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July 28, 2021 – Creditors 507 Summit LLC (“507”) and Peak Credit LLC (“Peak”) have objected to the sale of the Debtors’ "Wells Fargo Collateral" (vessels encumbered by prepetition Wells Fargo loans) 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].
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.
In a separate, but possibly related objection (attaching an emotive letter/plea to Judge Jones from former CEO Morton Bouchard), members of the Bouchard family characterize the proposed sales as little more than "firesales" and "a liquidation…which would benefit solely the secured lenders." The objection coincidentally notes that "alternative structures" remain viable, including one that Mr Morton may himself submit and asks a "period of time should be granted to confirm the existence of alternative proposals, if any, including allowing Mr. Bouchard to submit an alternative plan, as well as any enhanced value to creditors and the estates…" The Bouchard objection also notes that five of the Debtors' vessels (each apparently part of the package being purchased by JMB) are already being remarketed by a broker, notwithstanding that there is as of yet no Court approval JMB's purchase of those assets. Oops.
On July 26th, further to the Court’s June 8th bidding procedures order [Docket No. 956] and the completion of an auction which commenced on July 19th, the Debtors notified the Court that they have designated a pair of successful bidders in respect of (i) their "DIP Collateral" assets (vessels encumbered by liens securing the Debtors’ debtor-in-possession financing) with credit bidding prepetition lenders JMB Capital Lending Partners, LLC ("JMB") as the successful bidders and (ii) their Wells Fargo Collateral [Docket No. 1114].
The objection and alternative restructuring proposal relate only to the $130.0mn sale of the Wells Fargo Collateral, with that consideration comprised of a $100.0mn credit bid of Wells Fargo debt and $30.0mn of cash being provided by Pennantia, LLC.
Tha Alternative Restructuring Proposal
507 and Peak provide the following overview: "In April 2021, 507 and Peak engaged Debtors’ counsel Ryan Bennett about confirming a plan that would cram down Wells Fargo’s claim, pursuant to section 1129(b)(2)(A), with strategic partners contributing cash sufficient to return all of Debtors’ vessels to service and emerge from bankruptcy, thereby permitting a reorganization that would result in realization of the Debtors’ going concern value for the benefit of their creditors.
Though initially receptive to the proposal, the Debtors decided to pursue a different course. On May 25th the Debtors moved to sell some or all of their vessels on an emergency basis [Docket No. 907], and the bid procedures order was entered June 8th [Docket No. 956]….On July 26th, the Debtors gave notice [Docket No. 1114] that following the auction, they selected the bids submitted by (a) the replacement DIP lender, JMB Capital Lending Partners, LLC, providing for the purchase of the DIP Collateral for $115 million, as the successful bid for said collateral; and (b) Rose Cay GP, LLC, providing for the purchase of the Wells Fargo Collateral for $130 million, as the successful bid for said collateral.
…In a nutshell, an alternative plan can be proposed, under which:
- Vesting. The Wells Fargo Collateral, and any other estate property not being sold, would vest in the reorganized Debtors, free and clear of liens, claims and interests (except as otherwise provided).
- Cramdown Loan. Wells Fargo would be given a 5-year, first lien cramdown loan in the amount of its claim (less amounts surcharged, if any), bearing interest (paid in kind for the first 2 years, and in cash thereafter) at the current rate under its facility3 plus 25 bps (“Cramdown Rate”), subject to a 5.25%/year cap. Its deficiency claim ($34-$64 million, depending on surcharge litigation), which would otherwise “blow out” the roughly $39 million unsecured claims pool (per the summary of expected recoveries in the disclosure statement), would be eliminated.
- Plan Sponsor Contribution for New Equity and Exit Loan. Plan sponsors would contribute $35 million—$4 million for new equity, and $31 million in the form of a second lien exit loan, to fund payment of allowed administrative and priority claims and operating expenses anticipated to be incurred in returning the Debtors’ remaining vessels to service. The exit loan would mature 1 year after the Cramdown Loan, and bear interest (paid in kind for the first 2 years, and in cash thereafter, like the Cramdown Loan) at the Cramdown Rate plus 250 bps.
- Unsecured Creditor Recovery. Rather than chancing recoveries on preference claims and unspecified claims against insiders, unsecured creditors would receive takeback paper in the principal amount equal to 50% of their respective allowed claims, bearing interest of 3.25%/year (fixed, paid in kind) and maturing at the same time as the Plan Sponsor Exit Loan, plus 100% of litigation trust interests.
- No Wind Down Costs. This reorganization proposal eliminates the need for a plan administrator and associated wind down budget/amount.
507 and Peak believe their restructuring proposal is confirmable, and it also has the provisional backing of plan sponsors [Lepercq de Neuflize & Co. Inc., Cohanzick Management LLC or affiliates] capable of performing"
The Bouchard Family Objection
The Bouchard's objection provides: "…the Bouchard Parties nonetheless are deeply concerned that the inability and/or unwillingness to recommence operations post-petition (which Mr. Bouchard believes could have been readily accomplished) has lowered, if not harmed, the value of the Bouchard fleet as well as the entire Jones Act market values, as compared to the relatively staggering fees that have accrued on what amounts, if the Sale is permitted to proceed to the announced bidders, to a liquidation of such assets, which would benefit solely the secured lenders.
