Emerald Oil’s official committee of unsecured creditors filed with the U.S. Bankruptcy Court a preliminary objection to the Debtors’ motion for entry of interim and final orders (i) authorizing the Debtors to obtain postpetition secured financing, authorizing the Debtors to use cash collateral, and granting adequate protection to the prepetition secured parties.
The committee asserts, “The Debtors’ dire need for liquidity ensured that from the outset of these chapter 11 cases they had insufficient leverage to negotiate value-maximizing DIP financing. The Lenders took full advantage of their position of power. First, they insisted upon myriad off-market and potentially crippling DIP Facility provisions that together would give them complete control over these bankruptcy cases. Second, at the first opportunity, they opposed the Committee’s reasonable and non-invasive request for a brief adjournment of the DIP Motion hearing. The Committee fears these actions are indicative of what will become the Lenders’ modus operandi—to use these cases only to their benefit while substantially harming the interests of all other parties-in-interest, especially the unsecured creditors. The Court should stop this one-sided abuse of the chapter 11 process before it takes root. The Lenders’ heavy-handed and self-serving intentions are evident throughout the objectionable DIP Facility, including (i) the extraordinary roll-up of $109.9 million in prepetition indebtedness—approximately 85% of the DIP Facility—in exchange for just $20 million of new money;….In addition, the Lenders attempt to repeatedly ‘have their cake and eat it too’ by rolling up nearly all of their prepetition secured debt, while leaving $1.75 million outstanding to be protected by the substantial Adequate Protection package. The reasons for this are obvious and purely strategic. The Prepetition Lenders are using this de minimus outstanding debt to ensure that a chapter 11 plan can be crammed down on unsecured creditors. Without substantial and material modifications, the DIP Facility does not comply with applicable law and the equitable principles that underlie the Bankruptcy Code. This Preliminary Objection details the Committee’s objections and necessary modifications that address the Committee’s concerns, all in an attempt to level the playing field and provide the Lenders with appropriate, not over-reaching, protections for the use of the proceeds of the DIP Facility. Absent the substantial and required modifications, the DIP Motion should be denied.” Koch Exploration Company also filed with the Court a joinder to the above objection of the official committee of unsecured creditors to Debtors’ DIP financing.
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