Renovate America, Inc.
CASE SUMMARY: Renovate America Says Finance of America Mortgage Stalking Horse Transaction Would Satisfy ‘Significant Portion’ of Prepetition Claims
Tue 12/22/2020 17:35 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
Renovate America Inc., a San Diego-based home improvement financing company focusing on environmentally friendly home improvement projects, filed for chapter 11 protection on Monday in the Bankruptcy Court for the District of Delaware, along with affiliate Personal Energy Finance Inc. Having stopped accepting homeowner’s applications in October for their HERO business, the debtors seek to run a sale process for their remaining business - Benji - which provides home improvement financing to contractors and homeowners. Finance of America Mortgage LLC has agreed to serve as stalking horse for the Benji assets and has also agreed to provide DIP financing of $50 million. The stalking horse bid for the debtors’ Benji assets consists of “(i) Buyer’s assumption of the Assumed Liabilities, and (ii) $5,000,000.00 plus the Loan Purchase Price plus the Contract Prepayment Amount.” Finance of America would also be allowed to credit-bid the DIP obligations. Continue reading for our First Day team's analysis of the Renovate America chapter 11 filing and Request a Trial for access to the above documents and analysis as well as our coverage of thousands of other stressed/distressed debt situations.
Read our First Day team's filing alert for Renovate America's chapter 11 filing here (subscription required): https://app.reorg.com/v3#/items/intel/13127?item_id=127751
The debtors say that the proposed stalking horse transaction, if approved, would “generate significant value for the Debtors’ estates, and among other things, satisfy a significant portion of the prepetition claims against the Debtors and pave the way for confirmation of a chapter 11 plan.”
The first day hearing has been scheduled for tomorrow, Wednesday, Dec. 23, at 1 p.m. ET.
The company reports $102.5 million in assets and $115.3 million in liabilities as of Nov. 30, including $7.3 million in funded debt. The company’s prepetition capital structure includes:
The RAI senior secured warehouse facility has Renovation America as borrower with ING Capital as agent and initial lender and Cortland Capital Market Services as collateral agent, and has a maximum commitment of approximately $1.3 million guaranteed by RAI’s parent, Thrivepoint. The PEFI senior secured warehouse facility has PEFI as borrower, with ING Capital as agent and initial lender and TMF Group New York as collateral agent. Both warehouse facilities are guaranteed by Thrivepoint, and each of the lenders has a first lien on the receivables and proceeds thereof of RAI and PEFI, respectively.
The debtors have $3.6 million in cash as of the petition date, which “available cash is not cash collateral of the Prepetition Secured Parties.”
The company attributes the bankruptcy filing to changes in California legislation in 2018 with respect to PACE financing that added an income verification and imposed “more rigorous ability-to-pay standards on the borrowers.” The more stringent requirements resulted in a “dramatic reduction” in the debtors’ HERO origination volume and revenue, of which the debtors estimate a reduction in revenue of approximately 81% in 2016 to 2019. The company also points to the Covid-19 pandemic as another cause for filing, saying that its HERO originations volume declined by approximately $56 million, or 47%, in 2020, through the end of October.
Prior to the new legislation going into effect, the debtors made “significant” investments in their infrastructure and workforce, including entering into a long-term office lease and increasing the workforce to over 650 employees, in anticipation for the expected volume of HERO business. However, due to the reduction in revenue, the debtors have since subleased space under their former office lease and reduced operating expenses to approximately $45 million for this year from approximately $166 million a year “at the peak” of the debtors’ operations. The company also reduced its workforce by 83%, leaving 115 employees as of earlier this month.
The debtors are represented by Bryan Cave Leighton Paisner and Culhane Meadows as counsel, Armanino as financial advisor and investment advisor and GlassRatner Advisory & Capital Group as restructuring advisor. Stretto is the claims agent. The case has been assigned to Judge Laurie Selber Silverstein (case No. 20-13172).
