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August 5, 2021 – The Court hearing the Bouchard Transportation cases issued a pair of orders approving (i) the sale of the Debtors' “Wells Fargo Collateral” (vessels encumbered by the prepetition Wells Fargo loans) to Pennantia LLC (a consortium comprised of Wells Fargo, "real asset special situations investment platform" Rose Cay GP, LLC and distressed debt specialist Contrarian Capital Management LLC) for an aggregate purchase price of $130.0mn (comprised of a $100.0mn credit bid of Wells Fargo debt and $30.0mn in cash) [Docket No. 1193] and (ii) the sale of the Debtors “DIP Collateral” assets (vessels encumbered by liens securing the Debtors’ debtor-in-possession financing) to JMB Capital Lending Partners, LLC (“JMB,” the Debtors’ DIP lender) for an aggregate purchase price of $115.3mn (including a credit bid of $90.0mn of DIP debt) [Docket No. 1194].
At a lengthy hearing, Judge David Jones delayed final decisions on outstanding issues in respect of each sale; (i) approving the sale of the DIP Collateral to JMB without otherwise determining the right of stalking horse and balk-up bidder Hartree Partners, LP ("Hartree") to almost $5.0mn in bidder protections and (ii) also leaving the Debtors to pursue a possible alternative transaction with creditor 507 as to their Wells Fargo Collateral.
On the Hartree bidder protections, Judge Jones sided with the Debtors and the Debtors' official committee of unsecured creditors (the "Committee") as to the logic of delaying adjudication of the Hartee bidder protections (those protections strenuously opposed by the Committee), noting that as long as there existed cash at the Debtors sufficient to cover the bidder protections should they ultimately be awarded to Hartree (ie as long as there wasn't any performance risk), Hartree's concerns of being prejudiced by the delay were more than offset by the need to have more time to consider the nascent dispute. More than once, Debtors' counsel (Kirkland) hinted at a what now looks like a probable settlement "in the middle," which will have left counsel for Hartree a bit discouraged. Frankly, we would like to see the arguments, which raise some interesting questions as to the legitimacy of a the proposed bidder protections, decided on their merits (Hartree had argued: "if allowed, [it] would severely erode the market’s faith in court-approved bidding protections, seriously hindering the ability of future debtors to market and sell their assets," see further below).
As to the alternative propsal from 507/Peak for the Wells Fargo Collateral assets, the Debtors and the Committee (the latter highly enthused by the prospects of a proposal which would leave a greater recovery for unsecured creditors), both seemed genuinely interested in a continued dialogue. The key here is the "fiduciary out" in the Debtors' APA with Pennantia, which gave Judge Jones the comfort to approve the Pennantia sale AND urge 507/Peak to "work its magic and provide a superior transaction."
Wells Fargo Collateral Assets
- Successful Bidder: A consortium comprised of Wells Fargo, "real asset special situations investment platform" Rose Cay GP, LLC and distressed debt specialist Contrarian Capital Management LLC with an aggregate purchase price of $130.0mn, comprised of a $100.0mn credit bid of Wells Fargo debt and $30.0mn in cash
- Back-up Bidder(s): Keystone and Martin Operating Partnership
- Assets: The Debtors' vessels securing the the Wells Fargo loans ($164.1mn outstanding as at Petition date)
DIP Collateral Assets
- Successful Bidder: JMB Capital Lending Partners, LLC ("JMB"), the Debtors' DIP lender with an aggregate purchase price of $115.3mn (the DIP financing is $90.0mn before interest)
- Back-up Bidder: Hartree Partners, LP, ("Hartree") the Debtors' last-minute choice as stalking horse and one-time DIP lender ($110.0mn cash bid)
- Assets: The Debtors' vessels securing the Debtors' DIP financing (list of vessels at Annex A of Hartree stalking horse APA, with assets aka, the "DIP Collateral" or "JMB First Lien Vessel Collateral")
Background on Alternative Transaction for DIP Collateral Assets
On July 2021, 507 and Peak objected to the proposed sale of the DIP Collateral and presented the Debtors and the Court with the outline of an alternative restructuring that "permit[s] a reorganization that would result in realization of the Debtors’ going concern value for the benefit of their creditors" [Docket No. 1121, which we cover separately]. The 507/Peak objection attaches a term sheet in respect of the alternative restructuring and a letter from each of the proposed Plan sponsors, Lepercq de Neuflize & Co. Inc. ($600.0mn of discretionary capital under management) and Cohanzick Management LLC ($2.5bn under management) as to their financial bona fides.
