The bankruptcy court overseeing the Chapter 11 proceedings of Cengage Learning appointed bankruptcy court judge Robert Drain to act as mediator in the case, according to a Sept. 25 court order.
As reported, Cengage’s Chapter 11 case is pending in the Eastern District of New York, which is located in Brooklyn. Drain is a bankruptcy court judge in the Southern District of New York’s White Plains, N.Y., location (SDNY bankruptcy courts are also located in lower Manhattan and Poughkeepsie). Drain has presided over a number of large Chapter 11 cases, including A&P, Reader’s Digest, and Hostess, among others, and is currently presiding over the Chapter 11 proceedings of Excel Maritime.
Significantly, the appointment does not specify a timeline for the mediation, but rather provides that “the parties shall meet and confer with the mediator to establish procedures and timing for the mediation.”
As reported, in seeking the appointment of a mediator the company had sought a specific schedule that, in the company’s view, would allow for the resolution of key issues in the case on a timetable that would see the company emerge from Chapter 11 by the end of the year. More specifically, the company said it wanted the bankruptcy court to appoint a mediator by Sept. 13, and for the key parties in the case to hold at least three mediation sessions, the first by Sept. 20, the second by Oct. 4, and the third by Oct. 11 – a schedule that has obviously not been met.
The company has maintained that it must exit Chapter 11 by the end of the year to avoid harm to its business. What’s more, that emergence deadline is enshrined in the company’s restructuring support agreement with a group of first-lien lenders and the cash collateral order in the case.
The company filed a proposed reorganization plan and disclosure statement on Aug. 15 (the deadline set forth in the RSA), but key stakeholders, including the unsecured creditors’ committee, equity sponsor and first-lien debt holder Apax Partners, and senior noteholder Centerbridge Partners argued that the proposed disclosure statement was missing key information, including financial and valuation information, and that there were several pending legal issues in the case that needed to be resolved before a reorganization plan could be developed and confirmed.
That forced the company to postpone its scheduled hearing on the disclosure statement, which had been set for tomorrow. A new date has yet to be set.
As for the scope of issues to be addressed in the mediation, the order from Brooklyn Bankruptcy Court Judge Elizabeth Strong said, “The mediator is authorized to mediate any issues concerning, among other things, the allocation of estate value among the various creditor constituencies and the terms of a plan of reorganization for the debtors.”
More specifically, the order cited, among other issues, the company’s enterprise value, foreign subsidiary valuations, disputes over the validity of liens asserted against the company’s copyrights, the status of about $274 million of disputed cash held by the company, the company’s 2007 LBO, substantive consolidation, and “issues regarding Apax Partners.” – Alan Zimmerman