Background
The debtors historically maintained two business divisions - HERO and Benji. However, the HERO business, which originated “property assessed clean energy” assessments for residential projects (financing in the form of property assessments for residential and commercial renewable energy and efficiency improvements authorized by local governments under state legislation), stopped accepting homeowner’s applications in October. The debtors’ remaining division - Benji - provides home improvement financing to contractors and homeowners.
Between 2009 and 2016, the HERO business expanded geographically throughout California, Florida and Missouri. In 2016, RAI originated approximately $944 million in HERO assessments and captured approximately 60% of California’s over $1.5 billion HERO assessment market.
RAI formed PEFI in 2014, a wholly owned subsidiary of RAI, and the Benji product is one of a number of home improvement financing options that contractors may offer to homeowners. Benji financing will either be a retail installment contract between the contractor and the homeowner or a direct installment loan between PEFI and a homeowner with a promissory note. Between 2016 and 2019, PEFI increased its origination volume from approximately $28 million to $146 million, and PEFI currently offers the Benji product in every U.S. state. Prior to the petition date, PEFI financed the upfront costs of its Benji product through the PEFI warehouse facility with ING Capital LLC.
The debtors provide the following consolidated financial metrics for debtor Renovate America:
The company also indicates that over the past two years there has been a series of lawsuits filed against RAI and other PACE administrators regarding assessments originated before April 2018, claiming that the PACE program “harmed numerous homeowners by making assessments that people could not afford to pay.” The company estimates that RAI is a defendant or is providing a defense to indemnify third parties in 56 cases, including three class actions, all which are pending.
The debtors also disclose a 2017 litigation brought by the state of California against RAI in state court, seeking injunction, civil penalties and other relief arising out of the company’s HERO operations. In August 2019, RAI reached an agreement with the state by which RAI did not admit any fault and agreed to pay restitution and civil penalties and costs, structured for payment over time, adding additional strain on the company and its liquidity.
In total, the company estimates that it has spent more than $15 million in litigation and settling homeowner HERO litigation.
In late 2019, in an effort to raise capital, Thrivepoint Financial Holdings, the direct parent and sole owner of the equity interests in RAI, marketed convertible notes to accredited investors holding equity interest in Thrivepoint. However, there was insufficient interest from Thrivepoint’s equityholders, which ultimately led to Thrivepoint pivoting to a Series G preferred offering of up to $25 million. As with the marketing of convertible notes, however, Thrivepoint’s efforts were unsuccessful.
RAI stopped accepting HERO applications in October and entered into two agreements to liquidate its assessment and bond portfolios. The agreement with KCP PACE Purchaser LLC, an affiliate of Kawa Capital Partners LLC, entered into in August, contemplated the purchase of RAI’s PACE bond portfolio by Kawa on a set schedule. After RAI paid off its former secured creditor Barclays Bank, RAI netted $3.16 million from the initial $27.89 million sale of PACE bonds to Kawa. Following the initial transaction, Kawa agreed to purchase further PACE bonds using a similar method, resulting in, to date, nine follow-up transactions, for a gross amount of $29.55 million and a new amount of $1.97 million.
RAI also entered into an agreement with Ygrene Energy Fund Inc. for monies in “exchange for introducing Ygrene to RAI’s government partners and the assignment of contracts to enable Ygrene to launch in Ohio and originate assessments by the assignment of existing RAI contracts in Missouri, Florida, and certain counties in California.” The transaction resulted in approximately $425,000, with an opportunity to earn additional assignment and California referral fees.
The company said it intends to assume both the Kawa and Ygrene contracts.
The company’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
The case representatives are as follows:
Bid Procedures Motion
The debtors ran a prepetition marketing process beginning in early 2020, when they hired Moelis & Co. for a sale of substantially all of their assets due to the declining HERO revenue. Despite identification of a potential buyer for the Benji assets in March, the parties never came to an agreement on terms and exclusivity was terminated in June. The debtors then embarked on a second process in July through Armanino, resulting in five confidentiality agreements and a second party indicating interest, which ultimately did not move forward. “Unfortunately, as described more fully in the First Day Declaration, because of a number of factors during 2020 - such as the COVID-19 pandemic, which brought reduced liquidity for home improvement lending - there has been a significant dislocation in the M&A market for consumer lending companies,” the debtors say. Ultimately, however, the debtors secured Finance of America Mortgage LLC as stalking horse.
