispute with Triton Mutual Insurance Co. regarding the Macon County elevator fire. If the coverage litigation is resolved favorably and insurance proceeds flow into the receivership estate, we should assess whether those proceeds will be available to unsecured creditors or will be consumed by HPB's secured claim. The receiver's periodic reports to the Court should provide updates on this litigation.

5. Coordinate with Francesca Morano on voluntary dismissal recommendation. Given the automatic stay and the assertion of GAP's claim in the receivership, we recommend voluntary dismissal of the Cook County collection action (Case No. 2022-L-004831) without prejudice, thereby preserving GAP's right to refile if circumstances change. This recommendation is addressed in a separate client memorandum being prepared for Hannah Brinkley's review. The voluntary dismissal should be carefully drafted to preserve all claims, including the guaranty claim against Musgrave (Count II), and should confirm that the applicable statutes of limitation will not bar refiling.

6. Advise GAP to reserve/accrue for potential loss. Given the significant probability that GAP will recover only a fraction of the $4,870,050 principal owed by PBGC, GAP's finance team and its independent auditors at Langford & Pryce CPAs LLP (Russell D. Langford, engagement partner) should consider recording an appropriate reserve or write-down under applicable accounting standards (e.g., ASC 450 — Contingencies, or ASC 310 — Receivables, as applicable). The specific accounting treatment should be determined by GAP's finance team in consultation with its auditors, but our analysis supports the conclusion that collection of the full claim amount is unlikely. We should coordinate with GAP's in-house counsel or CFO to ensure that this financial reporting issue is addressed in a timely manner.

IX. Conclusion

GAP's claim of $4,870,050.00 in principal (plus accrued interest and attorneys' fees) is properly classified as a general unsecured trade creditor claim in the PBGC receivership. GAP does not hold a security interest or any form of priority status that would elevate its claim above the claims of other general unsecured trade creditors.

Recovery for GAP from the receivership estate is expected to be substantially less than the full amount owed, and may be minimal. The significant shortfall between PBGC's total estimated liabilities ($58–62 million) and total estimated assets ($35–40 million), compounded by the priority of Heartland Prairie Bank's senior secured claim of approximately $31.4 million and the anticipated administrative costs of the receivership, leaves very limited residual assets for distribution to unsecured creditors. Our preliminary estimate of pro rata recovery for general unsecured creditors is in the range of 5–15 cents on the dollar, which would yield a recovery on GAP's principal claim of approximately $243,500 to $730,500.

The Musgrave personal guaranty, capped at $2,000,000, represents the most concrete potential source of meaningful partial recovery for GAP. However, the collectability of the guaranty depends entirely on Musgrave's personal financial condition, which is currently unknown and requires further investigation. If the guaranty is collectible, it could substantially improve GAP's total recovery. If it is not, GAP's recovery will be limited to its pro rata share from the receivership estate.

The potential insurance proceeds from the Triton Mutual coverage litigation represent an additional but uncertain source of recovery. Even if the litigation is resolved favorably, the insurance proceeds are likely subject to HPB's senior security interest and may not directly benefit unsecured creditors absent the full satisfaction of HPB's secured claim from other assets.

In light of these conclusions, GAP should be counseled to maintain realistic expectations regarding the receivership and to consider all available avenues for recovery, with particular emphasis on the independent guaranty claim against Musgrave. The engagement team should proceed with the recommended actions set forth in Section VIII above to protect GAP's interests and maximize its potential recovery.

I am available to discuss any aspect of this analysis at your convenience and will update the memorandum as additional information becomes available from the receivership proceedings.

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

Calderwood & Harkness LLP — Matter No. 1020-00005

Prepared by Patrick Gallagher, Associate

Distribution limited to Hannah Brinkley, Lead Associate (and further as she determines appropriate within the engagement team).

Date:	January 18, 2023
To:	Hannah Brinkley, Lead Associate
From:	Patrick Gallagher, Associate
Re:	Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. — Analysis of Claim Priority in PBGC Receivership (Sangamon County Case No. 2022-CH-001247)
Matter No.:	1020-00005
Related Case:	Circuit Court of Cook County, Case No. 2022-L-004831 (collection action — stayed)
Invoice No.	Date	Commodity	Quantity	Amount	Due Date
GAP-2021-3187	09/28/2021	#2 Yellow Corn	150,000 bu.	$892,500.00	10/28/2021
GAP-2021-3244	10/15/2021	#1 Yellow Soybeans	75,000 bu.	$936,750.00	11/14/2021
GAP-2021-3301	11/12/2021	#2 Yellow Corn	200,000 bu.	$1,224,000.00	12/12/2021
GAP-2021-3358	12/08/2021	#2 Yellow Corn	120,000 bu.	$741,600.00	01/07/2022
GAP-2022-0042	01/19/2022	#1 Yellow Soybeans	80,000 bu.	$1,075,200.00	02/18/2022
Pro Rata Rate	Recovery on $4,870,050 Principal
5%	~$243,500
10%	~$487,000
15%	~$730,500
Source of Recovery	Low Estimate	High Estimate	Notes
Receivership pro rata distribution (on $4,870,050 principal)	$243,500 (5%)	$730,500 (15%)	Highly dependent on asset realizations, administrative costs, total unsecured claims pool
Receivership pro rata distribution (on interest and fees, ~$794,379)	$39,719 (5%)	$119,157 (15%)	Same pro rata rate applied to interest and fees components
Musgrave Guaranty	$0	$2,000,000	Subject to guaranty cap; collectability depends on Musgrave's personal assets
Total Potential Recovery	$283,219	$2,849,657	Combined range; assumes no overlap or double recovery

