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Gibson Brands Objection Filed

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GSO Capital Partners filed with the U.S. Bankruptcy Court an objection to Gibson Brands’ supplement with respect to Debtors’ motion for entry of interim and final orders authorizing the debtors to obtain postpetition financing, authorizing the Debtors to use cash collateral, granting liens and super-priority claims; and scheduling a final hearing.

The objection asserts, “There are several defects with this proposed scheme.  First, the Debtors cannot exercise the Purchase Option under the Prepetition ABL Loan Agreement; that agreement explicitly prohibits the Debtors from owning the Prepetition ABL Loans or Prepetition Term Loans.  Second, the Debtors cannot exercise the Purchase Option under the Intercreditor Agreement; that agreement was entered into for the benefit of the Debtors’ creditors, states that no Debtor ‘shall have any rights hereunder,’ and grants the exclusive right to exercise the Purchase Option to the Noteholders.  Third, even if the Debtors could exercise the Purchase Option under the Prepetition ABL Loan Agreement and the Intercreditor Agreement (they cannot), doing so would result in exactly the type of ‘whitewash’ that the Court admonished against at the ‘first day’ hearing.   And the Debtors’ proposed solution to this problem (i.e., leaving the Challenge Liability associated with the ownership of the Prepetition Secured Loans with the Prepetition ABL Lenders) contravenes (i) the legal principle that an assignee steps into the shoes of an assignor and (ii) the plain language of the Intercreditor Agreement, which provides that the Prepetition ABL Lenders ‘transfer and assign’ the Prepetition Secured Loans ‘without warranty or representation or recourse.’  Thus, a far cry from preserving the ‘status quo,’ this new arrangement requires the Court to redraft its Interim DIP Order, the Intercreditor Agreement, and the Prepetition ABL Loan Agreement….Moreover, the Debtors’ latest proposal is to keep the Prepetition ABL Lenders in the picture as the only targets for any potential Challenges to the Prepetition Secured Loans.  Second, the economics of the DIP Facility actually make it more expensive than the Prepetition Secured Loans (even including the Prepayment Premium).  And the DIP Facility provides at least $113 million more of liens on unencumbered assets (including, among other things, the TEAC shares) to the detriment of the Debtors’ estates.”

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