The stalking horse bid for the Benji assets is for “(i) Buyer’s assumption of the Assumed Liabilities, and (ii) $5,000,000.00 plus the Loan Purchase Price plus the Contract Prepayment Amount.” The loan purchase price is for “(a) the purchase(s) of certain Loans by Buyer prior to Closing, if applicable in accordance with the terms of the Loan Purchase Agreement and the FAM DIP Credit Agreement and (b) the purchase of the Purchased Loans by Buyer at Closing.” The contract prepayment amount relates to amounts prepaid by the seller applicable to the post-closing period.
The debtors propose a $400,000 breakup fee and expense reimbursement up to $250,000. Initial and subsequent overbids are $100,000.
The bid requirements include the provision of a replacement DIP facility.
The debtors propose the following sale timeline:
The debtors’ request a hearing on the bid procedures on Jan. 5, 2021, at 4 p.m. ET.
DIP Financing Motion
The debtors seek to enter into an up to $50 million revolving DIP facility ($18 million on an interim basis) with Finance of America Mortgage.
The DIP financing bears interest at 7% compounded monthly. The facility matures on the earliest of: (i) 90 days after the closing date of the DIP facility; (ii) the effective date; (iii) the consummation of the stalking horse transactions; (iv) the date the auction closes or the debtors file a notice identifying a successful bidder other than the stalking horse bidder, whichever is earlier, or the date on which the debtors otherwise agree (other than pursuant to the auction) to sell all or substantially all of the debtors’ assets to any party other than the stalking horse bidder; and (v) the acceleration of the indebtedness.
The DIP proceeds may be used: (i) to finance certain eligible contracts that meet certain criteria provided for in the DIP facility; (ii) to pay the origination fee and agent fees and expenses; (iii) to repay in full the $6 million prepetition debtor PEFI’s warehouse obligations, with about $2.8 million outstanding; and (iv) other general corporate purposes.
To secure the DIP financing, the debtors propose to grant a superpriority administrative claim and perfected first priority claims, liens, and security interests in all of the debtors’ real and personal property (including chapter 5 avoidance actions and any proceeds therefrom, subject to final order) subject to the prepetition liens in the prepetition collateral that remain after the payoff of the PEFI warehouse obligations and termination of those liens. The repayment of the warehouse obligations was a “material component” of the structure of the facility and was required by the DIP lender. The debtors say that the “immediate payoff of the Prepetition PEFI Warehouse Obligations and termination of the Prepetition PEFI Warehouse Liens will allow the Debtors to borrow the same funds on more favorable terms from the DIP Lender pursuant to the DIP Facility, and it will allow the parties to avoid any need for the Debtors to request financing that would require priming the existing Prepetition PEFI Warehouse Liens.”
The facility includes various fees, including an origination fee of $175,000 as well as certain fees and expenses of the DIP lender (including reasonable costs and expenses of the DIP lender’s professionals).
In support of the proposed DIP financing, the debtors filed the declaration of Christopher Powell, the debtors’ chief financial officer, who states that the debtors require an “immediate capital infusion” in order to use their current warehouse financing facilities, which is the source of the capital necessary to originate loans to homeowners. The debtors stress the need for DIP financing because the debtors’ ongoing liquidity is dependent on the debtors’ whole-loan buyer, Ameris Bank, continuing to purchase retail installment contracts and promissory notes originated by debtor PEFI.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c), subject to final order.
The carve-out for professional fees is $200,000, with $150,000 allocated to the debtors’ professionals and $50,000 to the UCC’s professionals.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
The lien challenge deadline is 75 days from entry of the interim DIP order for parties in interest other than the UCC, which would have 60 days from appointment.
