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November 19, 2019 – The Court hearing the Dura Automotive Systems cases issued an order (i) approving bidding procedures in respect of a sale of substantially all the Debtors’ assets, including in respect of bid protections and credit bidding, and (ii) scheduling an auction/sale timetable culminating with an auction, if necessary, on January 27, 2020 and a sale hearing on February 11, 2020 [Docket No. 339]. This present order relates only to bidding procedures, the Court making clear that any sale remains subject to a separate sale order.
In a press release announcing the arrival on the scene of a new source of debtor-in-possession ("DIP") financing (Bardin Hill Investment Partners LP which replaces a Tilton-controlled entity), the Debtors also commented on the status of the ongoing section 363 process: "Proceeds from the financing will be used to fund DURA’s ongoing business operations, including capital expenditures for future platforms, and help the Company meets its commitments to employees, customers, and vendors as it pursues a going-concern sale ('363 sale'). The financing will allow DURA to continue business as usual while the expedited 363 sale process takes place. DURA and its advisors will now conduct an accelerated marketing process over the coming weeks for a qualified purchaser that would agree to purchase all of DURA’s assets and assume all customer, trade, and employee obligations. DURA intends for any sale to close within approximately 120 days. To the extent another bidder is not timely found, Bardin Hill and existing creditors have committed to restructure DURA’s funded indebtedness pursuant to a chapter 11 plan of reorganization that would pay claims of customers, employees, and go-forward suppliers and trade vendors in full in cash at closing or in the ordinary course of business."
On October 25th, proceeds of the Bardin Hill DIP financing were also be used to pay off outstandings under the first Lynn Tilton-backed DIP financing ($2.8mn) and outstandings under the Debtors pre-petition ABL facility ($27.0mn). Combined with the Debtors' rejection of Lynn Tilton's proferred stalking horse, detailed below, this leaves Tilton effectively frozen out of the Debtors' Chapter 11 process; at least as to any efforts coordinated with the Debtors.
Notwithstanding that it responds to the Debtors' October 23rd bidding procedures motion [Docket No. 154], the order makes clear that much has changed in recent weeks, starting with the name of the judge and the presiding Court (now Judge Karen B. Owens in Delaware as opposed to Judge Randal S. Mashburn in the Middle District of Tennessee) at the top of the order. The change in venue (see more below), forced on the Dura Debtors by the Zohar III Debtors, completely upends a sale process which was to be paced by Lynn Tilton's stalking horse Dura Automotive Angels, LLC ("Angel"). This process, the Zohar III Debtors argued, a blatant end run around agreements in the Zohar III Delaware-based cases as to how any value in the Dura Debtors was to be monetized and shared.
What follows in the order as adopted is a considerable retreat from the Debtors' proposed order which requested Court approval of an asset purchase agreement with Angel, the Court notably slicing out the the following from the order as adopted: "and (v) authorizing the Debtors’ entry into the Stock and Asset Purchase Agreement, by and between the Debtors and Dura Automotive Angels, LLC (the “Stalking Horse Bidder”), dated [Date] (the “Stalking Horse Purchase Agreement”)."
On November 8th, the Debtors filed a revised version of their proposed bidding procedures order which includes a blackline comparing the revised version (effectively what the Court has now approved) with the original Docket No. 274].
- Bid Deadline: January 22, 2020
- Selection of Qualified Bids: January 24, 2020
- Auction: January 27, 2020
- Sale Objection Deadline: February 5, 2020
- Sale Hearing: February 11, 2020
- Anticipated Closure: February 19, 2020
The Debtors' Bidding Procedures Motion
The Debtors' October 23rd bidding procedures motion, then pursuing Court approval of the proposed Angel APA and stalking horse arrangements [Docket No. 154] stated, “The Debtors file these proposed bidding procedures with a ‘stalking horse’ bid in hand to set the floor on the price for these assets, provide assurance to the Debtors’ suppliers and customers that trade creditors will be paid in full and executory contracts will be assumed, and approve a marketing and auction process that will yield the highest and best bid for these assets….Facing an increasingly dire liquidity position and operational difficulties associated with their financial distress, the Debtors engaged with advisors regarding possible restructuring alternatives. As the Debtors explored these alternatives, they determined that their CEO Lynn Tilton—whose affiliates include the Debtors’ largest equity owner, prepetition revolving lender, and a prospective bidder—could not be the sole manager. Accordingly, two independent managers were appointed, who were selected without Ms. Tilton’s involvement other than agreeing to the principle of appointing independent managers.
