Fri 06/03/2022 07:32 AM
Share this article:
Relevant Document:
Motion for Summary Judgment (Redacted)

On Thursday evening, June 2, Bayside Capital and Cerberus Capital, members of an ad hoc group of minority non-consenting 2019 senior secured noteholders (and spurned DIP lenders) in the TPC Group chapter 11 cases, filed an anticipated redacted motion for summary judgment in their “lien priority litigation” against the debtors. The plaintiffs argue that the debtors breached the 2019 notes indenture as a matter of law by issuing $204.5 million in super-senior “Usurping Notes” and entering into a supplemental indenture that subordinated the pre-existing noteholders’ rights in common collateral to the “Usurping Noteholders” without unanimous consent.

Continue reading for more restructuring analysis from our Americas Core Credit team, and request a trial to access all of Reorg's products. 

The arguments made in the summary judgment motion follow the preview provided by the plaintiffs in an objection to the debtors’ proposed DIP facility (which contemplates a rollup of the “Usurping Notes”) filed ahead of the first-day hearing on June 2. The supplemental indenture, the plaintiffs say, excepted the “Usurping Notes” from “an obligation to be subject to the 2019 Intercreditor Agreement” and bound the existing senior secured notes to a new intercreditor agreement. The new intercreditor agreement, the plaintiffs continue, purports “to subordinate the Senior Secured Notes to the Usurping Notes with respect to the application of proceeds of collateral” and to amend the original intercreditor agreement’s collateral proceeds waterfall provisions - changes that, according to the plaintiffs, must be agreed to by all of the noteholders.

Any consents for the supplemental indenture amendments that the debtors did obtain, the plaintiffs add, “are invalid because they were obtained only from beneficial noteholders, not the registered noteholders, as required by the Original Indenture.” The plaintiffs further maintain that “the only consenting parties were a majority group of Senior Noteholders who, immediately following amendment of the indenture, became holders of Usurping Notes.”

In addition to the motion for summary judgment, the plaintiffs filed a supporting declaration from counsel and a motion to shorten time that “seeks a briefing schedule and hearing on the Summary Judgment Motion before the Court considers the roll-up including in the Proposed DIP.” According to the plaintiffs, the summary judgment motion must be considered before final approval of the DIP, because if the DIP is approved first, the “Usurping Notes,” which “are in fact junior to the Senior Secured Notes that did not consent to the issuance of the Usurping Notes,” would effectively “leap-frog the Non-Consenting Notes in priority” by virtue of the rollup, depriving the plaintiffs of “due process.”

At the first day hearing, Judge Craig Goldblatt suggested that he would consider the summary judgment motion at a second day hearing on June 29 and acknowledged that it would be difficult to approve DIP financing on a final basis until the issue is resolved. Judge Goldblatt indicated that he could adjudicate any debtor counterclaims at a later date.
Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2023 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!