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 225 West Wacker Drive, Suite 4000 Chicago, Illinois 60606
INTERNAL MEMORANDUM
I. Purpose and Summary
The purpose of this memorandum is to analyze the priority of Greenfield Agricultural Partners LLC's ("GAP") claim in the receivership of Prairie Basin Grain Co. ("PBGC") and to assess the likely range of recovery for GAP as an unsecured trade creditor in that proceeding. This memorandum is intended to inform the engagement team's strategy recommendations to the client and to support the separate client memorandum being prepared regarding the voluntary dismissal of the Cook County collection action.
Based on my review of the relevant transactional documents, the receivership filings, publicly available financial information, and applicable Illinois law, I have reached the following preliminary conclusions:
1.  GAP's claim is unsecured. GAP's claim of $4,870,050.00 in principal (plus accrued interest and attorneys' fees totaling approximately $794,378.85) is properly classified as a general unsecured trade creditor claim. GAP does not hold a security interest, lien, or any other form of priority claim against PBGC's assets. The claim arises from ordinary-course trade obligations — specifically, five unpaid invoices for grain delivered and accepted under the Master Grain Purchase and Off-Take Agreement dated March 15, 2019.
2.  Heartland Prairie Bank holds a senior secured position. Heartland Prairie Bank, N.A. ("HPB") holds a senior perfected security interest in substantially all of PBGC's assets pursuant to a Revolving Credit and Term Loan Agreement dated June 1, 2018. HPB's outstanding balance at the time of default was approximately $31.4 million. HPB's security interest, which has been perfected under Article 9 of the Illinois Uniform Commercial Code, attaches to grain inventory, elevator facilities, accounts receivable, equipment, and general intangibles. HPB is the petitioning creditor in the receivership proceeding.
3.  GAP's claim is subordinate. GAP's claim ranks below both the administrative expenses of the receivership and HPB's secured claim. Under the standard priority framework applicable to Illinois equity receiverships, general unsecured trade creditors such as GAP receive distributions only after all senior claims have been satisfied in full.
4.  Recovery is expected to be minimal. Given PBGC's estimated total liabilities of $58–62 million and estimated total assets of $35–40 million, the shortfall is substantial — on the order of $18–27 million. After satisfaction of administrative costs and HPB's secured claim, the residual estate available for pro rata distribution among unsecured creditors is estimated to yield a recovery in the range of approximately 5–15 cents on the dollar, and may be negligible depending on actual asset realizations.
5.  The Musgrave guaranty may provide additional recovery. Darren K. Musgrave, PBGC's president and majority shareholder, executed a limited personal guaranty of PBGC's payment obligations under the Off-Take Agreement, capped at $2,000,000. This guaranty is a separate personal obligation that may not be subject to the receivership stay, and it represents a potentially meaningful supplemental source of recovery. However, Musgrave's personal financial condition is currently unknown, and collectability requires further investigation.
6.  Insurance proceeds are a potential but uncertain source. PBGC has pending coverage litigation against Triton Mutual Insurance Co. relating to the Macon County elevator fire of October 17, 2021 (estimated loss approximately $3.2 million). If resolved favorably, the resulting insurance proceeds could augment the receivership estate, though it is likely that HPB's security interest extends to such proceeds, meaning they would first satisfy HPB's secured claim before becoming available to unsecured creditors.
Each of these conclusions is discussed in greater detail below.
II. Background
A. The Receivership Proceeding
On November 28, 2022, Heartland Prairie Bank, N.A. ("HPB"), acting as PBGC's senior secured lender through its Agribusiness Lending division under the direction of Kenneth W. Aldrich, Senior Vice President, filed a Verified Petition for Appointment of Receiver over Prairie Basin Grain Co. in the Circuit Court of Sangamon County, Illinois. The petition was docketed as Case No. 2022-CH-001247. HPB's petition was supported by declarations and documentary evidence establishing PBGC's default under the Revolving Credit and Term Loan Agreement dated June 1, 2018, as well as the inadequacy of PBGC's assets to satisfy its outstanding indebtedness to HPB.
On December 12, 2022, following a hearing on the petition, the Honorable Court entered an Order Appointing Receiver (the "Receivership Order"), designating Gareth J. Whitmore, CPA, CIRA, of Whitmore Strauss Advisory LLC, as receiver for all assets and operations of PBGC. Mr. Whitmore's firm is located at 500 East Monroe Street, Suite 300, Springfield, Illinois 62701. Mr. Whitmore is a Certified Insolvency and Restructuring Advisor with experience in agricultural and commodity-sector receiverships.
The Receivership Order vested Mr. Whitmore with broad powers over PBGC's assets and operations, including the authority to take possession and control of all PBGC property, to continue or wind down business operations as appropriate, to investigate and prosecute claims belonging to the estate, and to marshal assets for distribution to creditors in accordance with their legal priorities.
Critically, the Receivership Order included an automatic stay of all pending litigation against PBGC. The stay operates as a blanket injunction prohibiting the commencement or continuation of any action, suit, or proceeding against PBGC or its assets, except with leave of the Sangamon County Court. This stay is broadly analogous to the automatic stay that arises under Section 362 of the Bankruptcy Code in federal bankruptcy proceedings, though it derives its authority from the equitable powers of the Illinois circuit court rather than from federal statute.
The receiver has retained as his legal counsel Joanna M. Lockridge of Lockridge Payne LLP, with offices at 120 South Sixth Street, Suite 1800, Springfield, Illinois 62701. All communications with the receiver regarding claims against the estate are to be directed through Ms. Lockridge's office.
GAP received formal notice of the Receivership Order and the automatic stay on December 19, 2022, via certified mail from the receiver's counsel. Upon receipt of this notice, our firm confirmed the applicability of the stay to the Cook County collection action.
As a result of the receivership stay, the Cook County collection action captioned Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. et al., Case No. 2022-L-004831, pending before the Honorable Patricia Delacroix in the Circuit Court of Cook County, is currently stayed. No further proceedings may be taken in that action against PBGC without leave of the Sangamon County Court. The implications of this stay for the separate guaranty claim against Darren K. Musgrave are discussed in Section VI below.
B. GAP's Claim Against PBGC
