Bouchard Transportation Co., Inc. – Creditors’ Committee Incensed By $5mn of Proposed Bidder Protections for Nominated Stalking Horse Hartree (Otherwise Trumped at an Auction Only Hours after Nomination by Credit-Bidding DIP Lender JMB)

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July 21, 2021 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ July 18th designation of Hartree Partners, LP ("Hartree") as a stalking horse bidder in respect of vessels which secure the Debtors' debtor-in-possession ("DIP") financing, taking particular exception to bidder protections in respect of Hartree's $110.0mn cash offer; including a proposed 3% break-up fee and a $1.5mn expense reimbursement that would be treated as an administrative expense and hence push unsecured creditors a further $4.8mn away from any potential recovery [Docket No. 1089]. The Committee's objection comes before the Debtors have even had a chance to digest their July 19th auction results and file notice of a successful bidder, spoiler alert…not Hartree.

Like almost everything related to the Bouchard bankruptcy, this is a shambolic mess; with the Debtors' motion to designate Hartree coming only hours before the Debtors' auction at which DIP lender JMB Capital Partners Lending, LLC (“JMB”), which presumably was long-known to be a potential credit bidder (JMB is currently the DIP lender and stalking horse in respect of the George Washington Bridge Bus Station Development Venture LLC cases), emerged as the winning bidder for the majority of the Debtors' assets. So, we have Debtors offering hefty bidder priotections to an erstwhile DIP lender (which pulled the plug on DIP financing only to see the Debtors rescued by replacement DIP financing from JMB) several hours before a scheduled auction at which the credit-bidding DIP lender, and not the proposed stalking horse, emerges victorious. One does not see that everyday.

The Committee wonders what possible benefit was brought to the Debtors' estate by the designation of Hartree (and the $5.0mn of bidder protections) at such a late hour, especially given the existence of a credit-bidding DIP lender in the wings (one that did in fact put in a winning bid)? …and how the Hartree bidder protections could possibly be considered as an inducement for Hartree to bid given that Hartree was willing to bid without those protections having yet received Court approval…and, the Committee argues, with Hartree fully aware that they might never be approved?

Particular apoplexy is reserved for the expense reimbursement, given Hartree's earlier role as a highly involved and informed DIP lender (not to mention the earlier payment of its fees in respect of that role).

The Committee's objection notes: "On the evening of July 18, 2021, the Debtors filed a notice stating that they had selected Hartree to act as the Stalking Horse Bidder in connection with a proposed sale of the JMB First Lien Vessel Collateral for an aggregate purchase price of $110.0mn (the 'Stalking Horse Notice”' [Docket No. 1077]. The Stalking Horse Notice also advised parties in interest that the Debtors had agreed to provide Hartree the 3% Break-Up Fee and the Expense Reimbursement of up to $1.5mn. As a result, the Debtors designated Hartree as the Stalking Horse Bidder and advised parties in interest that they would move forward with the Hartree asset purchase agreement (the 'Hartree APA') that included a potential administrative expense payment by the Debtors’ estates to Hartree in the amount of up to $4.8mn in the event the Debtors secured an overbid at the Auction to commence just hours later.

On July 19, 2021, the Debtors conducted the Auction. After first conducting the auction with respect to the Wells First Lien Vessel Collateral, the Debtors commenced the auction for the JMB First Lien Vessel Collateral by pronouncing Hartree as the Stalking Horse Bidder and opening bidding on the JMB First Lien Vessel Collateral. At that point, JMB, the current DIP lender, bid $115.3mn for the JMB First Lien Vessel Collateral, which consisted of (i) cash and (ii) a 'credit bid' of the outstanding amount of the DIP obligations to the extent that the outstanding obligations owed to JMB were secured by the JMB First Lien Vessel Collateral. At that point Committee counsel advised everyone on the record that it did not support Hartree receiving the Break-Up Fee and Expense Reimbursement….Although Committee counsel attempted to resolve its objections to the Break-Up Fee and Expense Reimbursement with Hartree’s counsel at a break during the Auction, after the break, Hartree did not submit another bid. Accordingly, the auction with respect to the JMB First Lien Vessel Collateral concluded with JMB, the current DIP Lender, being determined to have submitted the highest and best bid on such assets.

The Committee’s objection continues, “…The Hartree APA was not an enforceable postpetition transaction at the time the Debtors commenced the Auction. In fact, absent this Court’s approval of the Hartree APA with the Break-Up Fee and Expense Reimbursement, there is no enforceable postpetition transaction on which Hartree may receive payment. Hartree, having sophisticated legal counsel, fully understood this risk as they were aware of the existing Bid Procedures Order and acknowledged that the Break-Up Fee and Expense Reimbursement needed separate Court approval if anyone opposed the Debtors designating Hartree as the Stalking Horse Bidder or the Break-Up Fee and Expense Reimbursement… Therefore, if the Hartree APA, the Break-Up Fee and the Expense Reimbursement are not separately approved, by the express terms of the Hartree APA, Hartree is not entitled to receive either the Break-Up Fee or the Expense Reimbursement. To date, neither the Hartree APA nor the Break-Up Fee or Expense Reimbursement have been approved. Nor may the Break-Up Fee or the Expense Reimbursement be ‘deemed’ approved because the Committee has timely filed this objection. At this point, the Debtors’ pursuit of an order seeking approval of the Hartree APA and the BreakUp Fee and Expense Reimbursement is simply not consistent with the Debtors’ fiduciary duties because it is not in the best interests of the estates and creditors…In addition to the requirement that they arise from an enforceable postpetition transaction, the Break-Up Fee and Expense Reimbursement must be necessary expenses to preserving or enhancing the value of the Debtors’ estates. The Break-Up Fee and Expense Reimbursement do not preserve or enhance the value of the JMB First Lien Vessel Collateral.