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
DIP Financing Motion
Bid Procedures Motion
First Day Hearing Agenda
| Summary |
| Debtors are a home improvement financing company |
| Seek to run sale process for remaining Benji business |
| Finance of America Mortgage to serve as stalking horse and provide $50 million in DIP financing |
Renovate America Inc., a San Diego-based home improvement financing company focusing on environmentally friendly home improvement projects, filed for chapter 11 protection on Monday in the Bankruptcy Court for the District of Delaware, along with affiliate Personal Energy Finance Inc. Having stopped accepting homeowner’s applications in October for their HERO business, the debtors seek to run a sale process for their remaining business - Benji - which provides home improvement financing to contractors and homeowners. Finance of America Mortgage LLC has agreed to serve as stalking horse for the Benji assets and has also agreed to provide DIP financing of $50 million. The stalking horse bid for the debtors’ Benji assets consists of “(i) Buyer’s assumption of the Assumed Liabilities, and (ii) $5,000,000.00 plus the Loan Purchase Price plus the Contract Prepayment Amount.” Finance of America would also be allowed to credit-bid the DIP obligations. Continue reading for our First Day team's analysis of the Renovate America chapter 11 filing and Request a Trial for access to the above documents and analysis as well as our coverage of thousands of other stressed/distressed debt situations.
Read our First Day team's filing alert for Renovate America's chapter 11 filing here (subscription required): https://app.reorg.com/v3#/items/intel/13127?item_id=127751
The debtors say that the proposed stalking horse transaction, if approved, would “generate significant value for the Debtors’ estates, and among other things, satisfy a significant portion of the prepetition claims against the Debtors and pave the way for confirmation of a chapter 11 plan.”
The first day hearing has been scheduled for tomorrow, Wednesday, Dec. 23, at 1 p.m. ET.
The company reports $102.5 million in assets and $115.3 million in liabilities as of Nov. 30, including $7.3 million in funded debt. The company’s prepetition capital structure includes:
- Secured debt:
- RAI warehouse facility: $1.3 million.
- PEFI warehouse facility: $6 million.
- Unsecured debt:
- Thrivepoint intercompany loan: $19 million.
- Equity: Thrivepoint Financial Holdings owns 100% of Renovate America’s equity.
The RAI senior secured warehouse facility has Renovation America as borrower with ING Capital as agent and initial lender and Cortland Capital Market Services as collateral agent, and has a maximum commitment of approximately $1.3 million guaranteed by RAI’s parent, Thrivepoint. The PEFI senior secured warehouse facility has PEFI as borrower, with ING Capital as agent and initial lender and TMF Group New York as collateral agent. Both warehouse facilities are guaranteed by Thrivepoint, and each of the lenders has a first lien on the receivables and proceeds thereof of RAI and PEFI, respectively.
The debtors have $3.6 million in cash as of the petition date, which “available cash is not cash collateral of the Prepetition Secured Parties.”
The company attributes the bankruptcy filing to changes in California legislation in 2018 with respect to PACE financing that added an income verification and imposed “more rigorous ability-to-pay standards on the borrowers.” The more stringent requirements resulted in a “dramatic reduction” in the debtors’ HERO origination volume and revenue, of which the debtors estimate a reduction in revenue of approximately 81% in 2016 to 2019. The company also points to the Covid-19 pandemic as another cause for filing, saying that its HERO originations volume declined by approximately $56 million, or 47%, in 2020, through the end of October.
Prior to the new legislation going into effect, the debtors made “significant” investments in their infrastructure and workforce, including entering into a long-term office lease and increasing the workforce to over 650 employees, in anticipation for the expected volume of HERO business. However, due to the reduction in revenue, the debtors have since subleased space under their former office lease and reduced operating expenses to approximately $45 million for this year from approximately $166 million a year “at the peak” of the debtors’ operations. The company also reduced its workforce by 83%, leaving 115 employees as of earlier this month.
