Relevant Documents:AgendaInterim DIP Order
Judge David Jones this morning presided over Sungard Availability Services’s
return to chapter 11 at a hearing to consider first day relief. The debtors entered chapter 11 with a restructuring support agreement with a four-member Proskauer Rose-represented group of term loan lenders that hold “in excess of 80%” of each of the debtors’ prepetition 1L term loan obligations and prepetition 2L term loan obligations.
Today’s hearing was largely uncontested, apart from the U.S. Trustee’s objection to certain aspects of the proposed DIP facilities and the debtors’ motion to put in place procedures to redact personal information from docket filings. The debtors proposed two DIP facilities: a $50 million revolving facility to roll up prepetition revolving obligations (up to $13.5 million on an interim basis and any remaining amounts on a final basis) and a $285.9 million term facility split into three tranches, with tranche A providing $95.3 million in new-money loans (including $41.15 million on an interim basis) and tranches B and C rolling up $190.6 million of prepetition first and second lien obligations.
Judge Jones overruled the UST’s objections and approved the DIP facilities and redaction procedures as proposed. The court set a second day hearing to consider final approval of first day relief on May 11 at 11:30 a.m. ET, with an objection deadline of May 4.
Philip Dublin of Akin Gump, counsel to the debtors, gave an introductory presentation. Dublin addressed the fact that the bankruptcy filing was “not this company’s first rodeo,” referencing the company’s
2019 prepack filing, which was at the time the “fastest chapter 11 in history.” Dublin noted that the prior filing was strictly a balance sheet restructuring that “did not pan out as planned” without a restructuring of the company’s “other fixed costs” in the face of an approximately 30% decrease in revenue since 2019.
As additional reasons for the return to bankruptcy, Dublin pointed to “out of market leases” and increases in energy costs stemming from Russia’s invasion of Ukraine, “particularly” with respect to the company’s operations in the United Kingdom. Dublin also discussed how the increase in remote work in the post-Covid-19 environment has made workforce recovery an “obsolete business.”
Dublin further noted the international aspects of the present restructuring with the company having instituting proceedings in Canada under the Companies’ Creditors Arrangement Act, or CCAA, to recognize the chapter 11 cases as a foreign main proceeding, as well as a U.K. affiliate having commenced a “trading” administration proceeding under U.K. insolvency law on March 25.
In connection with the U.K. affiliate’s proceedings, the debtors negotiated for $7 million in funding for the U.K. operations and a default waiver with the debtors’ ABL lender, PNC, that required the reserve of an approximately $13.5 million liquidity “block” in favor of PNC.
Turning to the path forward, Dublin highlighted the “fluid” nature of the RSA, which allows for an equitizing plan, a sale or multiple sales. This would not be a “traditional case,” Dublin said, because the lenders would work with the debtors to establish a “reserve price” for the debtors’ assets and would agree in advance to limit credit-bidding to that amount. As a result, the case will see a “true sale process” to maximize value and ensure the preservation of the debtors’ business “in whole or in part,” and the secured creditors would not use “what some would call funny money” to “just sweep assets away” for their sole benefit, Dublin continued.
The four creditors party to the RSA have been “integrally involved since the last restructuring,” with two having appointed members to the board of directors and two having designated observers. On March 24, just prior to the institution of the U.K. proceedings, Dublin said the creditors resigned their positions to clear the path for restructuring negotiations.
Meredith Lahaie of Akin Gump presented the DIP motion. Focusing her presentation on concerns raised by the UST, Lahaie explained that the anticipated postpetition funding the U.K. operations, up to $10 million in amount, was not something done “out of the goodness of our hearts.” The funding was necessary, Lahaie said, because “the company sells reliability” and “our reputation isn’t worth much if we fall down anywhere … worldwide.”
As to the UST’s “heartburn” about the interim approval of the “creeping rollup” under the ABL DIP facility, Lahaie said that although described as a “rollup” the mechanics of the agreement were “really net-neutral to the estate.” Agreeing to the rollup was a condition to consensual use of cash collateral and the debtors would otherwise have to provide equivalent adequate protection in any event, Lahaie said.
She also noted that the contemplated repayment of the $7 million of prepetition bridge loans extended by the DIP term loan lenders under the DIP facility would benefit the estates due to a reduction in interest rate expenses. The prepetition bridge loan, or “pre-DIP DIP,” was “critical to get into Chapter 11 on a smooth landing basis,” Lahaie added, stating that the amounts were initially going to be funded under a DIP facility but, due to the requirement to fund the U.K. entity, “things accelerated more quickly.”
Stephen Statham of the UST focused on the interim nature of the rollup and international payments as the basis for his objection. Because of the “timing and speed of the filing,” Statham said, there was “effectively no notice.”
Following Statham’s cross-examination of Christopher Nichols of FTI, the debtors’ financial advisor, and statements from counsel to PNC, Joshua Divack of Thompson Coburn, Judge Jones overruled the UST’s objections. Judge Jones called the rollup and funding provisions an “elegant solution” and also noted that he generally encouraged the use of prepetition bridge financing. Regarding the “U.K. situation,” the court said that the $10 million of proposed funding was a “relatively small amount of money.” There would be “bigger problems” if “I can’t trust the business judgment of the company” with the “competing oversight” of its secured lenders, the court stated.
Following approval, Judge Jones cautioned that he had “spent a lot of time with the budget” and was “worried that there isn’t enough money” to fund the case if there is “any sort of delay, which always happens.”
The court approved the remainder of the requested first day relief without objection.