Relevant Document:Hearing Agenda
Judge Harlin Hale granted the balance of the PHI debtors’ requested
first day relief at a hearing this morning. The
first day hearing began Monday, with Judge Hale granting the debtors’ joint administration and employee wages motions last night. During today’s proceedings, the judge also granted the debtors’ motions on cash management, taxes, insurance, critical vendors, customer programs, and shippers, warehousemen and other lien claimants.
On Monday, the
limited objection to the debtors’ cash management motion filed by Delaware Trust Co., indenture trustee for the 5.25% senior notes, was resolved after the debtors agreed to provide the trustee with weekly reporting as requested in the objection. However, counsel for the PHI debtors and for the indenture trustee continued to engage in a war of words today over the trustee’s arguments. In the filing, Delaware Trust said that the debtors had engaged in “offensive” prepetition conduct to benefit insiders and argued that PHI’s entry into a $70 million term loan with Blue Torch Capital on March 13 was the debtors’ attempt to secure the benefits of DIP financing without the accompanying reporting obligations and court oversight.
Thomas Califano of DLA Piper, for the debtors, said this morning that the court has overseen a “very strange hearing” with the trustee attempting to “cast aspersions” on the debtors, CEO Al Gonsoulin and other insiders. The trustee made its allegations “recklessly” in the objection because “they had no facts,” said Califano. He added that the bondholders are “frustrated” because the debtors “wouldn’t do things the way they wanted it done” by accepting the bondholders’ DIP proposal. However, that proposal would have “left this debtor overleveraged and likely to fail,” Califano commented. “What is their objection to Blue Torch? Their objection is, Nobody’s ever done it before,” he added, warning that “we’d still be living in caves” if that was the rule.
Continuing, Califano said the Blue Torch loan may have been “creative” but it is not prohibited under the 5.25% notes indenture. He asserted that the debtors have given the bondholders reasons why the debtors chose not to enter into an nondisclosure agreement and provided material nonpublic information shortly before the bankruptcy filing. The bondholders are now acting like “a bunch of petulant children,” Califano said.
He added, “We intend to file a plan” and exit chapter 11 quickly. “We hope the bondholders get on board. If not, we’re very familiar with how plans are confirmed,” Califano remarked.
Andrew Leblanc of Milbank, for the indenture trustee, responded, “The suggestion that we lied to the court, misled the court, acted with anything other than integrity is insulting.” He said that the debtors’ characterization of the trustee’s arguments is “outrageous” and that “there’s no lying about the facts.” Moreover, Monday’s witnesses stated that “they’ve never seen anyone provide a loan like this,” Leblanc said, explaining that this is because rescue financing for a distressed borrower on the brink of bankruptcy is ordinarily undertaken through a DIP process with “the transparency, the openness, the opportunity for higher and better bids” inherent to that process. Leblanc added that the trustee did not object to any first day motion that would affect operations and that the bondholders of course want to see the debtors succeed.
Zack Clement of Zack A. Clement PLLC, representing the Gonsoulin-affiliated Thirty Two LLC, which provided the $130 million working capital loan to PHI in 2018, said that Gonsoulin is a “patriot” who helped the company by providing the loan. He said he agreed with the debtors’ remarks in response to the trustee’s objection.
Califano, for the debtors, returned to the podium to comment, “I never accused Milbank or Mr. Leblanc of lying.” Rather, the indenture trustee has made “irresponsible allegations,” he said.
The court then took a recess, after which Judge Hale granted the balance of the first day motions. He said that Monday’s hearing did go in a “slightly different direction” than he intended but that the testimony from the multiple witnesses was “helpful to my understanding of the case.” He also commented that the testimony from Robert Del Genio of FTI Consulting, the debtors’ CRO, and Matthew Niemann, managing director at Houlihan Lokey, the debtors’ financial advisor, was “credible and persuasive.”
Judge Hale overruled an
objection from helicopter equipment lessor Regions Equipment Finance Corp., or REFCO, to various first day motions, which had argued that the motions should be denied without prejudice at this time in light of an unsecured creditors committee not yet being appointed. REFCO also argued that the debtors had not shown that the requested relief was truly necessary to prevent irreparable harm at this point in time.
At Monday’s hearing, counsel from the Office of the U.S. Trustee said that a formation meeting for an official committee of unsecured creditors will take place next Monday, March 25. Counsel also said that the UST had received a letter requesting the appointment of an official equity committee.