The debtors are represented by Bryan Cave Leighton Paisner and Culhane Meadows as counsel, Armanino as financial advisor and investment advisor and GlassRatner Advisory & Capital Group as restructuring advisor. Stretto is the claims agent. The case has been assigned to Judge Laurie Selber Silverstein (case No. 20-13172).
Background
The debtors historically maintained two business divisions - HERO and Benji. However, the HERO business, which originated “property assessed clean energy” assessments for residential projects (financing in the form of property assessments for residential and commercial renewable energy and efficiency improvements authorized by local governments under state legislation), stopped accepting homeowner’s applications in October. The debtors’ remaining division - Benji - provides home improvement financing to contractors and homeowners.
Between 2009 and 2016, the HERO business expanded geographically throughout California, Florida and Missouri. In 2016, RAI originated approximately $944 million in HERO assessments and captured approximately 60% of California’s over $1.5 billion HERO assessment market.
RAI formed PEFI in 2014, a wholly owned subsidiary of RAI, and the Benji product is one of a number of home improvement financing options that contractors may offer to homeowners. Benji financing will either be a retail installment contract between the contractor and the homeowner or a direct installment loan between PEFI and a homeowner with a promissory note. Between 2016 and 2019, PEFI increased its origination volume from approximately $28 million to $146 million, and PEFI currently offers the Benji product in every U.S. state. Prior to the petition date, PEFI financed the upfront costs of its Benji product through the PEFI warehouse facility with ING Capital LLC.
The debtors provide the following consolidated financial metrics for debtor Renovate America:
The company also indicates that over the past two years there has been a series of lawsuits filed against RAI and other PACE administrators regarding assessments originated before April 2018, claiming that the PACE program “harmed numerous homeowners by making assessments that people could not afford to pay.” The company estimates that RAI is a defendant or is providing a defense to indemnify third parties in 56 cases, including three class actions, all which are pending.
The debtors also disclose a 2017 litigation brought by the state of California against RAI in state court, seeking injunction, civil penalties and other relief arising out of the company’s HERO operations. In August 2019, RAI reached an agreement with the state by which RAI did not admit any fault and agreed to pay restitution and civil penalties and costs, structured for payment over time, adding additional strain on the company and its liquidity.
In total, the company estimates that it has spent more than $15 million in litigation and settling homeowner HERO litigation.
In late 2019, in an effort to raise capital, Thrivepoint Financial Holdings, the direct parent and sole owner of the equity interests in RAI, marketed convertible notes to accredited investors holding equity interest in Thrivepoint. However, there was insufficient interest from Thrivepoint’s equityholders, which ultimately led to Thrivepoint pivoting to a Series G preferred offering of up to $25 million. As with the marketing of convertible notes, however, Thrivepoint’s efforts were unsuccessful.
RAI stopped accepting HERO applications in October and entered into two agreements to liquidate its assessment and bond portfolios. The agreement with KCP PACE Purchaser LLC, an affiliate of Kawa Capital Partners LLC, entered into in August, contemplated the purchase of RAI’s PACE bond portfolio by Kawa on a set schedule. After RAI paid off its former secured creditor Barclays Bank, RAI netted $3.16 million from the initial $27.89 million sale of PACE bonds to Kawa. Following the initial transaction, Kawa agreed to purchase further PACE bonds using a similar method, resulting in, to date, nine follow-up transactions, for a gross amount of $29.55 million and a new amount of $1.97 million.
RAI also entered into an agreement with Ygrene Energy Fund Inc. for monies in “exchange for introducing Ygrene to RAI’s government partners and the assignment of contracts to enable Ygrene to launch in Ohio and originate assessments by the assignment of existing RAI contracts in Missouri, Florida, and certain counties in California.” The transaction resulted in approximately $425,000, with an opportunity to earn additional assignment and California referral fees.
The company said it intends to assume both the Kawa and Ygrene contracts.
