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December 17, 2020 – The Debtors filed a Memorandum in Support of Confirmation of their Second Amended Plan that responds to an outstanding objection raised by Black Diamond and asks the Court to overrule the objection [Docket No. 1143].
The Debtors put specific emphasis on rebutting one of a list of concerns that Black Diamond raised in connection with proposed Plan confirmation, namely Black Diamond's contention that its credit bidding rights have been denied. Specifically, the Debtors explained in the memorandum, "…[T]his confirmation dispute involves Speedcast’s fundamental right to prosecute its chapter 11 reorganization. Black Diamond’s contention that it has a right to credit bid its claims is not supported by the factual record or the law. The Bankruptcy Code does not obligate a debtor to provide a secured creditor the opportunity to credit bid. Even so, Speedcast, through its Plan Sponsor Selection Procedures (as defined below) and direct communication with Black Diamond, in an effort to find the best chapter 11 exit, made Herculean efforts to afford Black Diamond the ability to pursue a credit bid transaction in the face of the substantial challenges posed by a sale structure. Speedcast led the horse to water and it did not drink."
The memorandum states, "Having successfully financed, stabilized and protected its businesses through these chapter 11 cases, Speedcast now proposes a recapitalization and reorganization plan utilizing chapter 11 tools to effect the most efficient emergence possible within the liquidity timeframe afforded to it by its bankruptcy financing. Only one objector remains: Black Diamond…Reorganized Speedcast will emerge from these chapter 11 proceedings with no funded debt, having eliminated all of its funded debt through the Plan, and financed by an equity recapitalization from Centerbridge Partners, L.P. ('Centerbridge'). Through the Plan, Speedcast also seeks to redomicile from Australia to the United States, so that its business is better aligned with its core markets and customers. Speedcast seeks to reorganize as an enterprise, and this Plan is the only actionable restructuring path available to it."
Additionally, the memorandum provides background that indicates that Black Diamond has been in a battle to cement its position and get its way in the Debtors' cases from the outset.
According to the memorandum, "During the course of July and August of 2020, the Company became caught in an internecine feud among its two largest lenders, Black Diamond Capital Management L.L.C. ('Black Diamond') and Centerbridge over the appropriate restructuring path for the Company to pursue. Following Speedcast’s chapter 11 filing, both lenders sought to consolidate their positions in the Company’s prepetition Syndicated Facility Agreement (as amended, restated, supplemented or otherwise modified from time to time, the 'SFA') and today hold almost all of the Company’s SFA claims. This debt trading, coupled with the inability to reach agreement on Speedcast’s restructuring among themselves, paralyzed the Company’s restructuring process. The consent rights of the Company’s initial debtor in possession (“DIP”) lenders (the 'Initial DIP Facility,' and the lenders thereunder, the 'Initial DIP Lenders') and SFA lenders (together with the Initial DIP Lenders, the 'Lenders') over the terms of an 'Acceptable Restructuring' in the DIP meant the Company could not progress its restructuring without their consent. Plan filing milestones were extended by the Lenders for over three months while they remain deadlocked.
With a looming liquidity wall and cognizant of the risk of not being able to complete a restructuring transaction within its liquidity timeframe, Speedcast refinanced its existing DIP loans and repaid them in full in cash, with a refinancing DIP loan from Centerbridge that paid off the rolled-up portion of the existing Initial DIP Facility in the process (the 'Refinanced DIP Facility'). Importantly, the Refinanced DIP Facility allowed Speedcast to pursue any transaction that the Company’s Board determined was in the best interest of all creditors. That transaction is before the Court today, and comes on the heels of a competitive process between Black Diamond and Centerbridge that has yielded ever higher values for all of Company’s creditors. That competitive process was then followed by a further competitive market test in which the Company sought higher and better binding transactions to the one it had reached with Centerbridge."
Centerbridge was chosen as plan sponsor, and Black Diamond continued to plead its case that the Debtors' Plan should not be confirmed.
Black Diamond Objection
The memorandum further states, "Remarkably, for a case of this size and complexity, only two objections were filed to confirmation of the Plan, and only one objection remains outstanding. One significant creditor – Black Diamond – objects to the Company’s chapter 11 plan. Black Diamond’s objection is replete with references to a proposal that is not before the Court today, the Initial ECA (as defined below), a proposal that was never ultimately pursued. At the beginning of August 2020, the Initial ECA was the only viable restructuring transaction available to the Debtors. The Debtors’ negotiations over the Initial ECA stimulated competitive bidding between Black Diamond and Centerbridge over an exit transaction for the Company culminating in the Plan before the Court today for confirmation, a transaction that has also been the subject of a market test.
