Fri 12/01/2017 10:24 AM
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Relevant Document:
Limited Objection

An ad hoc group of holders of 92.5% of Cumulus’ senior unsecured notes and 15% of Cumulus’ term loans filed a statement and limited objection to certain first day relief this morning, previewing its opposition to the debtors’ RSA and explaining why it believes “any plan of reorganization proposed in furtherance of the Proposed Restructuring cannot be confirmed under the Bankruptcy Code as a matter of law.” The committee also says that “further diligence” (whether it is by the ad hoc committee or an official committee, once formed) is required in order to “determine whether management compensation and incentives played an inappropriately large role in the Debtors’ decision to execute the Restructuring Support Agreement with the Term Loan lenders” (emphasis added). The group is represented by Akin Gump as counsel and Houlihan Lokey as financial advisor.

In its objection the group says that in prepetition discussions, it “observ[ed]” that “negotiations surrounding the Debtors’ proposed post-emergence incentive equity plan were given an unusually heightened level of importance in the context of overall restructuring discussions, and the post-emergence incentive equity plan negotiated as part of the Restructuring Support Agreement is both excessive and inappropriate” (emphasis added).

Reorg Research will provide live updates of Cumulus’ first day hearing, scheduled to begin at 12:30 p.m. ET today, which can be accessed through our live blog portal HERE (accessible when logged into Reorg) once the hearing begins.

The ad hoc committee notes that it engaged in negotiations with the debtors for almost a year prior to the petition date and “[t]here was never a dispute during these protracted discussions between the Ad Hoc Committee and the Company that the Unsecured Notes represented the fulcrum security in the Debtors’ capital structure” (emphasis added). The ad hoc committee says that the debtors repeatedly pulled back from negotiations when it appeared that the parties were on the verge of a deal, pointing to events in November when the debtors requested the extension of the ad hoc committee’s non-disclosure agreements for the “ostensible purpose of finalizing the terms of a consensual restructuring” only to use it as leverage in the debtors’ efforts to reach a deal with the term loan lenders.

If the debtors pursue the RSA restructuring, it will “mire these estates in unnecessary, protracted and expensive litigation at the sole expense of holders of Unsecured Notes and other unsecured creditors of these estates,” the ad hoc committee says. The ad hoc committee argues that the RSA plan violates the best interests of creditors test and the absolute priority rule by “significantly overcompensat[ing] the Term Loan lenders to the detriment of holders of the Unsecured Notes and all other unsecured creditors.” Moreover, the ad hoc committee argues, the debtors’ plan “is premised upon an enterprise value that is materially lower than the valuations discussed with the Ad Hoc Committee prior to the Petition Date,” noting that the company’s recent performance surpassed projections. “At the appropriate time,” the ad hoc committee will provide expert evidence, supported by the debtors’ documents, establishing that the debtors’ total enterprise value “materially exceeds that contemplated by the Proposed Transaction.”

The ad hoc committee takes issue with the debtors’ cash collateral motion, arguing that the proposed order contains provisions that, “serve to unnecessarily prejudice the ability of parties in interest to assert claims against the Term Loan lenders or challenge the Debtors’ actions under the Proposed Restructuring without jeopardizing the Debtors’ continued consensual use of cash collateral.” The proposed order also constrains the ability to investigate and challenge the liens and claims granted to the term loan lenders, the ad hoc committee says.

The committee says it will review plan documents when they are filed and will raise the “balance of its confirmation-related objections” at either the DS or confirmation hearing.
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