The company’s corporate organizational structure is shown below:
The debtors' largest unsecured creditors are listed below:
| 10 Largest Unsecured Creditors | |||
| Creditor | Location | Claim Type | Amount |
|---|---|---|---|
| SFII Rancho Bernardo LLC | San Francisco | Rent | $ 13,627,447 |
| State of California Office
of the District Attorney |
Riverside, Calif. | Legal Settlement | 2,700,000 |
| Larson O'Brien LLP | Los Angeles | Professional Services | 891,485 |
| ReedSmith LLP | San Francisco | Professional Services | 832,890 |
| CBRE Inc. | Los Angeles | Trade | 323,941 |
| Concord Servicing Corporation | Scottsdale, Ariz. | Trade | 310,081 |
| Squire Patton Boggs (US) LLP | Columbus, Ohio | Professional Services | 220,178 |
| Hunton Andrews Kurth LLP | Atlanta | Professional Services | 144,035 |
| Goodwin Procter LLP | Boston | Professional Services | 113,143 |
| Best Best & Krieger LLP | Riverside, Calif. | Professional Services | 111,587 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Co-Counsel | Sharon Z. Weiss | Bryan Cave
Leighton Paisner |
Santa Monica, Calif |
| Timothy R. Bow | Chicago | ||
| Debtors' Co-Counsel | Mette H. Kurth | Culhane Meadows | Wilmington, Del. |
| Debtors' Financial Advisor
and Investment Banker |
N/A | Armanino | N/A |
| Debtors' Restructuring
Advisor |
N/A | B. Riley Advisory
Services |
N/A |
| Debtors' Claims Agent | Sheryl Betance | Stretto | Irvine, Calif. |
| Co-Counsel to the DIP
Agent and DIP Lenders |
Peter S. Partee, Sr. | Hunton Andrews
Kurth |
New York |
| Michael P. Goldman | Richmond, Va. | ||
| Co-Counsel to the DIP
Agent and DIP Lenders |
Robert Dehney | Morris, Nichols,
Arsht & Tunnell |
Wilmington, Del. |
Bid Procedures Motion
The debtors ran a prepetition marketing process beginning in early 2020, when they hired Moelis & Co. for a sale of substantially all of their assets due to the declining HERO revenue. Despite identification of a potential buyer for the Benji assets in March, the parties never came to an agreement on terms and exclusivity was terminated in June. The debtors then embarked on a second process in July through Armanino, resulting in five confidentiality agreements and a second party indicating interest, which ultimately did not move forward. “Unfortunately, as described more fully in the First Day Declaration, because of a number of factors during 2020 - such as the COVID-19 pandemic, which brought reduced liquidity for home improvement lending - there has been a significant dislocation in the M&A market for consumer lending companies,” the debtors say. Ultimately, however, the debtors secured Finance of America Mortgage LLC as stalking horse.
The stalking horse bid for the Benji assets is for “(i) Buyer’s assumption of the Assumed Liabilities, and (ii) $5,000,000.00 plus the Loan Purchase Price plus the Contract Prepayment Amount.” The loan purchase price is for “(a) the purchase(s) of certain Loans by Buyer prior to Closing, if applicable in accordance with the terms of the Loan Purchase Agreement and the FAM DIP Credit Agreement and (b) the purchase of the Purchased Loans by Buyer at Closing.” The contract prepayment amount relates to amounts prepaid by the seller applicable to the post-closing period.
The debtors propose a $400,000 breakup fee and expense reimbursement up to $250,000. Initial and subsequent overbids are $100,000.
The bid requirements include the provision of a replacement DIP facility.
The debtors propose the following sale timeline:
The debtors’ request a hearing on the bid procedures on Jan. 5, 2021, at 4 p.m. ET.
DIP Financing Motion
The debtors seek to enter into an up to $50 million revolving DIP facility ($18 million on an interim basis) with Finance of America Mortgage.
