Relativity Media’s Official Committee of Unsecured Creditors filed with the U.S. Bankruptcy Court an objection to the Debtors motion for (i) entry of interim and final orders authorizing the Debtors to obtain post-petition financing and use cash collateral and (ii) scheduling a final hearing.
The Committee asserts, “At the first day hearing on May 9, 2018, the Court expressed its concern that the DIP Motion represented a serious and unwarranted overreach by the proposed lender, Ultra V Holdings LLC (‘Ultra V’). Ultra V recently purchased the Debtors’ first-lien Prepetition Secured Note, presumably for a fraction of the face amount, and, having appointed its own chief restructuring officer at the Debtors, is exercising de facto day to day control over these chapter 11 cases for Ultra V’s own benefit. The Court agreed to authorize the Debtors to borrow approximately only half of the interim loan amount requested by the Debtors, and only after requiring the Debtors to delete from the Interim Order specific flawed provisions that the Court believed were not appropriate. The DIP Lender reserved for itself the right to seek ‘restatement’ of those stricken provisions at the Final Hearing. On June 6, 2018, only 48 hours before this Objection is due, the Committee received a draft proposed final DIP order (the ‘Proposed Final DIP Order’). Regrettably, the Debtors disregarded the Court’s exhortation and are now seeking restatement of many of the provisions that had been deleted from the Interim Order upon the Court’s insistence. As the Court has already preliminarily concluded and as discussed herein, those provisions have no place in a final debtor-in-possession financing order and must be excised again. In addition, the Committee objects to certain other provisions in the Proposed Final DIP Order that threaten to strip value from the estates for the exclusive benefit of Ultra V and/or seriously hamper the Committee’s ability to serve as a fiduciary. It is ultimately the Debtors’ burden to establish that the proposed DIP Loan is in the best interest of their estates. The Debtors assert that they cannot obtain financing from another source with superior terms. But even if true, the law does not permit the Debtors to make concessions to Ultra V to the detriment of the estates or to subvert the reorganizational process set forth in the Bankruptcy Code simply because the Debtors think they do not have a choice….The objective of Ultra V is straightforward: it wants to purchase, using its ‘credit bidding’ right, and free and clear of all other competing claims, all the valuable assets of the Debtors under the auspices of Section 363 of the Bankruptcy Code. Ultra’s motive in funding the Debtors and these Chapter 11 cases is therefore far from altruistic; it sees value in the assets of the Debtors and has adopted a classic ‘loan to own’ strategy in a deliberative effort to acquire them. To the extent that the value of the assets of the Debtors diminishes, it will also directly harm the economic interest of Ultra V by impairing the value of its investment. To carry their burden on the DIP Motion, the Debtors must therefore demonstrate that they properly utilized their bargaining power and leverage vis-à-vis Ultra V to reach terms that will confer a net benefit on their estates. This they cannot do here in light of the blatant features in the DIP Loan Documents that are highly prejudicial to the estates.”
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