Background on Hartree Bidder Protections
On July 18th, only hours before a July 19th auction, the Debtors filed a notice naming Hartree Partners, LP as their stalking horse bidder in a proposed sale of their DIP Collateral with the notice attaching an executed asset purchase agreement (the "Stalking Horse APA") that memorialized the terms of the $110.0mn cash sale and included bidder protections that could total almost $5.0mn.
On July 21st, the Committee objected [Docket No. 1089] to the idea that Hartree should receive a break-up fee ($3.0mn) and an expense reimbursement (up to $1.5mn, with both treated as administrative expenses and pushing unsecured creditors a further $4.8mn away from any potential recovery) for its only hours-long stalking horse role in respect of an auction won by a credit-bidding DIP lender, ie JMB.
Hartree full-throatedly disagrees arguing that although its stalking horse bid may have appeared something of a knock-kneed foal, a stalking horse is a stalking horse; and its hours-old bid nonetheless "set an important floor for the price of the DIP Collateral above what the Debtors otherwise could have achieved" [Docket No. 1165]. Hartree adds as to the objection from the "sandbagging" Committee: "if allowed, [it] would severely erode the market’s faith in court-approved bidding protections, seriously hindering the ability of future debtors to market and sell their assets."
This will likely come down to a case of "who knew what when," with the Committee's arguments as to Hartree's failure to bring value to the Debtors' estates, and whether the bidder protections were actually necessary to induce the Hartree stalking horse role, largely obliviated by a demonstration that JMB had not otherwise shared its intention to bid for the DIP Collateral assets with the Debtors or otherwise; with that silence turning a presumption that they must have been in the asset sale race (and hence casting shade on the value add of the Hartree bidder protections) into a strong case that Hartree was a completely legitimate bidder and that its bid served as a meaningful bid floor.
Hartree significantly insists that JMB had not tipped its seemingly obvious hand as a DIP lender, noting that "the bid [made during the auction] by the DIP Lender came as a surprise to Hartree, as the DIP Lender had not shown any desire to own the assets prior to the Auction and had been previously unwilling to serve as Stalking Horse Bidder at the $110 million dollar amount."
Adding to Hartree's argument is the economic reality of the winning bid (adding $20.3mn of cash to its $95.0mn DIP credit bid) and JMB's apparent acceptance of Hartree's right to the bidder protections, with Hartree noting that: "it is entirely possible that absent Hartree’s bid, the maximum amount the DIP Lender would have been willing to bid would have been the amount of the DIP Obligations, i.e., $95 million….[and that] No party objected to the inclusion of the Bid Protections in the bid floor….Immediately following this description of the requirements for a topping bid, the DIP Lender put in a bid for the $115.3 million minimum overbid amount."
FN11: "The $400,000 amount represents a reasonable estimate of Hartree’s expenses as of the date the Committee filed its objection. Given Hartree’s need to defend its entitlement to its bargained for Bid Protections, this estimate will likely be higher, and the amount payable the estates lower, as a direct result of the Committee’s actions."
For its part, the Debtors' have filed a revised proposed sale order (replete with the standard clauses about no collusion, fair process, etc.) which includes specific references to Hartree's right to the bidder protections and otherwise cleans up what was a complicated and often amended sales process and calendar [Docket No. 1151]
About the Debtors
According to the Debtors: “Founded in 1918, the Company’s first cargo was a shipment of coal. By 1931, Bouchard acquired its first oil barge. Over the past 100 years and five generations later, Bouchard has expanded its fleet, which now consists of 25 barges and 26 tugs of various sizes, capacities and capabilities, with services operating in the United States, Canada, and the Caribbean. Bouchard remains dedicated to continuing the rich heritage of barging expertise and family pride well into the future.”
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