Reorg’s Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world. Our opinions are not necessarily those of Reorg as a whole. Today, we consider Judge Christopher Lopez’s nondebtor stay decision in Robertshaw, Judge Craig Goldblatt’s arbitration decision in Yellow, Judge Laurie Selber Silverstein’s estimation decision in UpHealth, the 3M-Combat Arms Earplugs deal hitting 99% and questionable DIP provisions in Robertshaw and Curo Group.
Robertshaw Stays in Houston
Let’s talk about the fascinating discussion and ruling at the
Robertshaw liability management two-step nondebtor stay
hearing before Judge Christopher Lopez on Monday, April 8. As in all two-step cases (
mass tort and
liability management), the debtors on the first day
asked Judge Lopez to stay state court litigation against nondebtors (specifically, Invesco’s
suit to unwind a
December 2023 “sham transaction” and restore its “Required Lender” status). The debtors, of course, argued that the stay was needed in order to protect the estates, and not at all because the nondebtors in question - the ad hoc group that now serves as “Required Lenders” and equity sponsor One Rock - have a tight hold on the
purse strings and the board of directors, respectively.
No, this is about preventing a
waste of judicial and estate resources, avoiding
inconsistent judgments and minimizing nondebtors’ indemnification claims that would have to be
disallowed anyway, your honor, we swear.
Anyway, automatic stay extension hearings typically focus on
who is being sued, not the relief the plaintiff is seeking. Claims against nondebtors generally do not fall under the automatic stay, but typically (
foreshadowing alert!) if you can show an “identity of interest” between the nondebtors - that the claims against the nondebtors are essentially claims against the debtors by proxy - then
the stay gets extended or a section 105 injunction gets imposed. Fail to show that the debtors would bear the burden of continued litigation, and you’re
up crap creek sans paddle.
Hence the indemnification provisions for the nondebtors in the December 2023 transaction documents: The parties’ top-shelf advisors knew before the transaction that Invesco was already well down the road on its own chapter 11 plans for the debtors.
You don’t need a weatherman to know which way the wind blows, and the identity of interest issue was well papered by the deal team.
That’s the legal backdrop, but let’s be clear: Nondebtor stay requests in these litigation-focused cases have
zero to do with inconsistent judgments or indemnification claims. The ad hoc group is going to own this company, so even if the indemnifications were allowed, they’d just be paying themselves, and as we noted above, the indemnification claims will (well,
should) be nuked from orbit.
As for inconsistent judgments, have you ever seen a bankruptcy court issue a decision on the merits that flatly contradicted a ruling by an Article III federal court or state court? Well, maybe
once, but that
worked out fine, right? Pro tip for you cave-dwellers who practice only in bankruptcy court: Lawsuits against different defendants related to the same facts proceed in separate courts
all the time - that’s the inevitable result of our hopelessly antiquated, fragmented and improvised “justice” system.
Take, for example, the Lahaina wildfire claims that Reorg is comprehensively covering: On April 8, a federal judge in Hawaii
denied motions to remand three class actions against private defendants to state court, while sending claims against the state of Hawaii back to state court - where 90 individual actions against the same private defendants are pending.
No doubt there are indemnification and contribution claims flying back and forth in those cases, and the
potential for inconsistent judgments is obvious - but that
does not matter. Some claims belong in this court, some in that court, and those courts have tools at their disposal to address any issues, such as issue and claim preclusion. Those courts also recognize, unlike bankruptcy courts, that coordination among courts handling these cases is not only
possible but
commonplace; see, for example, the
joint state/federal judge hearing on the 3M Combat Arms Earplugs settlement in September 2023.
Of course, Invesco can’t just come out and say “the debtors think judges in Houston are in the bag, and that’s why they filed here, instead of the
increasingly debtor-skeptical Delaware bankruptcy court or, I don’t know,
Idaho.” So Invesco played up supposedly negative comments made by New York Supreme Court Justice Jennifer Schecter in the suit prior to the bankruptcy - without actually citing any specific comments or producing a transcript.
(Invesco also refrained from pointing out that Justice Schecter seemed
pretty skeptical about liability management shenanigans in the Mitel uptier litigation.)
As friend-of-the-show Andrew Glenn put it for Invesco at the April 8 hearing, if you know you’re going to lose in one court,
any other court is a superior venue, even if that court is a totally impartial, not-at-all-favorite debtor venue in Houston. This is actually a pretty tidy inversion of the situation in the Aearo two-step, where the debtors played up negative rulings against them by the nonbankruptcy court to justify the bankruptcy court taking over the Combat Arms Earplugs litigation. Fortunately, Robertshaw counsel did not spend their whole first day hearing attacking Justice Schecter, because for Aearo that
turned out to be a
BAD IDEA.