GAP's claim against PBGC arises from the Master Grain Purchase and Off-Take Agreement dated March 15, 2019 (the "Off-Take Agreement"), pursuant to which GAP, as Seller, agreed to sell and deliver specified quantities of grain commodities — principally #2 Yellow Corn and #1 Yellow Soybeans — to PBGC, as Buyer, at PBGC's elevator facilities located in Champaign, Macon, and Piatt Counties, Illinois. The Off-Take Agreement established pricing mechanisms, delivery schedules, payment terms, quality specifications, and other standard commercial terms governing the ongoing commodity purchase relationship between the parties.
PBGC's payment obligations under the Off-Take Agreement became due and payable within thirty (30) days of the date of each invoice. PBGC failed to pay the following five invoices, all of which remain outstanding in full:
Total principal outstanding: $4,870,050.00
The Off-Take Agreement provides for interest on overdue amounts at a rate of 1.5% per month (18% per annum) pursuant to Section 7.3. Accrued interest through December 31, 2022, calculated on each unpaid invoice from its respective due date, totals approximately $492,341. This figure will continue to accrue and will need to be updated at the time of any distribution or resolution.
Additionally, Section 12.4 of the Off-Take Agreement contains a prevailing-party attorneys' fees clause, which provides that the prevailing party in any action to enforce the agreement shall be entitled to recover its reasonable attorneys' fees and costs of suit. Through January 31, 2023, Calderwood & Harkness has incurred fees and costs in connection with the collection action and the receivership claim as follows:
•  Attorney fees: $287,415.50
•  Costs and disbursements: $14,622.35
•  Total fees and costs: $302,037.85
Accordingly, the total receivership claim asserted on behalf of GAP is approximately $5,664,428.85, comprising the sum of principal ($4,870,050.00), accrued interest ($492,341.00), and attorneys' fees and costs ($302,037.85).
On January 10, 2023, our firm transmitted a formal letter to Joanna M. Lockridge of Lockridge Payne LLP, as counsel to the receiver, asserting GAP's claim in the receivership proceeding in full. A formal Proof of Claim was subsequently prepared and filed with the receiver on January 30, 2023, in accordance with the claims procedures established by the Receivership Order and any supplemental orders entered by the Sangamon County Court.
C. The Musgrave Personal Guaranty
In connection with the execution of the Off-Take Agreement, Darren K. Musgrave — who serves as President and sole director of PBGC and holds a 72% equity interest in the company — executed a limited personal guaranty of PBGC's payment obligations to GAP. This guaranty instrument is attached as Exhibit D to the Off-Take Agreement (the "Musgrave Guaranty").
The Musgrave Guaranty provides that Musgrave personally, unconditionally, and irrevocably guarantees the prompt and full payment of all sums due and owing by PBGC to GAP under the Off-Take Agreement, subject to an aggregate cap of $2,000,000. The guaranty is a guaranty of payment and not merely of collection, meaning that GAP is not required to exhaust its remedies against PBGC before proceeding against Musgrave under the guaranty.
Importantly, the Musgrave Guaranty is a separate personal obligation of Darren K. Musgrave. It is not an obligation of PBGC, the entity in receivership. As such, the automatic stay imposed by the Receivership Order — which by its terms applies to actions against PBGC and its assets — does not necessarily extend to claims against Musgrave in his individual capacity. This issue, including the practical considerations involved in pursuing the guaranty claim, is addressed separately in Section VI below.
Count II of GAP's Complaint filed in the Cook County collection action (Case No. 2022-L-004831) asserts a claim for breach of the Musgrave Guaranty against Darren K. Musgrave individually. The status of that count in light of the receivership stay is discussed further below.
III. Analysis of Claim Priority
A. Framework for Claim Priorities in Illinois Receiverships
At the outset, it is important to note that the PBGC receivership is a state-court equity receivership proceeding under Illinois law. It is not a federal bankruptcy proceeding under Title 11 of the United States Code. As such, the priority of claims is governed by Illinois statutory and common law, as well as by any specific provisions of the Receivership Order, rather than by the priority scheme set forth in Section 507 of the Bankruptcy Code. That said, many of the fundamental principles of claim priority are analogous between state-court receiverships and federal bankruptcy proceedings, as both derive from longstanding equitable principles governing the distribution of an insolvent debtor's assets.
Under Illinois law, the receiver's fundamental duty is to marshal the assets of the receivership estate, preserve and protect those assets for the benefit of creditors, liquidate assets in an orderly and commercially reasonable manner, and distribute the proceeds to creditors in accordance with their legal priorities. The receiver acts as a fiduciary of the estate and is subject to the supervision and direction of the appointing court.
The general priority framework applicable to an Illinois equity receivership is as follows:
1.  Costs of administration. The expenses of the receivership itself take first priority. These include the receiver's fees and expenses, the fees and expenses of the receiver's counsel, and all costs incurred in operating, preserving, and liquidating the assets of the estate. Administrative expenses are paid first because the receivership cannot function without them, and parties who provide services to the estate in reliance on administrative priority would not do so without assurance of payment. In the PBGC receivership, administrative costs have not yet been fully quantified, but they could be significant given the complexity of PBGC's operations (six grain elevator facilities across three counties) and the anticipated duration of the proceeding.
2.  Secured claims (to the extent of their collateral). Secured creditors — those holding properly perfected security interests, liens, or encumbrances on specific assets of the estate — are entitled to receive payment from the proceeds of their collateral, up to the value of that collateral, before any distributions are made to unsecured creditors. If the value of the collateral exceeds the secured claim, the surplus is available to satisfy lower-priority claims. If the secured claim exceeds the value of the collateral, the deficiency (i.e., the unsatisfied portion of the secured claim) becomes a general unsecured claim sharing pro rata with other unsecured creditors. In this case, HPB holds the senior secured position, as discussed in Section III.B below.
3.  Priority unsecured claims (if any). Certain categories of unsecured claims may be entitled to priority over general unsecured claims under applicable law. Under Illinois law, these may include certain unpaid employee wages (under the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq.) and certain tax obligations owed to federal, state, or local taxing authorities. The existence and magnitude of any such priority unsecured claims in the PBGC receivership are not yet fully known. GAP's claim does not fall into any priority unsecured category.
