Sungard Reaches ‘Commercial’ ‘Global Resolution’ With UCC, Lenders, Paving Way to ‘Consensual’ Process; Sale Hearing Set for July 14 Under Sale-Plan Toggle RSA Process

Relevant Documents:
Agenda
Proposed Revised DIP Order / Redline
Proposed Revised Sale Procedures Order / Redline

Judge David Jones approved on a final basis today the Sungard Availability Services debtors’ proposed DIP facilities with modified terms, as reflected in the debtors’ revised proposed order filed today. The debtors’ revised order incorporates the terms of a global settlement reached by the debtors with the recently formed UCC as well as term loan lenders and term loan DIP lenders (defined as the required consenting stakeholders under the debtors’ RSA). Terms of the proposed order also contain modifications to some of the DIP financing terms.

The debtors’ RSA is supported by the Proskauer Rose-represented ad hoc group of term loan lenders holding in excess of 80% of each of the debtors’ prepetition 1L term loan obligations and prepetition 2L term obligations. Unspecified members of the ad hoc group are providing the $95.3 million of a new-money DIP term facility, as discussed below.

Judge Jones also approved the debtors’ sale procedures motion at today’s uncontested second day hearing, setting a sale hearing for July 14 at 4 p.m. ET. The debtors face a July 14 milestone for entry of the sale order. The debtors’ sale process relates to the sale scenario under the dual-path “toggle” process provided in the RSA.

The alternative toggle scenario would be a balance sheet restructuring providing for equitization of the prepetition lenders. With respect to that scenario, the revised DIP order extends the plan confirmation and plan effective date milestones to Aug. 9 and 16, respectively (previously July 29 and Aug. 5, respectively).

At today’s hearing, Meredith Lahaie of Akin Gump, for the debtors, generally walked the court through the main terms of the UCC settlement, embodied in the revised DIP order, after noting that the UCC was formed only about two weeks ago, on April 25. However, the committee has been “tremendously active” in working with the lenders to reach a “global resolution” that will “pave the way” for a “largely consensual” and “smooth” process, stated Lahaie.

Before proceeding to the settlement terms, Lahaie provided the court with a quick overview of the agreed-to DIP facilities: a $50 million revolving facility that would roll up prepetition revolving obligations and a $285.9 million term facility split into three tranches, with tranche A providing up to $95.3 million in new-money loans and tranches B and C rolling up $190.6 million of prepetition first and second lien obligations. Lahaie said that under the rollup feature of the revolving facility, prepetition revolving obligations had been completely rolled up and converted into the DIP revolving facility. She also reported that a substantial number of 1L lenders elected to subscribe to the term loan facility, with only a small number opting to not participate “presumably because of their size.”

Lahaie added that the revised order now provides that proceeds of avoidance actions would be excluded from adequate protection granted to the term loan and DIP lenders and that the challenge period would be tolled if the UCC files a standing motion with a draft complaint until the court rules on the motion.

Regarding the UCC settlement, Lahaie summarized that the parties agreed to fund a fixed distribution fund of $1.375 million in cash and 50% of any unused funds authorized under the debtors’ critical vendor order up to a cap of $1 million, noting that $1 million remains of the up to $4 million authorized as first day relief, as well as a contingent distribution fund of 3.5% of each dollar realized from one or more third party sales where cash proceeds collectively exceed $425 million, for distribution to GUCs; additionally, the lenders agreed to fund a to-be-determined wind-down amount sufficient for post-closing obligations and certain administrative costs.

Lahaie also noted that the approved budget would be modified to include $1.9 million for committee professional fees, with any “leftover” funds to be added to the fixed distribution fund. The revised order further specifies that in exchange, the committee would waive its rights to challenge the term loan DIP lenders, prepetition term loan lenders and otherwise support their ability to credit-bid up to the reserve price as well as to the entry of the sale order. Lahaie also added that the settlement includes appropriate releases in favor of the lenders, among other terms.

Brad Sandler of Pachulski Stang, for the UCC, emphasized that in approaching the debtors’ cases, the UCC had three goals in mind, primarily to ensure the debtors’ business as a “going concern,” for the estates to remain administratively solvent and for general unsecured creditors to “see” a distribution. Given that service industry companies do not “age well” in bankruptcy and that the company completed a prior chapter 11 with a court-approved capital structure, Sandler went on to explain that the UCC took a “constructive” approach to find a “commercial path forward” and otherwise reduce the “friction” in the cases. The lenders were receptive, and the parties worked “around the clock, including Mother’s Day weekend,” to strike the deal, he stated.

Charles Dale of Proskauer Rose, counsel to the ad hoc group, shared Sandler’s sentiments, saying “everyone wanted to avoid value-destructive and time consuming skirmishes” and “shared” a goal of reaching a “value-maximizing outcome.”

In approving the revised DIP order, Judge Jones complimented the parties for their “moderate approach” in finding a “commercial solution” to a “commercial problem.” The judge’s DIP ruling also included a general finding that the UCC settlement meets the standard for compromises under Fifth Circuit law.

With respect to the debtors’ sale procedures motion, Zack Lanier of Akin Gump stated that while the UCC was concerned that the debtors’ June 29 deadline for filing a notice of the reserve price would be “too late in the [sale] process,” the parties recognized the “gating issue” to setting the reserve price is the receipt of the debtors’ business plan. Lanier said the parties agreed to publish the reserve price as soon as possible once the ad hoc group received the debtors’ business plan, which Dale, for the ad hoc group, affirmed. Under the sale procedures, the reserve price functions as a cap on any credit bid by the consenting stakeholders, with the stakeholders’ agreement to not bid in excess of the reserve price against any third-party bids that exceed the reserve price.

Likewise, Shirley Cho of Pachulski, for the UCC, confirmed Lanier’s representations and pointed out the bid procedures are “designed for maximum flexibility.” Cho also reserved comments on the form of the sale order and the form of the APA, which she said the UCC had not yet seen.