The DIP financing bears interest at 7% compounded monthly. The facility matures on the earliest of: (i) 90 days after the closing date of the DIP facility; (ii) the effective date; (iii) the consummation of the stalking horse transactions; (iv) the date the auction closes or the debtors file a notice identifying a successful bidder other than the stalking horse bidder, whichever is earlier, or the date on which the debtors otherwise agree (other than pursuant to the auction) to sell all or substantially all of the debtors’ assets to any party other than the stalking horse bidder; and (v) the acceleration of the indebtedness.
The DIP proceeds may be used: (i) to finance certain eligible contracts that meet certain criteria provided for in the DIP facility; (ii) to pay the origination fee and agent fees and expenses; (iii) to repay in full the $6 million prepetition debtor PEFI’s warehouse obligations, with about $2.8 million outstanding; and (iv) other general corporate purposes.
To secure the DIP financing, the debtors propose to grant a superpriority administrative claim and perfected first priority claims, liens, and security interests in all of the debtors’ real and personal property (including chapter 5 avoidance actions and any proceeds therefrom, subject to final order) subject to the prepetition liens in the prepetition collateral that remain after the payoff of the PEFI warehouse obligations and termination of those liens. The repayment of the warehouse obligations was a “material component” of the structure of the facility and was required by the DIP lender. The debtors say that the “immediate payoff of the Prepetition PEFI Warehouse Obligations and termination of the Prepetition PEFI Warehouse Liens will allow the Debtors to borrow the same funds on more favorable terms from the DIP Lender pursuant to the DIP Facility, and it will allow the parties to avoid any need for the Debtors to request financing that would require priming the existing Prepetition PEFI Warehouse Liens.”
The facility includes various fees, including an origination fee of $175,000 as well as certain fees and expenses of the DIP lender (including reasonable costs and expenses of the DIP lender’s professionals).
In support of the proposed DIP financing, the debtors filed the declaration of Christopher Powell, the debtors’ chief financial officer, who states that the debtors require an “immediate capital infusion” in order to use their current warehouse financing facilities, which is the source of the capital necessary to originate loans to homeowners. The debtors stress the need for DIP financing because the debtors’ ongoing liquidity is dependent on the debtors’ whole-loan buyer, Ameris Bank, continuing to purchase retail installment contracts and promissory notes originated by debtor PEFI.
In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c), subject to final order.
The carve-out for professional fees is $200,000, with $150,000 allocated to the debtors’ professionals and $50,000 to the UCC’s professionals.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Dec. 24: Entry of interim DIP order;
- Jan. 6, 2021: Entry of the bid procedures order, designating FAM as the stalking horse bidder;
- Jan. 25: Entry of final DIP order;
- 35 days following entry of the bid procedures order: Debtors to either receive qualified bids or announce the cancellation of the auction and designate FAM as the successful bidder;
- 35 days following entry of the bid procedures order: Deadline to “object to the Sale Order and to object to the assumption and assignment of executory contracts (including cure amounts with respect thereto)”;
- 40 days following the entry of the bid procedures order: Auction, if qualified bids are received prior to the bidding deadline;
- 45 days following the entry of the bid procedures order: Deadline to object to the conduct of the auction and the proposed sale to alternative bidder, if the debtors select a bidder other than the stalking horse bidder as the winning bid;
- 50 days following the entry of the bid procedures order: Entry of the sale order; and
- 15 days after entry of the sale order: Sale closed and all DIP obligations satisfied.
The lien challenge deadline is 75 days from entry of the interim DIP order for parties in interest other than the UCC, which would have 60 days from appointment.
Other Motions
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 20-13172.
- Motion to pay employee wages and benefits
- The debtors seek authority to pay the following preposition amounts owed on account of employee compensation and benefits:
- Motion to use cash management system
- The company has bank accounts with Ameris Bank, Bank of America, The Bank of New York Mellon, CIT Bank, First Trust, JPMorgan Chase Bank and KeyBank.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors owe the following amounts in prepetition taxes:
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