The unsecured creditors’ committee in the Chapter 11 proceedings of Exide Technologies has filed a “limited objection” to the company’s proposed increase of its DIP facility, saying the terms of the additional financing “inappropriately favor the [unofficial noteholders’ committee in the case], are unduly prejudicial to the rights of unsecured creditors, and are not in the best interests of the debtor’s estate.”
Of particular concern to the unsecured creditors’ panel is a requirement of the additional $65 million financing that the company enter into a plan support agreement with the noteholders’ committee.
As reported, the company announced on July 1 that it had received a non-binding reorganization proposal from an unofficial committee of senior secured noteholders that “contemplates substantial deleveraging of the company’s debt by more than $700 million, a sizable investment of new equity capital, and new debt to fund the [company’s] emergence and post-emergence business.” The company further said that the proposed new debt issuance would be about $185 million, and would be backstopped by “certain members” of the unofficial committee, as well as a new asset based loan facility to be obtained from third-party lenders in connection with a reorganization plan confirmation. The proposed new equity investment, meanwhile, would consist of roughly $300 million of preferred convertible equity, a portion of which would be issued through a rights offering backstopped by the unofficial committee, with the balance in the form of a direct equity purchase by committee members (see “Exide says noteholder panel’s proposed plan is ‘highly constructive’,” LCD, July 1, 2014).
A week later, the company announced a proposed amendment to its DIP facility that would upsize the $500 million DIP by $65 million to bridge the company’s “way through the plan negotiation and confirmation process.” In that motion, the company also said the previously announced noteholder committee proposal was “the likely path the debtor will follow in order to emerge from Chapter 11 in the near term with its operating business intact, a healthy balance sheet, and the capital resources necessary for considerable investment in Exide businesses.” (See “Exide upsizes DIP by $65M; says panel proposal is likely reorg path,” LCD, July 8, 2014).
But according to the unsecured creditors’ committee objection filed on July 15, so far the company has “refused to negotiate with the [creditors’] committee, or, for that matter, any party other than the [noteholders’ committee] in connection with the structure of a plan of reorganization and an exit strategy. The debtor has also shunned the [creditors’] committee’s efforts to open the plan process to third parties.”
According to the panel, the DIP amendment’s requirement that the company enter into a PSA with the noteholder committee will likely force the company to simply back the noteholders’ proposed reorganization plan, even though the company has yet to share the terms of the PSA with either the committee or the bankruptcy court, or to publicly disclose any of its terms.
‘More specifically,” the unsecured creditors’ committee said, “the PSA will likely tie the debtor’s hands by prohibiting the debtor from negotiating with any of its other major creditor constituencies or amending the PSA in a manner adverse to the [noteholders’ committee]. Essentially, these restrictions will likely give the [noteholders’ committee] complete control over the contents of the plan of reorganization, despite the fact that the debtor is supposed to be the architect of the plan with duties to negotiate with and treat all constituencies fairly.”
The unsecured creditors’ committee also notes that the lock-up embodied in the PSA is exacerbated by the fact that the existing DIP facility already requires the company to file a reorganization plan by July 31, a milestone deadline the committee wants to see eliminated.
The committee said that while it did not object to a different milestone deadline in the DIP facility, namely, a Dec. 31 deadline to emerge from bankruptcy, it “does not believe there is any reason why a plan must be filed by July 31.” The committee called that milestone “an artificial deadline that only benefits the [noteholders’ committee] by granting them further unfair dominance and control over the most important aspect of any Chapter 11 case – the negotiation and development of a plan of reorganization – without opening a plan process to third parties.” The committee said that since the company’s assets were not declining in value and lenders had adequate protection in place, “such additional milestones simply are unnecessary, unreasonable, and not in the best interests of the estate as a whole.”
Last, but not least, the panel said the fees associated with the upsizing of the DIP “appear to be excessive.” Total fees, the objection said, would amount to $5 million, or about 7.7% of the funds being advanced, even though the term of the additional DIP borrowings would be only four months.
As reported, a hearing on approval of the additional DIP borrowings is scheduled for July 22 in Wilmington, Del. – Alan Zimmerman