4.  General unsecured claims. This category encompasses all creditors who do not hold security interests or liens and whose claims are not otherwise entitled to priority treatment. Trade creditors, including GAP, fall squarely into this category. General unsecured claims share pro rata in any residual estate remaining after satisfaction of administrative costs, secured claims, and priority unsecured claims. Pro rata distribution means that each general unsecured creditor receives a proportional share of the available funds based on the ratio of its allowed claim to the total pool of allowed general unsecured claims.
5.  Equity interests. Shareholders of the insolvent entity — in this case, Darren K. Musgrave (72%), Lydia R. Musgrave (18%), and Victor P. Novotny (10%) — are the residual claimants and receive distributions only after all creditor claims have been paid in full. In an insolvent receivership such as this one, equity holders will almost certainly receive nothing.
This priority framework is well established in Illinois common law and has been consistently applied by Illinois courts in receivership proceedings. See, e.g., Reconstruction Finance Corp. v. Central Republic Trust Co., 1 N.E.2d 379 (Ill. 1936); Bowman v. Integrity Fin. Corp., 508 N.E.2d 519 (Ill. App. 4th Dist. 1987). While the Sangamon County Court retains equitable discretion in administering the receivership, it is expected that the Court will adhere to this standard framework absent exceptional circumstances not present here.
B. Heartland Prairie Bank's Senior Secured Position
Heartland Prairie Bank, N.A. holds a Revolving Credit and Term Loan Agreement with PBGC, dated June 1, 2018, with an aggregate commitment of $45 million. Under this facility, HPB extended revolving credit and term loan financing to PBGC to fund its grain purchasing, storage, and trading operations. The loan documentation granted HPB a comprehensive security interest in substantially all of PBGC's assets, including but not limited to:
•  All grain inventory (including grain in storage at PBGC's elevator facilities);
•  All elevator facilities, structures, and improvements;
•  All accounts receivable arising from the sale or disposition of grain and related commodities;
•  All equipment, machinery, fixtures, and rolling stock used in PBGC's operations;
•  All general intangibles, including contract rights, intellectual property, permits, and licenses; and
•  All proceeds of the foregoing, including cash proceeds, insurance proceeds, and proceeds of proceeds.
HPB's security interest has been perfected under Article 9 of the Illinois Uniform Commercial Code (810 ILCS 5/9-101 et seq.) by the filing of appropriate UCC-1 financing statements with the Illinois Secretary of State. We have confirmed the existence of HPB's UCC filing through a search of the Illinois Secretary of State's UCC records. The financing statement covers all of the asset categories described above and includes a "proceeds" clause that, in standard UCC practice, extends the security interest to all proceeds of the collateral — including, notably, insurance proceeds.
HPB declared PBGC in default under the Revolving Credit and Term Loan Agreement in approximately April 2022. At the time of default, the outstanding balance owed by PBGC to HPB was approximately $31.4 million. This balance includes outstanding principal on both the revolving credit and term loan facilities, plus accrued and unpaid interest, and may also include default interest, late charges, and HPB's own attorneys' fees and expenses as provided under the loan documentation. The precise total of HPB's secured claim as of the date of the receivership filing has not been confirmed but is understood to be in the range of $31.4 million.
HPB is the petitioning creditor that initiated the receivership proceeding by filing the Verified Petition for Appointment of Receiver on November 28, 2022. As the senior secured creditor and petitioning party, HPB's secured claim has first priority (after administrative expenses) against the receivership estate.
The significance of HPB's position cannot be overstated. HPB's secured claim of approximately $31.4 million, measured against PBGC's estimated total assets of $35–40 million, means that HPB's secured claim alone consumes a substantial majority — potentially 78% to 90% — of the total asset base. After deducting administrative costs (which could be significant), the remaining assets available for all other creditors, including unsecured trade creditors such as GAP, may be de minimis or negligible.
Moreover, to the extent that HPB's collateral value proves insufficient to fully satisfy HPB's $31.4 million secured claim — which is entirely possible if the actual liquidation value of PBGC's assets falls below current estimates — HPB would hold a deficiency claim for the unsatisfied portion. That deficiency claim would be reclassified as a general unsecured claim and would share pro rata with all other unsecured creditors, including GAP. The entry of HPB's deficiency claim into the unsecured creditor pool would further dilute the recovery available to other unsecured creditors, as the total pool of unsecured claims would increase while the funds available for distribution would remain constant.
C. GAP's Classification as Unsecured Trade Creditor
GAP's claim against PBGC arises from ordinary-course trade obligations under the Off-Take Agreement. Specifically, GAP delivered grain commodities — #2 Yellow Corn and #1 Yellow Soybeans — to PBGC's elevator facilities in the ordinary course of business, and PBGC accepted those deliveries but failed to pay the corresponding invoices. This is a straightforward breach of contract claim for the price of goods sold and delivered, and it gives rise to a general unsecured trade creditor claim.
GAP does not hold a security interest, lien, or other encumbrance on any assets of PBGC. The Off-Take Agreement did not include any provision granting GAP a lien or security interest in PBGC's assets to secure PBGC's payment obligations. GAP did not file any UCC-1 financing statements or otherwise perfect a security interest against PBGC's property. Accordingly, GAP has no basis to assert a secured claim in the receivership.
Furthermore, GAP's claim does not fall into any category of priority unsecured claims recognized under Illinois law. GAP is not an employee of PBGC, a taxing authority, or any other category of claimant entitled to priority treatment. GAP's claim is therefore properly classified as a general unsecured trade creditor claim, ranking at Level 4 in the priority framework described above.
As a general unsecured trade creditor, GAP's claim is on par with the claims of all other unsecured trade creditors of PBGC. Based on available information, PBGC ceased paying trade creditors generally in January 2022, suggesting that there are likely numerous other trade creditors with outstanding claims. The total pool of general unsecured claims is estimated to be in the range of $26.6–30.6 million (calculated as total estimated liabilities of $58–62 million minus HPB's secured claim of approximately $31.4 million). GAP's claim of $4,870,050 in principal would represent approximately 16–18% of the total unsecured creditor pool (before accounting for any HPB deficiency claim), assuming these estimates are accurate.
