Arnold & Porter Kaye Scholer,
counsel to the PetSmart ad hoc lender group, is seeking agreement from the ad hoc group as well as term lenders in the cross-holder group to backstop payment of legal fees for successor term loan agent Wilmington Trust and also to indemnify Wilmington for "any losses" associated with the
ongoing litigation brought by PetSmart tied to its recent Chewy equity transfer transactions, according to an emailed statement reviewed by Reorg Research.
The email from APKS to the lenders included a so-called direction letter, the purpose of which "is to
instruct Wilmington Trust to (i) retain the law firm Robbins, Russell to act as counsel to Wilmington Trust in the litigation with PetSmart, (ii) participate and defend Wilmington Trust in the litigation, and (iii) continue to refrain from granting the releases sought by PetSmart in the Chewy transaction" (emphasis added).
The backstop requires consent from lenders representing a simple majority of the term loan. The ad hoc lender group and cross-holder lenders together comprise more than a simple majority, sources said.
While APKS had asked lenders to provide consent by returning signature pages by close of business on Monday, Aug. 6, it is still collecting signatures.
As previously
reported, sources told Reorg that Wilmington Trust agreed to take on the agent role given that it was willing to assume the role without further indemnification beyond the credit agreement. Nevertheless, the emailed statement reviewed by Reorg says that the request for a backstop of fees is “due to the fact that the Credit Agreement permits the company to not pay the agent’s legal fees in the event of a breach by the agent or lenders.” PetSmart’s credit agreement, reviewed by Reorg Covenants, exempts PetSmart from paying any of the agent’s legal fees to the extent those fees arise from “gross negligence, bad faith or willful misconduct of, or a material breach of the Loan Documents."
The email also states that Arnold & Porter Kaye Scholer and lender group advisor FTI, along with cross-holder counsel Paul Weiss and Robbins Russell, are coordinating ahead of the Aug. 24 deadline to file an answer to PetSmart’s complaint and also assert counterclaims.
Last Thursday, the day before the email and direction letter was sent, Citigroup posted an agency assignment agreement to effectuate the transfer of the administrative and collateral agent role to Wilmington Trust, according to sources. Citi asked for signature pages to be returned by Friday, Aug. 3.
Citi resigned as agent to the $4.2 billion term loan B due 2022 on June 19. It was subsequently sued by PetSmart and parent Argos Holdings on June 26 for “refusing to fulfill its clear and explicit contractual obligations” as agent under the credit agreement. PetSmart and Argos argue that PetSmart’s recent
Chewy dividend transactions comply with the credit agreement and that Citi is obligated to execute and deliver documentation. The complaint lays out a claim for breach of contract by Citibank, as well as a request for declaratory judgment that the Chewy transactions were permitted and complied with the terms of the credit agreement.
An initial hearing in the matter was
adjourned to Sept. 14, from Aug. 9 originally, while the deadline for the response to the plaintiffs’ complaint was extended to Aug. 24, from July 18, at Citi’s request.
APKS and Robbins Russell declined to comment. Wilmington did not respond to a request for comment.