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Claire’s Stores – Debtors Respond to Oaktree Motion, Battle with Apollo Management over 2016 Debt Exchange Continues

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August 16, 2018 – Claire’s Stores filed an objection [Docket No. 784] to Oaktree Capital Management’s (“Oaktree”) July 19, 2018 motion seeking court authority to prosecute and settle claims on behalf of certain Debtors [Docket No. 649]. Oaktree’s motion argued that the Debtors’ 2016 debt exchange, pushed by Apollo Management Holding, L.P. (“Apollo,” described by Oaktree as “well known for the notorious zeal with which it ‘will aggressively protect[its] investments and defend [its] companies”), constituted a fraudulent transfer, noting: “This Motion concerns Apollo’s attempts to ‘aggressively protect’ its equity and debt investments in Claire’s Stores by requiring a Debtor, while it was insolvent, to undertake a complicated refinancing transaction (the ‘Affiliate Transaction’) pursuant to which Apollo and others exchanged distressed (and, in some cases, near worthless) debt in Claire’s Stores for new structurally senior debt.”

The Debtor’s current objection, citing Apollo’s “further gamesmanship,” pushes back arguing that Oaktree’s motion threatens to unravel their heavily negotiated transaction, “Oaktree cannot allege any basis by which the Global Plan Settlement should not be approved at confirmation. Oaktree does not explain how, if at all, the Global Plan Settlement fails to satisfy the standard for approval per Bankruptcy Rule 9019…Oaktree does not explain how, if at all, creditors would benefit by jettisoning a settlement that provides substantial and immediate cash recoveries to creditors and that is supported by the Creditors’ Committee, the Unsecured Notes Trustee, and the overwhelming majority of creditors. Oaktree does not make this case because it cannot make this case: as the Debtors will demonstrate at their confirmation hearing, the Global Plan Settlement fairly and appropriately resolves the claims raised by Oaktree’s Standing Motion as a part of a comprehensive restructuring that provides substantial recoveries to all creditors….Oaktree’s Standing Motion contradicts its stated views on enterprise value. Oaktree has repeatedly asserted that it is a fully secured creditor, and that the Debtors’ enterprise value materially exceeds the value of Oaktree’s Second Lien Notes. Oaktree has also stated that it will provide the Debtors with a bid that establishes this valuation and, presumably, Oaktree will submit an expert report on August 22, 2018, that adopts this valuation. How then can Oaktree demand to prosecute its Standing Motion that is predicated on a finding that Second Lien Notes are under-secured in whole or in part? If Oaktree is fully secured as it claims, Oaktree has no incentive or right to prosecute avoidance actions that, in Oaktree’s view, cannot improve Oaktree’s position in any way.”

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