The contractual interest rate of 1.5% per month and the prevailing-party attorneys' fees clause of Section 12.4 of the Off-Take Agreement establish the basis for calculating the interest and fees components of GAP's claim. These contractual provisions entitle GAP to assert its full claim — including interest and fees — in the receivership. However, these provisions do not elevate the priority of GAP's claim; they merely increase the quantum of the claim. The interest and fees components remain general unsecured obligations of PBGC and will share pro rata with other unsecured claims if and when any distribution is made.
It should also be noted that the enforceability of the 1.5% per month (18% per annum) interest rate in the receivership context will depend on whether the Sangamon County Court considers such rate to be reasonable and enforceable under Illinois law. While 18% per annum is a common rate in commercial contracts and is generally enforceable between sophisticated commercial parties in Illinois, the receiver or the court could conceivably challenge the rate in the context of the claims adjudication process. For purposes of this analysis, we assume the rate will be allowed as asserted.
D. Estimated Asset Shortfall and Recovery Analysis
The following analysis estimates GAP's likely recovery from the receivership estate, based on the information currently available. All figures are preliminary estimates and are subject to change as the receiver completes his asset inventory, liquidation, and claims adjudication processes.
Estimated Total Liabilities: $58–62 million. This figure is derived from information available in the receivership filings, public records, and information communicated by the receiver's counsel. It includes HPB's secured claim of approximately $31.4 million, as well as the claims of all other creditors — trade creditors, taxing authorities, employees, and any other parties with claims against PBGC.
Estimated Total Assets: $35–40 million. This figure represents the estimated aggregate value of PBGC's assets, including its six grain elevator facilities (one of which, the Macon County facility, is damaged and inoperable), grain inventory on hand, accounts receivable, equipment, and other property. The actual value ultimately realized from the liquidation of these assets may differ materially from this estimate, as asset values in a forced liquidation are typically lower than going-concern values, and the current market conditions for agricultural infrastructure and grain inventories will affect realizable prices.
Shortfall: Approximately $18–27 million. PBGC's liabilities substantially exceed its assets, confirming the company's insolvency and the likelihood that not all creditors will be paid in full.
Illustrative Recovery Calculation:
To estimate the potential recovery for unsecured creditors such as GAP, the following illustrative calculation uses midpoint assumptions:
•  Total assets (midpoint): $37,500,000
•  Less: estimated administrative costs (receiver's fees, receiver's counsel fees, operating costs): ($2,000,000) (This is a rough estimate; actual administrative costs could be higher or lower.)
•  Less: HPB's secured claim: ($31,400,000)
•  Residual estate available for unsecured creditors: $4,100,000
This residual of $4.1 million must be shared pro rata among all general unsecured creditors. Estimating the total pool of unsecured claims:
•  Total estimated liabilities: $60,000,000 (midpoint)
•  Less: HPB's secured claim: ($31,400,000)
•  Estimated total unsecured claims: $28,600,000
However, this figure does not account for a potential HPB deficiency claim. If the total value of HPB's collateral (after administrative costs) is less than $31.4 million, HPB would hold a deficiency claim that would also share pro rata with the other unsecured creditors. For example, if HPB recovers only $28 million from its collateral, HPB's deficiency claim would be $3.4 million, increasing the total unsecured claims pool to approximately $32 million and further diluting recovery for other unsecured creditors.
Pro Rata Distribution Estimate:
Based on the foregoing illustrative assumptions, the pro rata distribution to unsecured creditors would be:
$4,100,000 ÷ $28,600,000 = approximately 14.3%
Under less favorable assumptions (lower total asset realizations, higher administrative costs, larger unsecured claims pool, or an HPB deficiency claim entering the pool), the pro rata distribution could be significantly lower — potentially in the range of 5% or less. Under more favorable assumptions, it could reach 15% or marginally higher. For planning purposes, I estimate a range of 5–15 cents on the dollar for general unsecured creditors, with substantial uncertainty.
GAP's Potential Recovery from the Receivership (Principal Only):
Recovery on the interest component ($492,341) and the attorneys' fees and costs component ($302,037.85) would be additional, but subject to the same pro rata reduction. At a 10% recovery rate, for example, the total recovery on the full claim of $5,664,428.85 would be approximately $566,443.
These estimates are, of necessity, highly preliminary. The actual recovery will depend on numerous factors that are currently unknown or uncertain, including:
•  The actual liquidation value of PBGC's assets (particularly the elevator facilities and any remaining grain inventory);
•  The total amount of administrative expenses incurred during the receivership;
•  The total number and amount of claims filed by other creditors;
•  Whether HPB has a deficiency claim and, if so, the size of that claim;
•  Whether any claims are subject to objection, subordination, or disallowance;
•  The outcome of the Triton Mutual insurance coverage litigation (discussed in Section V below); and
•  The length of the receivership and the efficiency of the receiver's administration.
IV. PBGC's Financial Distress — Contributing Factors
Understanding the factors that contributed to PBGC's financial collapse is relevant to assessing the likely trajectory of the receivership and the potential for asset recoveries. The following factors are noteworthy:
Macon County Elevator Fire (October 17, 2021). On October 17, 2021, a fire at PBGC's grain elevator facility located at 2200 County Road 1400 East, Decatur, Illinois 62521 (Macon County), caused an estimated $3.2 million in property damage. The fire destroyed a significant portion of the facility's grain storage infrastructure and rendered the Macon County elevator inoperable. The facility has not been repaired or returned to service. The fire reduced PBGC's operating capacity and storage throughput at a critical time during the fall harvest season. PBGC carried property insurance with Triton Mutual Insurance Co. covering its elevator facilities, but Triton Mutual has disputed coverage on the basis of an alleged lapse in PBGC's premium payments. The resulting coverage litigation is discussed in Section V below. The fire not only reduced PBGC's asset base but also deprived PBGC of the insurance proceeds it expected to receive, compounding the company's liquidity problems.