Judge Lopez either did not get the nuance in Invesco’s arguments or felt the honor of the Houston complex panel needed defending -
can’t imagine why - and exploded. The judge suggested Invesco’s venue shopping argument made him “look like I’m a layup” for the debtors and accused Invesco of suggesting that debtors believe they can “come in front of Lopez, he’s got you.”
“There are no layups in my court,” the judge emphasized, urging the parties to “read my decisions - sometimes a plan is confirmed, sometimes cases get converted.” “I’m trying my very best,” the judge helpfully added. To be fair, Judge Lopez did
convert the SmileDirect case to chapter 7; of course, the alternative to conversion was not confirmation of a plan but a highly questionable structured dismissal. But we’ll give him that one, and the MLB-friendly anti-debtor
Diamond Sports Group ruling. Either way, the forum shopping argument clearly struck a nerve, and we all know there is a good reason for that.
We cannot say whether the specter of He-Who-Must-Not-Be-Named played into the judge’s eventual decision to stay Invesco’s state court litigation, because his oral ruling went in another new direction: property of the estate. Rather than emphasizing the identity of interest between Robertshaw and the nondebtors in granting the stay (as You-Know-Who did in the Serta liability management case), Judge Lopez focused on the relief sought by Invesco: an unwinding of the credit agreement amendment that installed the ad hoc group as controlling lenders.
The judge agreed with the debtors that their rights under a patently non-executory and non-assumable prepetition financial accommodation contract, as amended, qualified as “property of the estate” protected by the automatic stay, and because Invesco’s suit against the nondebtors threatened to unwind some of those rights, it was subject to the stay. The fact that the debtors
cannot possibly realize any value from those contract rights was irrelevant to the stay issue, the judge found.
Which -
we agree with completely! Nothing in section 362 limits the stay to
valuable property of the estate. Rite Aid admitted in its
first day pleadings that about 150 of its store leases were EBITDA-negative -
e.g., that they had no value for the debtors. The debtors also filed a motion to reject leases. Does that mean those leases were not property of the estate, and the automatic stay did not prevent landlords from immediately, unilaterally terminating them? Of course not.
This is no small shift, Reorg has covered
hundreds of stay extension fights, and nearly all of them center on some version of identity of interest and indemnification. And it seems to us like the contract rights justification for applying the stay to protect nondebtors beats the “we indemnified them prepetition so we could seek this injunction” angle.
We aren’t so sure that rationale is repeatable, however, considering the unique circumstances of this dispute. You’re probably wondering why Invesco, unlike the liability management challengers in other cases, did not drop its request that the state court unwind the amendment and agree to limit its claims against the nondebtors to monetary damages. That could have eliminated the property rights stay issue - leaving the debtors with the indemnification claims as their only justification for a stay.
Our guess: The December 2023 transaction resulted in Invesco’s first-out loans getting repaid with a make whole premium (other than a tiny sliver - see below), so: Did Invesco even have any damages? Most liability management transactions don’t leave the nonparticipants
fully paid, with a premium, so this is probably not going to be a problem going forward.
Even though Judge Lopez granted the stay and effectively decided one court must decide the Invesco claims, he could still send the whole shebang to New York state court by granting Invesco’s
motion for abstention or venue transfer, which, we’re mentioning this here, so you know that is
not going to happen, no matter how much the judge swears the stay decision has nothing to do with the abstention motion. Another Court Opinion Review
mea culpa forthcoming? We’ll risk it.
As we said in the context of the Serta stay decision, we agree that these fights belong in bankruptcy court. Channeling Socrates, we just wish everybody could be more honest about
why debtors want these fights in bankruptcy court, and certain bankruptcy courts in particular. We also think the whole “indemnification claims as identity-of-interest justifying a stay” thing is a pretty slender reed for bankruptcy judges to rely on when dragging other, less core litigation into bankruptcy and out of state or Article III federal courts.
Good luck,
Judge Perez.
Kinder Words
Speaking of bankruptcy courts taking over noncore litigation disputes, bravo to Judge Craig Goldblatt for his effort to protect the legitimacy of bankruptcy courts in his ruling on the
Yellow pension claim arbitration dispute. Bankruptcy courts have spent decades trying to water down debtor-friendly decisions with promises of
just this time, I’ll do it, just this once, such a close call - but in terms of sheer legal drafting artfulness, Judge Goldblatt’s March 27
opinion denying the pension funds’ forum-shopping efforts sure turns it up a notch.
