TPC Group RSA Noteholders Intervene, Urge Court to Dismiss ‘Baseless’ Lien Priority Litigation as ‘Transparent Leverage Play’

Relevant Documents:
Majority Noteholder Group Answer
Majority Noteholder MSJ & Opposition / Supporting Memorandum

Key Points
 

• Majority noteholders say minority holders purchased their position with full knowledge of priming notes and are attempting to “bully” their way into case with the “baseless” lien priority litigation.
• Secured debt capacity baskets and amendment provisions in the applicable Indenture offer “crystal clear” support for issuance of the 10.875% priming notes, argues the majority noteholders, who note that amendments had supermajority support and could have permissibly removed all collateral.

After the TPC Group court granted the ad hoc group of majority noteholders’ motion to intervene last week, the majority noteholders group filed their answer, opposition and cross-motion for summary judgment in the 10.875% notes “lien priority litigation” commenced by the Bayside-Cerberus ad hoc group of minority nonconsenting 10.5% noteholders. The intervention motion stated the majority noteholder group holds approximately 80% of outstanding 10.5% notes and approximately 92% of outstanding 10.875% notes.

The minority noteholders have moved for summary judgment asserting that the debtors breached the 10.5% notes indenture as a matter of law by issuing $204.5 million in super-senior 10.875% “Usurping Notes” and entering into a supplemental indenture that subordinated the pre-existing 10.5% noteholders’ rights in common collateral to the “Usurping Noteholders” without unanimous consent. The minority noteholders point to the New York Supreme Court’s 2021 decision in the TriMark case in support of their argument that the issuance of the priming notes impinged on their “sacred rights” under the indenture.

Prefacing their argument by underscoring that the minority holders “purchased their 10.5% Notes[] after the issuance of the senior 10.875% Notes, with complete knowledge of the terms of the agreements underlying the Priming Notes Transaction,” the majority noteholders assert that the minority has “fabricated an argument … in an effort to bully their way into the restructuring transactions.”

Urging the court to reject the minority noteholders’ “baseless and transparent leverage play,” the memorandum states that the 10.5% notes indenture is “crystal clear” in allowing TPC Group to issue the 10.875% notes and prime the “entirety” of the 10.5% notes with respect to the designated collateral. Specifically, the majority noteholders point to section 4.07 of the 10.5% notes indenture, which they assert “expressly contained basket capacity for the incurrence of additional secured debt (like the 10.875% Notes).”

The majority noteholders further note that the “‘sacred right’” provision of the indenture protects the minority “only from actual changes to the ABL ICA or the 10.5% Notes Indenture that alter the payment of Collateral proceeds between the ABL and the 10.5% Notes, or between the 10.5% Noteholders as to each other.”

There were no alterations to the ABL-related provisions, assert the majority noteholders, and the other changes made to the indenture in issuing the 10.875% priming notes “not only did not adjust the payment of Collateral proceeds, but were actually accretive to the 10.5% Noteholders in that they cemented noteholder protections and broadly limited TPC’s ability to incur additional debt and take other actions that might be detrimental to the 10.5% Noteholders as a potential restructuring unfolded.”

Addressing the minority holders’ argument that all consents for the supplemental indenture amendments are invalid because they were obtained only from beneficial noteholders and not the registered noteholders, the majority noteholders assert that the trustee did not raise any issues with the consent letters. Further, the majority holders argue that if the minority is “correct in their interpretation that a ‘Holder’ is only the registered owner,” they “would not have standing to sue, because they admit they are[], too, beneficial holders.”

Moreover, the majority noteholders assert that given the approval of the indenture modification by more than two-thirds of the 10.5% noteholders, TPC Group could have made “any change” to 10.5% notes indenture even if materially adverse to the noteholders, including eliminating the collateral “for the 10.5% Notes in its entirety.” The minority noteholders “completely ignore the facts and the clear terms” of the indenture and no “reasonable reading … supports Plaintiffs’ position,” the majority noteholders conclude.

Responding earlier this month with their own motions for summary judgment and for dismissal, the debtors argue, among other points echoed by the majority noteholders, that the minority noteholders’ litigation violates the 10.5% notes indenture’s “no-action” clause.

Briefing on the cross-motions for summary judgment will conclude in advance of the second day hearing on June 29 at 1 p.m. ET so that the lien priority issue can be resolved before the rollup of the 10.875% notes under the proposed DIP facility (also slated for consideration at the second day hearing) goes into effect.

The debtors filed their first plan of reorganization and disclosure statement, in line with the prepetition restructuring support agreement, last week.