The Auction was conducted mere hours after the designation on 29 vessels and the only other party to bid was JMB, which already had a complete analysis of the underlying assets as the current DIP lender and was highly motivated to bid in excess of the amount of the outstanding DIP obligations because of the subordination of its DIP claim to the Carve Out (as defined in the Final DIP Order). Any other interested bidder who saw the Stalking Horse Notice when it was filed just before midnight on Sunday evening, just four business hours prior to the bid deadline, had already decided whether to bid. The Hartree bid simply did not set a floor and induce other bidders to investigate and consider making a competitive bid. Thus, the designation of Hartree as the Stalking Horse Bidder and agreement to pay Hartree a Break-Up Fee and Expense Reimbursement came far too late in the sale process for this Court to find that such payments were necessary to preserve the value of the JMB First Lien Vessel Collateral… Nor may the Court find that the Break-Up Fee and Expense Reimbursement were necessary to induce Hartree to bid on the JMB First Lien Vessel Collateral. First, it is clear that when Hartree bid at the Auction, Hartree knew that the Break-Up Fee and Expense Reimbursement were not deemed approved and might never be approved. Nonetheless Hartree submitted its bid, and even though Committee counsel advised Hartree that it would contest the Break-Up Fee and Expense Reimbursement, Hartree did not withdraw its bid. Therefore, Hartree submitted to the process knowing it might not receive the Break-Up Fee or Expense Reimbursement. Under these facts, the Court cannot conclude that these bid protections were necessary to induce the Hartree bid… Finally, Hartree is a prior postpetition lender in these cases that was intimately familiar with much of the JMB First Lien Vessel Collateral before the sale process began and does not need to be compensated for its diligence. In fact, Hartree was already paid a significant sum related to the Hartree DIP Collateral in the form of fees, OID, interest, and expenses under the Hartree DIP Facility. Given the facts here, the Break-Up Fee and Expense Reimbursement were not necessary expenses.

The objection continues, “Neither the Hartree APA nor the Break-Up Fee or Expense Reimbursement provide the Debtors’ estates with an actual benefit and, in fact, would have caused the administrative insolvency of certain Debtors by imposing on the Debtors an approximately $5 million administrative expense. First, locking in the Stalking Horse Bidder did not yield benefits at the auction. JMB was ready to bid and did in fact bid. Moreover, JMB has not requested, and the Committee understands that it will not request, that its bid be modified downward if the Court does not approve the Hartree APA or the Break-Up Fee and Expense Reimbursement. Indeed, as discussed above, even without the Hartree bid, JMB had every reason to bid cash and its allowed secured claim because otherwise it could receive a reduced recovery on the JMB DIP Facility obligations and still have to fund the Carve Out. Thus, given that there were no other bids on the JMB First Lien Vessel Collateral, the Court simply cannot find that the Break-Up Fee or the Expense Reimbursement provided the estates and creditors an actual benefit. Second, locking in Hartree as the Stalking Horse Bidder threatened to render certain of the Debtors’ cases unconfirmable because of potential administrative insolvency. Hartree’s bid was conditioned on the Debtors’ rejection of the Charter Agreements, which would have created significant administrative expenses at the Debtor entities that are parties to the Charter Agreements. These Debtor entities would be left with insufficient funds to pay these administrative expenses, meaning the Debtors would have been unable to satisfy the plan confirmation requirements of section 1129(a)(9) as to these entities. Moreover, even with the JMB bid, funding of the Debtors’ wind-down is thin and recoveries for unsecured creditors are highly speculative due to issues relating to the Carve Out and surcharge claims under section 506(c) against the Wells Vessel Collateral… Further, the Hartree bid nets effectively the same result as a converting the JMB DIP Facility Debtors to a chapter 7 liquidation. The Hartree bid provides no unsecured creditor recovery and because the JMB DIP Facility is subject to Carve Out and maritime liens, the Hartree APA transaction would have the same result as a liquidation. It therefore cannot have been a valid exercise of business judgment to agree to the Hartree Stalking Horse APA or to pay the Break-Up Fee and Expense Reimbursement when the Hartree bid on the JMB First Lien Vessel Collateral was no different than a liquidation.”


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 substantially all of their assets, 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 accomodate 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 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.

Key Terms of the Stalking Horse APA:

  • Seller: Bouchard Transportation Co., Inc.
  • Purchaser: Hartree Partners, LP
  • Assets: List of vessels at Annex A of Stalking Horse APA
  • Purchase Price: The aggregate consideration (collectively, the “Purchase Price”) to be paid by Purchaser for the purchase of the Acquired Assets shall be: a cash payment of $110.0mn (the “Cash Payment”).
  • Bidder Protections (i) Break-up fee of 3% of the Cash Payment, (ii) a $1.5mn expense reimbursement and (iii) a $500k minimum overbid.

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.”

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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