Recall the issue here: the federal Multiemployer Pension Plan Amendments Act, or MPPAA, provides that disputes over an employer’s pension withdrawal liability
must go to arbitration, so funds asserting more than $7 billion in withdrawal and contribution claims against Yellow asked Judge Goldblatt to send the debtors’ claim objections to specialized arbitration. The debtors responded that another statute, the Bankruptcy Code,
requires the bankruptcy court to adjudicate claims objections - especially objections that could
turn the case from insolvent to solvent and secure returns for equityholder MFN Partners (and fellow shareholder the U.S. Department of the Treasury).
So we have a statutory conflict to resolve, apparently (more
foreshadowing!). “When a fund seeks to assert a claim against a bankruptcy estate for withdrawal liability, the MPPAA and § 502 of the Bankruptcy Code present a conflict,” the judge says in his opinion. “The statutory commands that a dispute under the MPPAA ‘shall’ be subject to arbitration and the Bankruptcy Code’s directive that the bankruptcy court ‘shall’ resolve objections to proofs of claim cannot both be given full effect.”
What is a bankruptcy judge to do? Well, Judge Goldblatt decides to flat-out make something up: a brand new
presumption that disputes over a bankrupt employer’s withdrawal liability
should go to arbitration, which can be rebutted by the debtors to keep the fight in bankruptcy court. “Bankruptcy courts should resist the perhaps natural inclination to view the goals of bankruptcy as paramount to all others,” the judge explains in elevating the goals of bankruptcy to a sufficient height that they can overcome the clear command of the MPPAA.
Here’s where we note that in its 2005
Mintze decision, the U.S. Court of Appeals for the Third Circuit ruled that a bankruptcy court
must honor a contractual arbitration provision, even in a “core” claims dispute. According to the Third Circuit, “a finding that a proceeding is a core proceeding does not automatically give a bankruptcy court the discretion to deny arbitration.” “Where an otherwise applicable arbitration clause exists, a bankruptcy court lacks the authority and discretion to deny its enforcement, unless the party opposing arbitration can establish congressional intent” to “preclude waiver of judicial remedies for the statutory rights at issue.”
“With no bankruptcy issue to be decided by the Bankruptcy Court, we cannot find an inherent conflict between arbitration of Mintze’s federal and state consumer protection issues and the underlying purposes of the Bankruptcy Code,” the Third Circuit held. Hold that thought.
You’ll be
shocked to learn that Judge Goldblatt believes the Yellow debtors met the burden to overcome the MPPAA presumption he just made up under the “unusual circumstances” of this case. Hmm, that phrase
rings a bell (see also “
extraordinary circumstances”).
What makes the Yellow case so unusual that the statutory presumption in favor of arbitration in the MPPAA must yield? Judge Goldblatt highlights three factors: “the participation of other parties-in-interest in the claims allowance process, the fact that the parties agree that the dispute is perhaps the most important issue to be decided in the bankruptcy case, and the uncertainties about how long an arbitration process might take.”
You’ll notice that factors one and three - the ability of non-party creditors and shareholders to participate in bankruptcy but not arbitration and uncertainty about the speed of arbitration - will exist in
literally every case in which this presumption is considered. Bankruptcy always allows wider participation by creditors and shareholders than private arbitration (and nonbankruptcy court proceedings), and a court can never be
certain the arbitration will reach a conclusion faster than bankruptcy.
Of course, there was more certainty about the arbitration moving quickly in this case than in most others. The pension funds
agreed to arbitrate on the same schedule Judge Goldblatt
approved for the bankruptcy proceeding, including forgoing their right to have a separate arbitrator decide each fund’s case. The uncertainty in Yellow came in part from the
debtors, who threatened to gum up the arbitration process by resisting all efforts to agree on an arbitrator if forced to participate.
Also, as we
discussed last time, the participation of third parties also seems less important than usual in the Yellow case, as evidenced by the official committee of unsecured creditors taking the
unusual step of declaring itself “agnostic” about arbitration vs. bankruptcy. Strange how bankruptcy courts tend to defer to the
business judgment of
some fiduciaries - namely debtors - more than others.
