March 13, 2019 – The Debtors filed a Plan and a related Disclosure Statement [Docket Nos. 165 and 166]. This is an unusual Plan in that the Debtors insist that there are no impaired classes (although the Debtors' existing secured lenders ("LNV," with whom they are currently entangled in an adversary proceeding) might disagree with that assessment) and, as a result, there will be no Plan voting. From the outset, the Debtors have made it clear that their Chapter 11 was necessitated by liquidity issues largely created by LNV and the Plan is designed to extricate the Debtors from what they assert are deliberate efforts to starve them of "cash flows to which they are rightfully entitled and which are necessary to administer WEAP’s insurance portfolio;" this extrication to occur by replacing debt held by the allegedly oppressive senior lenders with new senior financing.
Critical to the Debtors' Plan is the ability of the Debtors to find exit financing to replace the $367.9mn (plus interest) currently owed to their senior lenders. The Debtors' Disclosure Statement states that the "material terms of the New Exit Facility are in the process of being negotiated and will be filed with the Bankruptcy Court as part of the Plan Supplement at a later date." The Disclosure Statement also makes clear, however, that the new financing (from as yet undisclosed sources) is not a certainty, with a risk factor that notes, "The Plan is predicated on, among other things, consummation of the New Exit Facility. There can be no assurance that the Debtors will receive any or all of the funding contemplated under the New Exit Facility, or that the New Exit Facility will be consummated."
In a motion to extend exclusivity, also filed on March 13, 2019 and which we cover separately [Docket No. 167], the Debtors further underscore the uncertainty of the required exit financing, noting "The Debtors are in the process of lining up exit financing as part of the Plan, An adversary proceeding has been commenced against LNV and certain other defendants. Just this week, this Court held an initial status conference in the adversary proceeding and that litigation is moving forward with motions to dismiss to be considered by the Court in early May 2019….It will take time for a refinancing option to be identified [emphasis added] and for the amount of LNV’s allowed claims to be determined.”
Key Elements of Plan
The Debtors' Disclosure Statement provides the following Plan overview:
“The Debtors believe that the Plan provides the best restructuring alternative available to these estates….No Holder of an Allowed Claim or Equity Interest is entitled to vote either to accept or to reject the Plan. All Classes of Claims and Equity Interests are Unimpaired under the Plan, are each deemed to accept the Plan by operation of law, and are not entitled to vote on the Plan.
The Debtors believe that the Plan provides the best restructuring alternative available to these estates. Notably, the Plan is comprised of the following key elements:
- Providing a 100% recovery to Allowed General Unsecured Claims, and all creditors who are Unimpaired under the Plan;
- Satisfying Prepetition Lender Secured Claims in the amount determined to be Allowed by the Bankruptcy Court, pending the resolution of ongoing litigation between the Debtors, the Prepetition Lender, and certain other parties — all rights are preserved with respect thereto;
- Implementing a new senior secured exit financing facility to refinance the Allowed Prepetition Lender Secured Claims and to provide working capital for the Reorganized Debtors; and
- Preserving all of the existing equity interests in the Debtors on the basis of the substantial equity cushion in the value of the Estates’ assets and unimpairment of creditor claims. The Debtors estimate that the value of their life settlements portfolio totals over $500 million.
Through the Plan, the Debtors expect to reduce their ongoing cash interest expense through the new exit facility and to create a sustainable capital structure that will position the Reorganized Debtors to maximize the value of their life settlements portfolio for the benefit of all constituents."
Summary of Classes, Claims, Voting Rights and Expected Recoveries:
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and estimated recovery is 100%.
- Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $0 and estimated recovery is 100%.
- Class 3 (“Prepetition Lender Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $367.9mn and estimated recovery is 100%.
- Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated aggregate amount of claims is $250,000 – $500,000 and estimated recovery is 100%.
- Class 5 (“Equity Interests in Debtors”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated claim amount is N/A and estimated recovery is retain equity interests.
The Disclosure Statement attached the following Exhibits:
- Exhibit A – Plan of Reorganization
- Exhibit B – Organizational Chart of the Debtors
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