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December 28, 2020 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ proposed debtor-in-possession ("DIP") financing arguing that as proposed the DIP financing would "guarantee that the Debtors’ estates will be administratively insolvent before and after the proposed sale, and are for sole benefit of the Debtors’ lender and equity holder NHTV ULM Holdings LLC (‘NHTV’), – doubling as DIP lender and prepetition lender" [Docket No. 117].
On December 24th, the Committee filed a related objection in respect of the Debtors' bidding procedures motion (which we cover separately) in which it argued that the proposed asset sale process and arrangements with stalking horse NHTV "heavily tip the scales in favor of NHTV and provides no assurances of a recovery for unsecured creditors" [Docket No. 114]. With that objection, the Committee is seeking a four week extension to the sale process "to allow sufficient time for due diligence and to promote competitive bidding" and a removal of provisions in the stalking horse asset purchase agreement (the "APA") which it views as bid chilling.
NHTV is an is an acquisition entity formed by holders of debt issued under the Debtors' September 2018 Senior Secured Loan Agreement ($69.6mn outstanding as at the Petition date) and is fronted by Morgan Stanley affiliate MS Capital Partners Adviser Inc.
The DIP financing objection explains, “According to the Debtors, the proposed DIP Facility is necessary to sustain operations of the Debtors through a proposed sale process and closing in order to maximize the value of the Debtor’s assets ‘for all stakeholders in the Debtors’ assets.’ While the Committee is supportive of maximizing the value of the Debtors’ assets ‘for all stakeholders,’ the terms of the DIP Facility and proposed order approving the DIP Motion impose undue costs on the Debtors’ estates, guarantee that the Debtors’ estates will be administratively insolvent before and after the proposed sale, and are for sole benefit of the Debtors’ lender and equity holder, NHTV ULM Holdings LLC (‘NHTV’), – doubling as DIP lender and prepetition lender.
The Debtors, at NHTV’s behest, have designed an expedited sale process, that, together with the relief requested in the DIP Motion, allows NHTV to test the market for a sale, shed unwanted liabilities and shareholder disputes, secure releases for itself, and significantly improve its position vis-à-vis the unsecured creditors by granting it super-priority administrative claims and priming liens on all assets, including any unencumbered assets and potentially valuable insider avoidance actions and tort claims against prior officers and directors. Even if NHTV desires to roll the dice by continuing to fund the Debtors to preserve the questionable enterprise value of the Debtors, the Court should not approve a sale process and a DIP Facility that burdens the estates for the benefit of a single creditor to the detriment of all other creditors.
The cost of the proposed DIP Facility is exorbitant. In addition to interest and a .6333% loan fee, the Debtors propose paying an estimated $4,117,282.00 from the DIP Facility to NHTV’s professionals (for amounts incurred both pre and post-petition) in exchange for a conditional loan commitment of up to $15,600,000.00, which also includes $1,300,000.00 (the proposed roll-up) advanced to the Debtors prepetition. Not including interest, the Debtors are asking this Court to approve a DIP Facility requiring the Debtors to pay an estimated $4,216,076.8 (professional fees plus a .6333% loan fee) of lender’s fees and expenses for a conditional commitment from NHTV to lend up to $10,083,923.20 in new money for the estates. The bulk of the roughly $10 million is to be paid to the Debtors’ professionals and only approximately $3.6 million will be used to fund business operations.
…the Court should deny the DIP Motion unless the Debtors and NHTV agree to modify the Final Order and the proposed order approving the sale process to (i) extend the sale process by four weeks to allow sufficient time for due diligence and promote competitive bidding; (ii) condition the Stalking Horse Bidder’s credit bidding rights so as not to chill bidding and burden the post-sale estate with the lingering DIP indebtedness; (iii) expressly preserve the Committee’s challenge rights and potential causes of action against NHTV; (iv) preserve insider avoidance actions and tort claims against prior officers and directors for the general unsecured creditors; (v) eliminate or at least limit the releases for NHTV such that the Committee maintains meaningful challenge rights; (vi) provide an appropriate Carve-Out for Committee professionals of not less than $900,000 and expand the Committee’s resources during the Challenge period, including a minimum $125,000 investigation budget, lengthening the challenge period, and allowing the Committee to use Carve Out funds to pursue claims against NHTV; (vii) appropriately limit NHTV’s adequate protection claim to actual diminution (if any) and remove the Debtors’ waivers against NHTV under sections 506(c) and 552(b) of the Bankruptcy Code; (viii) preserve the estates’ equitable marshaling rights; and (ix) provide sufficient funding for a chapter 11 plan that provides distributions to unsecured creditors.”
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