Knocking out those very usual circumstances, we get to the one that matters: the importance of the pension claims in this case. Basically, the debtors avoid arbitration because the claims involved are
big. Apparently there is a materiality out in the MPPAA that we hadn’t spotted.
Of course, as we have discussed, debtors don’t actually push for resolution of many claims objections during big bankruptcy cases - if they do, they’re
definitely going to be big claims. So this factor applies to most bankruptcy cases as well. But anyway.
Don’t feel so bad, pension funds: The decision was “a close one” and “the arguments in favor of arbitration are serious,” according to Judge Goldblatt. You
just barely lost this one! So you got that going for you,
which is nice. “The Court does not believe that the presumption in favor of arbitration is one that should lightly be overcome,” the judge says,
after lightly overcoming it.
Then, in footnote 81, our favorite: a comment on “Bankruptcy Exceptionalism.” Don’t worry, pension funds, Judge Goldblatt “is acutely aware of the fact that in engaging this analysis, there is a risk that this Court, as a bankruptcy court, may place too much weight on the sound operation of the bankruptcy process.” The judge acknowledges that
some may argue - you know,
like us - that “ bankruptcy judges tend to place an outsized premium on the importance of the sphere with which they are most familiar.”
No way!
“On this view, bankruptcy courts tend to perceive the relative importance of bankruptcy law versus everything else much like the
New Yorker magazine cover of a
View of the World from Ninth Avenue, with the imperatives of the bankruptcy case appearing prominently in the front and center, while everything else is of receding importance as it fades into the distance,” Judge Goldblatt notes. Think we saw that framed on a bathroom wall once.
So maybe we shouldn’t say this, but:
like we said last time, since when has a bankruptcy court had an absolute
duty to adjudicate claims objections? The whole crux of the opinion is the statutory conflict between the command in favor of arbitration in the MPPAA and the command in favor of the bankruptcy court resolving claims in the Bankruptcy Code, but since when did the latter exist? Bankruptcy courts grant stay relief and allow nonbankruptcy courts to liquidate claims
all the time.
For example: In July 2023, Judge Goldblatt’s colleague Judge Mary Walrath
granted stay relief so Karma Automotive could pursue a crucial $900 million litigation claim against the Lordstown Motors debtors in a nonbankruptcy court. The Karma claim was also by far the biggest claim in that case and had serious implications for the debtors’ strategy to secure a quickie free and clear sale. And unlike Yellow, no federal statute applied in favor of Karma’s chosen forum -
but Judge Walrath let the objection go anyway. Did she abandon her statutory duty as a bankruptcy judge to decide claims?
Of course not.
Judge Goldblatt doesn’t touch on Karma (pun intended) and distinguishes the
Mintze decision because that case “involved a two-party dispute (arising in an adversary proceeding) between the debtor and a third party,” rather than a mere claim objection. But what difference does that make? According to the judge, “claims allowance disputes arise out of the bankruptcy court’s
in rem jurisdiction over the bankruptcy estate rather than being ordinary civil lawsuits between two parties.”
Really? We can use fancy words too and point out that the WARN claims are inchoate liabilities and thus pretty far from the traditional concept of
in rem jurisdiction arising from the 1800s railroad cases, but we won’t. The question is whether the creditor holds an allowed claim, and a statute (in
Mintze, the much-less specific Federal Arbitration Act) says that question must go to arbitration.
“The Supreme Court has made clear that the claims allowance process is at the heart of a bankruptcy court’s jurisdiction over the property of the bankruptcy estate,” the judge says, but
again: Bankruptcy courts leave claims
liquidation to alternative venues all the time.
In so many cases, the only compelling justification for bankruptcy courts deciding complex state or federal law litigation over which they have questionable jurisdiction and zero expertise - unlike, say, a
specialized pension withdrawal claim arbitrator - is that the debtors want it thus. And we know why they want it thus: They think they have a better shot of winning in bankruptcy court.
Whatever gave them that idea? More importantly: Will kind words acknowledging the risk of bankruptcy exceptionalism dispel that notion? We doubt it.
(See also: Judge Marvin Isgur’s warning to Jackson Walker in the
Exco Resources fight over disgorgement of the firm’s fees for nondisclosure of the Elizabeth Freeman/former judge David Jones relationship. Judge Isgur said he “wanted to be really clear” with Jackson Walker that he was “having a difficult time imagining” the U.S. Trustee could not investigate the firm, and if the UST wants to “publish a report,” the judge would not stop it. “You don’t get to go away with a smile on your face if you did something wrong,” Judge Isgur said, presumably with the stern face he usually reserves for grandchildren caught stealing nickels.