Failed Hedging Strategy (Q4 2021). In the fourth quarter of 2021, PBGC maintained short corn futures positions as part of its hedging program. During this period, corn and soybean prices experienced significant volatility, and the basis levels between cash and futures prices moved sharply against PBGC's positions. The resulting mark-to-market losses on PBGC's short positions were estimated at approximately $6.8 million. These losses had a severe and immediate impact on PBGC's cash flow and liquidity, as margin calls required PBGC to post substantial additional cash or collateral with its futures commission merchant. The hedging losses appear to have been a principal catalyst for PBGC's liquidity crisis.
Cessation of Trade Payments (January 2022). In January 2022, PBGC ceased paying its trade creditors. This broad cessation of payments affected numerous grain suppliers, equipment vendors, service providers, and other trade counterparties. The timing of the payment cessation — coming shortly after the hedging losses and the unresolved fire loss — is consistent with a comprehensive liquidity collapse. GAP's unpaid invoices, all of which had due dates between October 2021 and February 2022, coincide precisely with this period of financial distress.
Loss of Counsel (November 2022). On November 4, 2022, Bartlett, Reyes Linley CPAs LLP & Harkin LLP, through Douglas M. Harkin, the lead partner handling PBGC's defense in the Cook County collection action, filed a motion to withdraw as counsel for PBGC in Case No. 2022-L-004831, citing non-payment of legal fees. The motion was granted on November 18, 2022. PBGC's inability to pay even its own defense counsel's fees further evidences the depth of its financial distress and its inability to fund basic operational and legal expenses.
Operational Overview. PBGC operates six grain elevator facilities across Champaign, Macon, and Piatt Counties in central Illinois. The Macon County facility remains damaged and inoperable following the October 2021 fire, effectively reducing PBGC to five operating locations. PBGC's fiscal year 2021 annual revenue was estimated at approximately $185 million, reflecting the scale of its grain purchasing, storage, and trading operations. However, the combined impact of the hedging losses (approximately $6.8 million), the uninsured fire loss (approximately $3.2 million), and the broader margin compression in the grain trading business during this period severely eroded PBGC's financial viability. By the time HPB declared a default in April 2022 and commenced the receivership proceeding in November 2022, PBGC was deeply insolvent.
These factors are relevant to the recovery analysis because they suggest that PBGC's asset values may be further impaired relative to book value. The damaged Macon County facility, for example, will likely sell at a significant discount to its pre-fire value if it is sold in its current condition. Similarly, if the Triton Mutual coverage dispute is resolved unfavorably, the estate will lose a potential $3.2 million recovery. The hedging losses have already been realized and are not recoverable. These considerations reinforce the conclusion that unsecured creditor recovery will be at the lower end of the estimated range.
V. Potential Recovery from Triton Mutual Insurance Co. Proceeds
PBGC carried property insurance with Triton Mutual Insurance Co. (headquartered at 820 South Neil Street, Champaign, Illinois 61820) covering its grain elevator facilities, including the Macon County facility that was damaged in the October 17, 2021 fire. The estimated loss from the fire is approximately $3.2 million.
Triton Mutual has disputed coverage under the applicable policy, alleging that PBGC's premium payments had lapsed prior to the date of the fire and that the policy was therefore not in force at the time of the loss. PBGC has contested this denial, and coverage litigation is pending in a separate proceeding. The specific court and case number of the coverage litigation have not been identified in the materials available to us, but we understand the matter to be pending in state court.
With the appointment of the receiver, the receiver has succeeded to PBGC's rights and interests in the coverage litigation and has the authority to prosecute the claim on behalf of the receivership estate. The outcome of the coverage dispute will depend on the specific facts regarding the alleged premium lapse — including whether PBGC in fact failed to make timely payments, whether any grace period under the policy was applicable, and whether Triton Mutual properly notified PBGC of any cancellation or lapse.
If PBGC (or the receiver on behalf of the estate) prevails in the coverage litigation, insurance proceeds of up to approximately $3.2 million could flow into the receivership estate. This would augment the total assets available for distribution and could marginally improve recoveries for creditors. However, several important considerations temper the potential benefit of this outcome for GAP and other unsecured creditors:
First, it is unclear — but likely — that HPB's security interest extends to insurance proceeds. HPB's UCC-1 financing statement is understood to cover "proceeds" of the collateral, which is standard language in UCC filings and which, under Article 9 of the Illinois UCC (810 ILCS 5/9-315), would encompass insurance proceeds received on account of the loss or destruction of collateral (here, the Macon County elevator facility). If HPB's lien attaches to the insurance proceeds, those funds would first be applied to satisfy HPB's secured claim before becoming available to lower-priority creditors.
Second, given that HPB's total secured claim (approximately $31.4 million) substantially exceeds the amount of the insurance proceeds ($3.2 million), HPB's secured claim would not be fully satisfied by the insurance proceeds alone. HPB would absorb the insurance proceeds in partial satisfaction of its secured claim. Insurance proceeds would benefit unsecured creditors only if HPB's total secured claim were already fully satisfied from other assets — which, based on current estimates, appears unlikely.
Third, the outcome and timing of the coverage litigation are uncertain. Triton Mutual is contesting coverage and may have meritorious defenses. Even if the claim is ultimately successful, it could take months or years to resolve, delaying the receivership process and increasing administrative costs. Alternatively, the claim could be settled for an amount less than the full $3.2 million loss.
In light of these considerations, the Triton Mutual insurance proceeds should be viewed as a potential but uncertain and likely subordinate source of recovery for unsecured creditors. We recommend monitoring the coverage litigation through the receiver's periodic reports to the Sangamon County Court and raising the issue with the receiver's counsel if it appears that the proceeds could be available for distribution to unsecured creditors in any scenario.
VI. Status of the Musgrave Personal Guaranty Claim
The Musgrave Guaranty, executed by Darren K. Musgrave and attached as Exhibit D to the Off-Take Agreement, represents a separate and potentially significant avenue of recovery for GAP. This section addresses the legal status of the guaranty claim in light of the receivership, the practical considerations involved in pursuing it, and our preliminary recommendations.