Given the foregoing, Mr. Bouchard submits that an alternative structure, if any, that includes getting the vessels operational (consistent with prior guidance by this Court) would immediately enhance value by multiples and perhaps provide revenue that can be used to pay creditors. Accordingly, and given that little if any value will be retained for general unsecured creditors under the present Sale process, the Bouchard Parties submit that additional disclosures, and, if the Court shares the Bouchard Parties’ concerns, a period of time should be granted to confirm the existence of alternative proposals, if any, including allowing Mr. Bouchard to submit an alternative plan, as well as any enhanced value to creditors and the estates."
The Proposed Asset Sales
Sale of 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")
Sale of Wells Fargo Collateral Assets
- Successful Bidder: Rose Cay GP, LLC with an aggregate purchase price of $130.0mn, comprised of a $100.0mn credit bod 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)
On July 18th, further to the Court’s June 8th bidding procedures order [Docket No. 956], the Debtors have 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 memorializes the terms of the $110.0mn cash sale.
The deadline to designate a stalking horse had been extended several times to accommodate negotiations, most recently in a July 18th notice which also extends the qualified bidder deadline until July 19th.
At the beginning of April, the Debtors switched debtor-in-possession ("DIP") lenders; replacing Hartree with JMB.
The Debtors had struggled from the outset of these Chapter 11 cases to line up adequate DIP financing, with an initial $60.0mn DIP financing facility provided by Hartree probably inadequate even before Hartree decided not to fund a second $31.2mn draw ($28.8mn of the Hartree financing made available by a December interim DIP order).
The full $35.8mn balance of the Hartree DIP was repaid by the Debtors following receipt of the JMB financing.
The Marketing Process
The motion notes, “[T]he Debtors have taken significant strides towards revitalizing their business and unlocking significant value for their estates, including by: (a) successfully regaining certain certifications required to service customers; (b) repairing relationships with key counterparties; (c) completing necessary maintenance and repairs on key vessels identified for the Debtors’ near-term return-to-service plan; (d) significantly reducing the carrying costs of the Debtors’ fleet of vessels; and (e) obtaining postpetition financing that enabled the Debtors to access the liquidity necessary to administer these cases and pave a value-maximizing path to exit from chapter11. However, In order to propose a feasible, value-maximizing chapter 11 plan, the Debtors must capitalize on the value of their assets (including their fleet of vessels). To that end, the Debtors and their advisors determined, in their business judgment, that exploring a marketing process for potential sales of some or all of the Debtors’ assets was in the best interests of the Debtors’ estates.
Prior to the Petition Date, the Debtors engaged Jefferies LLC (‘Jefferies’) to act as their exclusive investment banker in connection with the Debtors’ contingency planning efforts. In connection with its engagement, Jefferies is spearheading the marketing process designed to identify potential bidders for some or substantially all of the Debtors’ assets or the Debtors’ business. Specifically, prior to the date hereof, Jefferies contacted 165 potential bidders, representing both financial and strategic potential bidders. Of these potential bidders, all either reviewed a teaser document or participated in high-level discussions about a potential transaction. 73 bidders ultimately negotiated and executed confidentiality agreements and were provided access to a virtual data room containing detailed information about the Debtors’ industry, business and assets. Interested parties were invited to participate in further discussions with Jefferies regarding the Debtors’ industry, business and assets, the facts and circumstances of these chapter 11 cases and bidding process.
Subsequently, Jefferies received 9 written indications of interest from 7 parties. Of these, 6 proposals were for specific assets, 3 proposals were for substantially all of the Debtors’ assets, and no parties indicated an interest in acting as a chapter 11 plan sponsor. The Debtors and their advisors are currently advancing discussions with these parties in an effort to identify the highest or otherwise best bidders amongst them and to improve their bids to the benefit of the Debtors’ estates. As of the date of this motion, that process remains ongoing.
The substantial interest in the Debtors’ assets exhibited by a variety of market players thus far has led the Debtors to determine that establishing a court-approved schedule for their marketing process culminating in a potential Auction governed by court-approved Bidding Procedures will generate significant value for the Debtors’ estates and build on the marketing efforts that have already been launched. The marketing process and the Bidding Procedures proposed herein will enable the Debtors to move expeditiously to complete a fulsome marketing process, receive, evaluate and improve upon bids, execute one or more Stalking Horse Agreements if doing so will maximize the value received for their assets and hold an Auction (if necessary) to determine the highest or otherwise best bid (or bids).
The Debtors intend to use the proceeds of any asset sale to repay outstanding debt obligations and allowed claims and fund the Debtors’ working capital needs and distributions under the Debtors’ chapter 11 plan. The marketing process and the Bidding Procedures will result in the highest or otherwise best available offer for the assets. To the extent the Debtors move forward with a sale transaction for the assets, the Debtors submit that such transaction will be in the best interest of the Debtors’ estates and their stakeholders.”
The Debtors’ Prepetition Indebtedness
As of the Petition Date, the Debtors had approximately $229.5mn in aggregate principal amount of funded debt obligations.
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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