Where the SDTX imbroglio ends is the source of considerable debate here. Your humble, if cynical, author would like to put his chips on the table now in favor of “slap on the wrist” when it comes to the firms involved. Others here are not so sure, to say the least. But as they say on the
full-employment side of bankruptcy practice,
fortune favors the bold. )
Humble Estimation
Now, another Profile in Judicial Courage from Laurie Selber Silverstein. On March 26, the Delaware Destroyer
denied the UpHealth Holdings debtors’ motion to estimate an $18 million litigation claim asserted by delightfully named PillDrill Inc. with extreme prejudice.
The debtors argued that PillDrill’s claim constitutes about one-third of the entire unsecured claims pool, and if it could be estimated at zero then they could quickly propose a plan that pays all other creditors in full. In other words, the debtors pretty much admitted that they were looking to get a quickie lowball estimation of a claim that had been filed in state court in 2021, so they could pay favored creditors while stiffing this one. Estimation is “one of the dominos” in developing a plan, debtors’ counsel said.
Again:
Debtors propose plans without resolving sizable claims disputes all the time. There is absolutely no reason why a claim must be estimated to get a plan confirmed, other than the debtors wanting to get the claim reduced and wanting to get other creditors paid quickly.
Judge Silverstein didn’t go for it. The judge pointed out that the debtors could easily propose a plan that preserves causes of action for pursuit and collection post-confirmation without estimating PillDrill’s claim, which of course the debtors already know.
According to Judge Silverstein, the question is not whether the claim is frivolous or whether estimation rather than liquidation in the state court is “more efficient,” but whether there would be an “unjustifiable” delay in the cases without estimation. The debtors “simply want” to avoid a 10-day trial in the Illinois state court, the judge pointed out, and did not show how that desire translates to undue delay justifying estimation.
Was her decision a close one? Did Judge Silverstein fret over bankruptcy exceptionalism? Who cares.
3M CAE Settlement Hits Threshold
On March 26, 3M
announced that more than 99% of Combat Arms Earplugs claimants have opted into the August 2023
global settlement agreed to after the Aearo Technologies pseudo-Texas two-step was dismissed. That’s more than
249,000 claimants who joined up, without being crammed down by a chapter 11 plan based on a
quickie estimation process (or bullied into settlement by an
endless estimation process).
Hate to say we told you so, but we do believe we told you so! Please, plaintiffs’ counsel, make the smashing - and totally unsurprising - success of this nonbankruptcy multidistrict litigation deal the centerpiece of your motion to dismiss LTL 3.0. And yet: Word has it Bayer is now
considering a chapter 11 filing for Monsanto (or a two-step liability vehicle) to resolve mounting Roundup claims.
Sigh. Come on Bayer, that’s only 50,000 claims!
Back in September 2022, Monsanto was
whistling a different tune. In a Roundup MDL status report, the company said the case-by-case settlement process had proven so successful that it did not “wish to engage in Plaintiffs’ proposed global resolution plan,” which would have involved a 60-day stay of further litigation in individual cases. The plaintiffs offered them an automatic debtor and nondebtor litigation stay, and
they said, Nah.
Hmmm, wonder why they reversed course? Did something happen in the MDL between September 2022 and now to compromise Monsanto’s faith in the case-by-case settlement process and make the all-important “bankruptcy tools” of litigation stay, judicial mediation, summary estimation and cram-down more appealing?
Maybe, just maybe, it was that $2.25 billion jury verdict on Jan. 26? Or the $332 million and $175 million damages verdicts in October 2023? When the company praised the “piecemeal” MDL process in September 2022, it was riding a five-trial winning streak. Now, with juries awarding massive verdicts, the company is apparently thinking about a two-step bankruptcy.
Our take: Mass tort defendants don’t file for chapter 11 because the tens of thousands of claims in an MDL have become “unmanageable” and the MDL process has failed. They file because the MDL process has
failed to reduce their liabilities by resulting in large jury verdicts. A company’s choice to file chapter 11 to deal with mass tort claims is, like everything else in our business, about
winning and
losing.
And again:
Absolutely nothing wrong with that. Lawyers whose client is getting pummeled by juries
must consider trying to change venue and taking advantage of credulous bankruptcy judges - that’s their
duty. We have no beef with that! We just wish we could all be more honest about it.
