Zohar III – Patriach Objects to Debtors’ Cash Collateral Motion, Which “Vitiates Agreement to Lay Down Arms”

October 30, 2018 – Patriarch Partners XV, Octaluna, Octaluna II, and Octaluna III (collectively, the “Patriarch Secured Parties”) Patriarch Partners, Patriarch Partners VIII, and Patriarch Partners XIV, (together with the Patriarch Secured Parties, “Patriarch”), filed a redacted objection [Docket No. 503] to Zohar III’s Cash Collateral Motion. 

 

Patriarch asserts, “On May 21, 2018, this Court entered an order [D.l. 266] (the ’Settlement Order’) approving the Settlement Agreement among the Debtors, MBIA, the Zohar III Controlling Class, and the Patriarch Stakeholders. The Settlement Agreement constituted a significant milestone in these Chapter 11 cases, and for fifteen months (with one three-month extension, as applicable) put an end to any and all litigation among the key stakeholders in these cases, while preserving all of their respective rights in the event the monetization events and debt payments described in the Settlement Agreement do not timely come to pass. The Settlement Agreement is premised on the foregoing cardinal principles of ‘laying down of arms’ and ‘preservation of all rights and claims.’ Through the Proposed Order, MBIA and the Zohar III Controlling Class (collectively, the ‘MBIA/ZIII Creditors’, and together with U.S. Bank, the ‘Other Stakeholder Creditors’) have attempted to renegotiate essential terms of the Settlement Agreement by imposing on the Debtors terms and conditions for use of cash collateral that vitiate these cardinal principles and other essential elements of the Settlement Agreement, as well as a prior order of this Court holding in abeyance the allocation of the Independent Directors’ fees.

 

The Proposed Order must be denied for another independent reason. In a gross abuse of leverage, the MBIA/ZIII Creditors have forced the Debtors to exclude from the protections of the Proposed Order the more than $822 million in secured claims held by the Patriarch Secured Parties against the Debtors (the ‘Patriarch Secured Claims’). The Patriarch Secured Claims share the same collateral and liens under the Indentures pledged to secure the claims of the MBIA/ZIII Creditors, subject only to certain waterfall-payment subordination provisions contained in the Indentures. As a result, the Patriarch Secured Parties are entitled to at least the same adequate protection bargained for by the Senior Secured Creditors (to the extent such protection remains consistent with the Settlement Agreement). By this omission, the Debtors cannot satisfy their burden to prove that the Patriarch Secured Parties, which are secured creditors with an interest in the Debtors’ cash collateral, are adequately protected….The Proposed Order currently before the Court violates the Settlement Agreement, provides a hidden material windfall to MBIA that was not disclosed to this Court, ignores the Patriarch Secured Parties’ rights to adequate protection, and grants the Other Stakeholder Creditors rights that are unwarranted under the facts of these Chapter 11 cases.”