In evaluating the potential paths forward in these chapter 11 cases, the independent managers determined in their reasonable business judgment that the best course forward is to pursue a competitive sale process, backstopped by the commitment of a stalking horse bidder (subject to certain qualifications) to pay trade creditors and assume executory contracts, in an effort to assuage concerns of customers, suppliers, and employees that they will be paid in full and that the business will continue as a going-concern after the sale. As concerned customers and suppliers have reached out to the Debtors in the days following the chapter 11 filing, the fact that the Debtors are working to sign up an initial bid (the ‘Stalking Horse Bid’) has been instrumental in assuaging these parties’ concerns and stabilizing these important relationships. Indeed, this sale process is part of the Debtors’ broader restructuring strategy.
In particular, the DIP Facility, which was approved on a limited basis at the Debtors’ first day hearing, provides a clear path forward regarding a going-concern sale of the Debtors’ assets. Specifically, the DIP Lender (the ‘Stalking Horse Bidder’) has agreed to provide a Stalking Horse Bid for substantially all of the Debtors’ assets in the form of a credit bid of the DIP Claims and ABL Claims, plus certain cash consideration. The Debtors, acting at the direction of the independent managers, and the Stalking Horse Bidder have memorialized the terms of the Stalking Horse Bid in the Stalking Horse Purchase Agreement, to be market-tested through an auction and section 363 sale process.
To the extent that the Debtors and their advisors secure a higher and better offer for the assets that complies with the terms set forth in the DIP Facility, they reserve their rights to pursue an alternative sale transaction, in accordance with their fiduciary duties. If approved, the proposed Bidding Procedures will enable the Debtors to expeditiously sell their assets and emerge from chapter 11 shortly after that.
The Debtors are also requesting approval of expense reimbursement up to a maximum amount of $2.0 million (the 'Bid Protections'). The expense reimbursement will be paid to the Stalking Horse Bidder upon the occurrence of certain 'triggering events' typical and customary for transactions of this kind. It is important to note that the Debtors are not requesting approval of any break-up fees or other bid protections.”
Change of Venue
On October 31, 2019, the Debtors agreed to a change of venue from the Middle District of Tennessee to the District of Delaware, a change that will be further discussed in a hearing scheduled for November 1st. In an agenda for that hearing filed with the Delaware Court in respect of the Zohar III, Inc. cases, Zohar III stated: "The Dura Debtors will stipulate to a transfer of venue to Delaware.The Dura Debtors and Zohar Debtors have agreed on a form of order to be presented at the hearing."
On October 17, 2019, Dura Automotive Systems, LLC and six affiliated Debtors (“Dura” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Middle District of Tennessee, lead case number 19-06741.
Also on October 17th, the Zohar III Debtors asked the Delaware Bankruptcy Court to "exercise its authority to transfer the Dura Chapter 11 Cases to the Delaware Bankruptcy Court" arguing that "The only reason the Zohar Funds can fathom that the Dura Debtors filed the Dura Chapter 11 Cases in Tennessee – which is neither their operating headquarters nor the jurisdiction of their formation – is that they did so at the behest of Ms. Tilton to avoid and circumvent the bargain she struck in the Delaware Bankruptcy Court." That "bargain" includes the agreement by Lynn Tilton and the Zohar Funds to work together to monetize assets (including Dura) further to protocols established in respect of Zohar III's Delaware cases.
In a motion dripping with sarcasm [Zohar III, Corp.: Docket No. 999], the Zohar III Debtors stated: “The Delaware Bankruptcy Court should be well familiar with the Dura Debtors and their importance to achieving the goals of the Zohar Funds’ Bankruptcy. Ms. Tilton introduced them in the first days of the Zohar Funds’ chapter 11 cases as a ‘Crown Jewel’ in the Zohar Funds’ investment portfolio. She further highlighted their value when noting that they have 'risen again as Tier 1 suppliers to Michigan’s legacy automotive companies, as well as the international automotive base.'