Legal Status. The Musgrave Guaranty is a personal obligation of Darren K. Musgrave, not an obligation of PBGC. The guaranty creates a direct contractual relationship between GAP (as beneficiary) and Musgrave (as guarantor) that is separate and distinct from the underlying debtor-creditor relationship between GAP and PBGC. As such, the receivership stay imposed by the Sangamon County Court — which by its terms applies to PBGC, the entity in receivership, and to actions against PBGC's assets — does not necessarily bar GAP from pursuing its guaranty claim against Musgrave in his individual capacity.
The Cook County Complaint (Case No. 2022-L-004831) includes Count II, which asserts a claim for breach of the Musgrave Guaranty against Darren K. Musgrave individually. While the Complaint as a whole was subject to the general stay order, there is a reasonable argument that Count II — directed solely at Musgrave personally and not at PBGC — could be severed from the stayed PBGC claims and prosecuted independently. This argument is strongest if Musgrave's personal assets are not part of the receivership estate (which they should not be, as the receivership covers only PBGC's assets). However, the receiver or Musgrave himself could argue that prosecution of the guaranty claim during the pendency of the receivership would interfere with or prejudice the receivership proceedings, particularly if it involves discovery that overlaps with the receivership process or if any judgment against Musgrave could indirectly affect the estate.
We have not yet sought leave from the Sangamon County Court to proceed against Musgrave on the guaranty claim and have not filed a separate action on the guaranty. These options should be evaluated as the receivership progresses.
Guaranty Cap. The Musgrave Guaranty is capped at $2,000,000 in the aggregate. This cap limits GAP's potential recovery under the guaranty to $2,000,000, regardless of the total amount owed by PBGC to GAP. The $2,000,000 cap represents approximately 41% of the total principal outstanding ($4,870,050) and approximately 35% of the total claim including interest and fees ($5,664,428.85). While the guaranty cap is significant, it does not fully cover GAP's exposure.
Practical Considerations. Several practical factors will affect the viability and value of the guaranty claim:
•  Musgrave's personal financial condition. As a 72% shareholder of an insolvent company, Musgrave's personal financial condition is uncertain and potentially compromised. His personal assets may consist primarily of his equity interest in PBGC (which is worthless) and his personal residence at 1188 Windermere Lane, Champaign, Illinois 61822. We do not currently have information regarding other assets, including bank accounts, investment accounts, real property holdings, or other sources of personal wealth. An asset investigation is recommended before committing resources to pursue the guaranty claim.
•  Enforcement costs. If GAP obtains a judgment against Musgrave under the guaranty, enforcement of that judgment would require post-judgment discovery and collection efforts, potentially including garnishment, citation proceedings, and proceedings supplementary under Illinois law. These efforts involve additional legal costs and may prove fruitless if Musgrave's personal assets are limited.
•  Procedural posture. If the Cook County action is voluntarily dismissed (as is being recommended in the separate client memorandum), the guaranty claim would need to be refiled in a new action or pursued through an independent proceeding. The statute of limitations on the guaranty claim should be confirmed before any dismissal to ensure that refiling rights are preserved.
•  Interaction with receivership claim. The guaranty claim is a personal obligation of Musgrave and is not a PBGC liability. As such, it is generally not includable in GAP's proof of claim against PBGC in the receivership. However, any amounts recovered under the guaranty would offset GAP's total loss and should be credited against the total claim to avoid a double recovery. If GAP recovers under the guaranty, the receivership proof of claim should be adjusted accordingly.
Preliminary Recommendation. We recommend that the team preserve the Musgrave Guaranty claim and treat it as a separate, independent avenue of recovery. If the receivership distribution appears likely to be minimal — as current projections suggest — the guaranty claim may represent the most concrete potential source of meaningful partial recovery for GAP. The recommended next step is to conduct a personal asset investigation on Darren K. Musgrave to assess his personal financial condition and the likely collectability of a judgment under the guaranty. This task should be discussed with Francesca Morano, who is coordinating the client relationship and strategic recommendations.
VII. Summary of Estimated Total Potential Recovery
The following table summarizes the estimated range of potential recovery for GAP across all available sources:
Key Observations:
•  Combined maximum realistic recovery (assuming the guaranty is fully collectible and the receivership yields a modest distribution at the midpoint of the range): potentially in the range of $2,243,500 to $2,730,500.
•  Worst case (guaranty uncollectible, negligible receivership distribution): recovery could be near zero.
•  Total amount at risk (principal + interest + fees/costs): approximately $5,664,428.85.
•  Probable recovery range (considering the uncertainties): the most likely outcome is a partial recovery that falls well short of the full claim amount. If the guaranty is collectible, GAP may recover approximately $2.0–2.5 million (roughly 35–44% of the total principal). If the guaranty proves uncollectible, GAP's recovery would be limited to its pro rata share from the receivership estate, which could be as low as 5% of the principal, or approximately $243,500.
All of these figures are preliminary estimates subject to change as additional information becomes available through the receivership process. The receiver's periodic reports, the claims bar date and claims adjudication process, and the resolution of the Triton Mutual coverage dispute will all materially affect the ultimate recovery. We will update this analysis as developments warrant.
VIII. Recommendations
Based on the foregoing analysis, I recommend the following actions:
1.  File Proof of Claim promptly. GAP's full claim should be asserted in the receivership proceeding in Sangamon County Case No. 2022-CH-001247. The claim should include all components: $4,870,050.00 in principal, approximately $492,341 in accrued contractual interest through December 31, 2022 (to be updated through the date of filing), and $302,037.85 in attorneys' fees and costs through January 31, 2023, for a total claim of approximately $5,664,428.85. As noted above, our firm's letter to the receiver's counsel of January 10, 2023 placed the receiver on notice of GAP's claim, and the formal Proof of Claim was filed on January 30, 2023. We should confirm receipt and acceptance of the Proof of Claim by the receiver's office.
2.  Monitor the receivership. We should request copies of all receiver reports, asset inventories, interim accountings, and distribution proposals filed with the Sangamon County Court. We should also request notice of any claims hearings, status conferences, or other proceedings at which GAP's interests may be affected. Active monitoring will enable us to identify any opportunities to protect or advance GAP's position and to flag any issues that may require further legal action (e.g., objections to proposed distributions, challenges to other creditors' claims, or motions for relief from the stay).
