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Claire’s Stores – Ad Hoc First Lien Group Objects to Oaktree Motion, Urges Global Settlement Approval

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August 16, 2018 – Claire’s Stores’ Ad Hoc First Lien Group filed an objection [Docket No. 786] 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]. The objection asserts, “On September 17, the Debtors will ask this Court to consider a plan of reorganization embodying a global settlement negotiated at arms’ length by the Debtors, the official committee of unsecured creditors (the ‘Committee’) and the Ad Hoc First Lien Group. The global settlement is the culmination of months of negotiations and resolves a host of complex issues in these chapter 11 cases, including the release of all claims (the ‘Claims’) relating to the Debtors’ 2016 debt-for-debt exchange (the ‘2016 Exchange’). Crucially, under the global settlement’s terms, the first lien lenders have agreed to carve out $54 million from the proceeds of their collateral and deliver this value to unsecured creditors. Viewing the global settlement holistically, whether creditors are better off prosecuting or settling the CLSIP Claims is not an open question. Counsel to the Committee made that clear when stating only a ‘grand slam homerun’ could put unsecured creditors in a better position than the global settlement—a statement she made after being asked about the value of the estates’ avoidance actions.4 But, unlike the fiduciaries in these cases who negotiated the Plan in good faith, Oaktree is willing to sacrifice the consideration offered by the global settlement in favor of a protracted and costly litigation in the hopes that either (i) the Debtors dramatically increase the value of their enterprise in the interim, or, (ii) in the alternative, Oaktree extracts a hostage payment in exchange for their nuisance and hold up value, in both cases while the true fulcrum stakeholders—the Debtors’ first lien lenders—bear all of the risk associated with delay. Out of the money, Oaktree has little to lose. With over one hundred billion dollars under management, Oaktree can easily afford to gamble with the current settlement in hopes of achieving an increased recovery with delay tactics—all to the detriment of the estates. In that spirit of delay and obstruction, Oaktree now seeks standing to pursue the CLSIP Claims. But the Motion is devoid of merit and should be denied.”

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