DIP Humor
Lest we get too caught up in the
very serious mass tort bankruptcy controversy again - on the eve of a
Supreme Court decision that could send the whole strategy to
Abu Dhabi, no less - here’s a couple of fun DIP loans from the past few weeks, just for laughs!
Dubious DIP
numero uno: We talked at length about the Robertshaw liability management kerfuffle above, but what about the
$56 million in DIP financing offered by the ad hoc group sued by Invesco? Well, that’s not exactly correct: The DIP would be provided not just by the ad hoc group but by all of the first-out lenders, pro rata. See, they’re
sharing.
Of course, with a DIP syndication comes a backstop commitment - we couldn’t possibly risk the debtors not getting all $56 million in fresh liquidity, right? So the ad hoc group kindly stepped up and offered to take up any unsubscribed DIP loans in exchange for a modest 1.5% commitment fee, or about $840,000, payable in kind (on top of a 5% commitment fee for all DIP lenders and a 5% exit fee, both PIK). Seems like fair compensation for the risk they might have to eat some unwanted DIP loans, right?
Well, about that risk: According to the ad hoc group’s Feb. 20
Rule 2019 filing, the three members hold about 85% of the first-out loans. That suggests they are backstopping up to 15% of the DIP - except, when you combine the group’s holdings with the first-out loans held by equity sponsor (and RSA party) One Rock, which, as Invesco pointed out, presumably intends to subscribe to the DIP as a first-out lender, you get to about
99.97% of the first-out debt held by RSA parties. Even if One Rock did not intend to participate, the ad hoc group
likely knew that before making its commitments.
So, the Robertshaw ad hoc group is receiving an $840,000 backstop premium to cover the risk it might have to step in and provide DIP funding for 0.03% of first-out claims, or about $16,800 in DIP commitments for $65,500 in first-out debt - that sliver of first-out still held by Invesco after the December 2023 payoff transaction. Nice work if you can get it!
(The Hornblower debtors
pulled a similar move with a rights offering: SVP and Crestview, who hold 97% of first lien claims, agreed to “backstop” a $345 million first lien rights offering in exchange for a 10% equity premium. Even better: The rights offering would be used to
pay off SVP and Crestview’s junior DIP. As the UCC points out, the whole rights offering/junior DIP structure is really just a “pass through” to SVP and Crestview.)
You know how we feel about this. We weren’t surprised when, on March 21, Judge Lopez
approved the DIP, including the backstop fee, after Invesco dropped its
competing DIP offer. The debtors
rejected that competing DIP because of concerns regarding adequate protection for ad hoc group. Hmm, we wonder what was inadequate?
Dubious DIP
numero dos: the
Curo Group. The debtors filed on March 25 and proposed a $70 million new-money DIP, with $63 million to be provided by first lien lenders pro rata, which, you know what that means!
About $25 million would be available on interim approval, $25 million on final approval and another $20 million in two optional additional draws of $10 million each. Plenty of fresh cash for the debtors to fund their lengthy, expensive restructuring.
Well, about
that: Along with the DIP motion, the debtors filed a prepackaged plan providing for a distribution of 89.9% of reorganized equity to 1.5 lien lenders, with an assumed effective date of
June 30. The debtors apparently require $70 million in new financing for a
three-month case. The
DIP budget contemplates the debtors maintaining a minimum of $30 million in liquidity throughout, which the debtors would easily exceed for every single two-week period of the budget - by as much as $63.6 million in June.
Yup, under the budget the debtors would have $93.6 million in liquidity on June 17, 13 days before emergence. Is this DIP really necessary? Well, it must be, because the debtors took care to secure a backstop of the first lien pro rata portion of the DIP. Solid work, lads. In exchange, the debtors granted a 5% backstop fee, payable in kind in reorganized equity. Surely worth it.
Now, we will cut Curo some slack. The company has nondebtor operating affiliates with securitization facilities, and the debtors maintain that the high levels of available liquidity are necessary to “ensure that the Debtors are able to meet certain financial covenants under the Securitization Facilities to operate their business and continue generating income.” Well, okay.
Still, even Judge Isgur characterized the Curo Group DIP as “
very expensive.” Praise from Caesar! Did he approve it anyway? Brother, you know the answer to that question. Why? Because the debtors’ cash situation on the petition date was “very dire.” The debtors filed with
$35 million in cash on hand. According to the DIP budget, they generally operate cash flow positive.
Again, Curo does have a variety of nondebtor operating companies that need to stay in compliance with securitization facility covenants. But, no, we won’t cut the Robertshaw DIP the same slack.