The Zohar Funds are owed approximately $105 million in secured debt by the Dura Debtors and have an (indirect) interest in a majority of the equity ownership of the Dura Debtors. Ms. Tilton herself focused for months on end on a marketing and sale process and then a potential refinancing, knowing the value that could be unlocked related to the Zohar Funds’ debt holdings and equity interests at the Dura Debtors. Key details concerning the marketing and sale process and subsequent re-financing attempts, among other monetization efforts, were presented in great detail to both mediators that have overseen the ongoing Monetization Process.
The Delaware Bankruptcy Court is likewise familiar with the Dura Debtors because – as Ms. Tilton references in her earlier declaration in these cases – the Dura Debtors previously spent over five years (from October 2006 to December 2011) with chapter 11 cases pending before the Delaware Bankruptcy Court. Indeed, the law firm (and even some of the same lawyers) currently representing the Dura Debtors in the Dura Chapter 11 Cases is the same firm that steered the Dura Debtors through their prior bankruptcy cases in Delaware.
Most important to this Motion, however, is the fact that the Dura Debtors are one of the ‘Group A Portfolio Companies’ included in the Monetization Process (as defined below), which the Delaware Bankruptcy Court recently affirmed and remains ongoing in the Zohar Funds’ Bankruptcy. As the Delaware Bankruptcy Court is aware, the Dura Debtors are currently subject to the court-approved protocol in the Zohar Funds’ Bankruptcy pursuant to which the two parties claiming over 70% ownership of the Dura Debtors – Lynn Tilton and the Zohar Funds – are engaged in a joint process to monetize the Dura Debtors (along with the other Portfolio Companies) through an equity sale, asset sale or refinancing. Recently, the Delaware Bankruptcy Court confirmed on September 27th, less than 3 weeks ago, that Ms. Tilton and her affiliated Patriarch entities bargained for this monetization process to continue until one of two events occurs: the parties terminate the Settlement Agreement establishing the monetization process or the Zohar Funds’ creditors achieve payment satisfactory under the Settlement Agreement, neither of which has occurred.
The Monetization Process bears the imprimatur of three Delaware bankruptcy judges. First, Judge Gross tirelessly brokered the Settlement Agreement that resulted in the Monetization Process and then continued on in his role as mediator for over a year. Next, Judge Sontchi (the ‘Mediator’) – who has now replaced Judge Gross as mediator with the consent of all parties – approved both the Settlement Agreement creating the Monetization Process and the precise mechanics of how the Monetization Process would be implemented.
Finally, Judge Owens has recently ruled – over the staunch objection of Ms. Tilton and the Patriarch Stakeholders – that all parties bargained for the continuation of the Monetization Process, including with respect to the Dura Debtors, beyond the 15-Month Window until terminated in accordance with paragraph 12 of the Settlement Agreement.
The only reason the Zohar Funds can fathom that the Dura Debtors filed the Dura Chapter 11 Cases in Tennessee – which is neither their operating headquarters nor the jurisdiction of their formation – is that they did so at the behest of Ms. Tilton to avoid and circumvent the bargain she struck in the Delaware Bankruptcy Court: a settlement brokered by Judge Gross, approved by Judge Sontchi and recently affirmed by Judge Owens. Ms. Tilton and the Dura Debtors should not be permitted to do such violence to the lynchpin of the Zohar Funds’ Bankruptcy Cases and the groundwork that has already been laid in Delaware to continue the Monetization Process for all of the Portfolio Companies, including the Dura Debtors. To be clear, the Zohar Funds support a fair, open and transparent process conducted under the supervision of a bankruptcy court to ensure that the value of the Dura Debtors can be maximized for all stakeholders. The Delaware Bankruptcy Court has already set that process in motion.
For this and the reasons set forth below, the Court should exercise its authority to transfer the Dura Chapter 11 Cases to the Delaware Bankruptcy Court."
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