3.  Investigate Musgrave's personal assets. We should promptly conduct a personal asset search on Darren K. Musgrave to determine the feasibility and likely return of pursuing the $2,000,000 guaranty claim independently of the receivership. The asset search should cover real property holdings (including the residence at 1188 Windermere Lane, Champaign, Illinois 61822), vehicle registrations, business interests, bank and investment accounts (to the extent discoverable), and any other sources of personal wealth. This matter should be discussed with Francesca Morano, who may wish to engage an investigative firm or direct our litigation support team to conduct the search.
4.  Monitor Triton Mutual coverage litigation. We should track the status and progress of PBGC's insurance coverage dispute with Triton Mutual Insurance Co. regarding the Macon County elevator fire. If the coverage litigation is resolved favorably and insurance proceeds flow into the receivership estate, we should assess whether those proceeds will be available to unsecured creditors or will be consumed by HPB's secured claim. The receiver's periodic reports to the Court should provide updates on this litigation.
5.  Coordinate with Francesca Morano on voluntary dismissal recommendation. Given the automatic stay and the assertion of GAP's claim in the receivership, we recommend voluntary dismissal of the Cook County collection action (Case No. 2022-L-004831) without prejudice, thereby preserving GAP's right to refile if circumstances change. This recommendation is addressed in a separate client memorandum being prepared for Hannah Brinkley's review. The voluntary dismissal should be carefully drafted to preserve all claims, including the guaranty claim against Musgrave (Count II), and should confirm that the applicable statutes of limitation will not bar refiling.
6.  Advise GAP to reserve/accrue for potential loss. Given the significant probability that GAP will recover only a fraction of the $4,870,050 principal owed by PBGC, GAP's finance team and its independent auditors at Langford & Pryce CPAs LLP (Russell D. Langford, engagement partner) should consider recording an appropriate reserve or write-down under applicable accounting standards (e.g., ASC 450 — Contingencies, or ASC 310 — Receivables, as applicable). The specific accounting treatment should be determined by GAP's finance team in consultation with its auditors, but our analysis supports the conclusion that collection of the full claim amount is unlikely. We should coordinate with GAP's in-house counsel or CFO to ensure that this financial reporting issue is addressed in a timely manner.
IX. Conclusion
GAP's claim of $4,870,050.00 in principal (plus accrued interest and attorneys' fees) is properly classified as a general unsecured trade creditor claim in the PBGC receivership. GAP does not hold a security interest or any form of priority status that would elevate its claim above the claims of other general unsecured trade creditors.
Recovery for GAP from the receivership estate is expected to be substantially less than the full amount owed, and may be minimal. The significant shortfall between PBGC's total estimated liabilities ($58–62 million) and total estimated assets ($35–40 million), compounded by the priority of Heartland Prairie Bank's senior secured claim of approximately $31.4 million and the anticipated administrative costs of the receivership, leaves very limited residual assets for distribution to unsecured creditors. Our preliminary estimate of pro rata recovery for general unsecured creditors is in the range of 5–15 cents on the dollar, which would yield a recovery on GAP's principal claim of approximately $243,500 to $730,500.
The Musgrave personal guaranty, capped at $2,000,000, represents the most concrete potential source of meaningful partial recovery for GAP. However, the collectability of the guaranty depends entirely on Musgrave's personal financial condition, which is currently unknown and requires further investigation. If the guaranty is collectible, it could substantially improve GAP's total recovery. If it is not, GAP's recovery will be limited to its pro rata share from the receivership estate.
The potential insurance proceeds from the Triton Mutual coverage litigation represent an additional but uncertain source of recovery. Even if the litigation is resolved favorably, the insurance proceeds are likely subject to HPB's senior security interest and may not directly benefit unsecured creditors absent the full satisfaction of HPB's secured claim from other assets.
In light of these conclusions, GAP should be counseled to maintain realistic expectations regarding the receivership and to consider all available avenues for recovery, with particular emphasis on the independent guaranty claim against Musgrave. The engagement team should proceed with the recommended actions set forth in Section VIII above to protect GAP's interests and maximize its potential recovery.
I am available to discuss any aspect of this analysis at your convenience and will update the memorandum as additional information becomes available from the receivership proceedings.
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
Calderwood & Harkness LLP — Matter No. 1020-00005
Prepared by Patrick Gallagher, Associate
Distribution limited to Hannah Brinkley, Lead Associate (and further as she determines appropriate within the engagement team).
Date: | January 18, 2023
To: | Hannah Brinkley, Lead Associate
From: | Patrick Gallagher, Associate
Re: | Greenfield Agricultural Partners LLC v. Prairie Basin Grain Co. — Analysis of Claim Priority in PBGC Receivership (Sangamon County Case No. 2022-CH-001247)
Matter No.: | 1020-00005
Related Case: | Circuit Court of Cook County, Case No. 2022-L-004831 (collection action — stayed)
Invoice No. | Date | Commodity | Quantity | Amount | Due Date
GAP-2021-3187 | 09/28/2021 | #2 Yellow Corn | 150,000 bu. | $892,500.00 | 10/28/2021
GAP-2021-3244 | 10/15/2021 | #1 Yellow Soybeans | 75,000 bu. | $936,750.00 | 11/14/2021
GAP-2021-3301 | 11/12/2021 | #2 Yellow Corn | 200,000 bu. | $1,224,000.00 | 12/12/2021
GAP-2021-3358 | 12/08/2021 | #2 Yellow Corn | 120,000 bu. | $741,600.00 | 01/07/2022
GAP-2022-0042 | 01/19/2022 | #1 Yellow Soybeans | 80,000 bu. | $1,075,200.00 | 02/18/2022
Pro Rata Rate | Recovery on $4,870,050 Principal
5% | ~$243,500
10% | ~$487,000
15% | ~$730,500
Source of Recovery | Low Estimate | High Estimate | Notes
Receivership pro rata distribution (on $4,870,050 principal) | $243,500 (5%) | $730,500 (15%) | Highly dependent on asset realizations, administrative costs, total unsecured claims pool
Receivership pro rata distribution (on interest and fees, ~$794,379) | $39,719 (5%) | $119,157 (15%) | Same pro rata rate applied to interest and fees components
Musgrave Guaranty | $0 | $2,000,000 | Subject to guaranty cap; collectability depends on Musgrave's personal assets
Total Potential Recovery | $283,219 | $2,849,657 | Combined range; assumes no overlap or double recovery

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

INTERNAL MEMORANDUM

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