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Katy Industries Bankruptcy Objection Filed

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Katy Industries’ official committee of unsecured creditors filed with the U.S. Bankruptcy Court an objection to the Company’s proposed bidding procedures and D.I.P. financing motion.

The committee asserts, “All in all, the assertion of a liquidity crisis driving a quick 363 sale belies the reality of a good turn-around work-in-progress….Also unlike so many chapter 11 363 cases, these cases have within them an actual solution to what is an availability crisis. It’s an availability crisis, rather than a liquidity crisis, because the $7.5 million junior DIP may turn out to be properly sized if its proceeds are available as they should be.”

In addition, “The proposed fees and interest rates are unjustifiably high. Under the DIP Facility, Jansan is charging the estate an exorbitant 15% interest rate for the credit extension….This case pits an arbitrarily ‘short market check’ method of testing value against the core fundamentals of valuation as performed by valuation experts and sophisticated investors alike….The proposed bid deadline is June 30, a mere 47 days after the petition date, with a proposed auction date of July 6 – a sale timeline that encompasses two major holiday weekends, Memorial Day and Independence Day.”

The objection continues, “The Debtors did not need to enter into a stalking horse APA and agree to saddle the estate with $2.1 million of potential administrative expenses in the form of the break-up fee and expense reimbursement in order to convey this information to the universe of potential bidders – they could simply have disclosed the amount of the secured debt and that the holder(s) of the secured debt had expressed interest in acquiring the assets via credit bid.”

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