Black Diamond objects to confirmation of the Plan on the basis that the Plan:
- denies Black Diamond credit bidding rights;
- impairs Class 3 Claims by paying such Claims in the amount allowed by the Court under section 506(a) of the Bankruptcy Code;
- violates the absolute priority rule due to reinstatement of intercompany claims and subsidiary stock interests;
- improperly classifies certain trade creditors separately from other general unsecured creditors, including the deficiency claim of the prepetition secured lenders as a result of the 506 bifurcation;
- proposes substantive consolidation of certain Debtor entities; and
- contains impermissible releases in favor of non-debtors.
Debtors Push Back
Each of these objections should be overruled. First, this confirmation dispute involves Speedcast’s fundamental right to prosecute its chapter 11 reorganization. Black Diamond’s contention that it has a right to credit bid its claims is not supported by the factual record or the law. The Bankruptcy Code does not obligate a debtor to provide a secured creditor the opportunity to credit bid. Even so, Speedcast, through its Plan Sponsor Selection Procedures (as defined below) and direct communication with Black Diamond, in an effort to find the best chapter 11 exit, made Herculean efforts to afford Black Diamond the ability to pursue a credit bid transaction in the face of the substantial challenges posed by a sale structure. Speedcast led the horse to water and it did not drink.
Black Diamond believes that, by virtue of an alleged right to credit bid, which it did not attempt to exercise, it is entitled to divest Speedcast and all of its stakeholders of the freedom to consider any plan of reorganization other than one Black Diamond sponsors. This argument is beyond any credible reading of section 1129 of the Bankruptcy Code and the attendant case law and is antithetical to the principles of chapter 11. Testimony will show that early on in these chapter 11 proceedings, Speedcast was required by its Lenders, including Black Diamond, to determine the value maximizing path out of chapter 11. Speedcast determined, as communicated to its Lenders, including Black Diamond, through a written report, that material benefits would be achieved by a recapitalization transaction maintaining and respecting the Company’s corporate structure, as compared to conducting asset sales at every legal entity….
Speedcast estimated that selecting the appropriate restructuring process – a plan of reorganization – would achieve the preservation of significant tax attributes for the benefit of reorganized Speedcast and significantly lower transaction costs by approximately $100 million. As will be detailed through testimony at confirmation, Speedcast pursued a process to solicit higher or better proposals from potential Plan Sponsors to the ECA transaction it had from Centerbridge. To facilitate Black Diamond’s participation in the process set forth in the Plan Sponsor Selection Procedures (the 'Plan Sponsor Selection Process'), Speedcast also provided Black Diamond with bespoke treatment, allowing it to use the value of its secured claims as currency in the Plan Sponsor Selection Process, a benefit not afforded to Centerbridge. Further, Speedcast’s equity commitment agreement with Centerbridge contains a customary 'fiduciary out,' a fact that was communicated to Black Diamond repeatedly in writing, and which Black Diamond has been aware of since the withdrawal of the Initial ECA Motion (as defined below) in August. Accordingly, Speedcast has always had the ability to accept and pursue a binding proposal from Black Diamond for a sale of the Company through a credit bid and this ability was communicated to Black Diamond.
Despite this knowledge, Black Diamond only provided Non-Binding Indications of Interest (as defined below) during the Plan Sponsor Selection Process, despite repeated calls and written requests for detailed commitments and the terms of binding transaction documents. Of equal importance, the transaction embodied in the Plan is a classic recapitalization, with traditional recapitalization hallmarks including that a plan sponsor makes an investment into the Debtors pursuant to which the Debtors’ legal entities remain in place, the debt is compromised, the equity of the very same debtor entities is reissued to the Plan Sponsor based on values judicially determined and the plan is determined to be fair and equitable and not unfairly discriminatory….
For the reasons set forth above and herein, and the evidence to be adduced at confirmation, the Court should overrule the Black Diamond Objection and confirm Speedcast’s Plan. The alternative, should the Court not confirm this plan, is a sale process that will likely yield no different outcome, other than disenfranchisement and a reduction in the recovery to creditors."
On December 16, 2020, the claims agent notified the Court of the Plan voting results [Docket No. 1113], which were as follows:
- Class 3 (“Syndicated Facility Secured Claims”): 25 claim holders, representing $297,540,759.26 (or 49.63%) in amount and 78.12% in number, accepted the Plan. 7 claim holders, representing $301,947,939.20 (or 50.37%) in amount and 21.88% in number, rejected the Plan.
- Class 4A (“Unsecured Trade Claims”): 6 claim holders, representing $495,524.87 in amount and 100% in number, accepted the Plan.
- Class 4B (“Other Unsecured Claims”): 47 claim holders, representing $228,084,700.66 (or 49.75%) in amount and 83.93% in number, accepted the Plan. 9 claim holders, representing $230,366,855.76 (or 50.25%) in amount and 16.07% in number, rejected the Plan.
What, based on the nature of the dispute between the Debtors and Black Diamond, promises to be a rather contentious Plan confirmation hearing, was scheduled for December 17, 2020.
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