November 20, 2019 – At a continued hearing relating to a motion filed by CoBank, ACB, as Administrative Agent and Lender (“CoBank”), Judge Peter C. McKittrick issued an order (to be redrafted by CoBank's counsel) giving CoBank relief from the automatic stay imposed by section 362 of the Bankruptcy Code (the “Automatic Stay”), but (i) limiting that relief to liquidating and receiving proceeds of CoBank's collateral and (ii) requiring CoBank to return to the Court in the event that it chooses to press forward with the appointment of a federal or state level receiver. CoBank has sought authority to appoint a receiver to maintain a fully flexible position in respect of monetizing its collateral, especially should planned asset sales (see more below) take yet another unexpected turn for the worse and delay/prevent recovery via asset sale proceeds.
Judge McKittrick and other creditors were particularly concerned as to how layering a receivership on top of the Chapter 11 proceedings would complicate matters, especially as to the distribution of estate assets (one creditor anticipating "a chaotic situation and "unintended consequences"). Of even greater importance to Judge McKittrick, the Debtors and other creditors was CoBank's willingness to agree a slightly longer forbearance period, this now to be extended until December 10th (as initially proposed November 25th). This forbearance extension has the effect of freezing the lift of the automatic stay just granted. The two actions, giving CoBank recourse to its collateral and then limiting that access, are not quite as contradictory as they might appear and, hand-in-hand, are in fact complementary. CoBank's approach, expressed over a series of hearings, has been more cautious than adversarial, with counsel for CoBank repeatedly stating that it has no specific intentions to take steps upon the lifting of the stay but rather that it simply wanted "to be prepared" and "to keep a short leash on this process." The stay relief gives it power that it can choose to yield (or not) depending on its willingness to continue to forbear on the Debtors' defaults.
The Debtors, fully cognizant that CoBank has the right to a short leash (there is no dispute that absent a forbearance, the Debtors are in default in respect of their debtor-in-possession ("DIP") financing facility and their pre-petition credit facility…both provided by CoBank), has simply wanted to keep the door open for maximizing asset sale opportunities; the prospect of lifting the stay, without an accompanying forbearance, likely to significantly chill the asset sale process. The Debtors' other creditors (mostly junior to CoBank) have likewise urged the Court (and CoBank) to clarify that forbearances would continue as long as necessary to pursue the asset sale process. CoBank, although giving the Debtors and other creditors some assurance…and this slightly longer than expected current extension of the forberanace period…would not do more than commit to the concept of a series of short forbearances. As long as things seem to be progressing to CoBank's satisfaction, CoBank would appear willing to continue to forbear.
To that end, Debtors' counsel has used hearings related to CoBank's Automatic Stay motion to repeatedly update the Court (and CoBank) on sales efforts; which appear to be positive. At this hearing, Debtors' counsel informed the Court that it had received the $5.0mn deposit required by the asset purchase agreement entered into amongst the Debtors and Oregon Potato Company (“OPC”) in respect of certain of the Debtors 'assets. At a November 14th hearing, Debtors' counsel had provided even more insight into the asset sale process which almost certainly impacted on CoBank's willing to issue another forbearance notice.
At that hearing, Debtors' counsel noted the value of the sale to OPC was projected to be approximately $92.0mn (with an inventory adjustment); leaving the Debtors with (i) finished inventory of $25.0mn (cost value), (ii) accounts receivable of $25.0mn, (iii) equipment with a value of $6mn and (iv) several 100 acres of farmland. Also noted was the "active interest" in each of Debtors' Stayton, Salem and Brooks facilities, with a sale in respect of the latter expected this week. All in all, Debtors' counsel offered, enough to see all secured creditors paid in full and some recovery for unsecured creditors. Of interest to employees at those facilities, Debtors' counsel did indicate that even under the most optimistic series of events, he would expect one or more of those facilities to be idle for a period of time, although he further noted that prospective buyers were all aware that delays would inevitably lead to employees seeking employment elsewhere.
OPC Asset Sale
As of November 15th, the Debtors' on-again, off-again sale of assets to OPC appears to be on again, with the November 20th receipt of a $5.0mn deposit indicating that this time it might stick. The November 15th asset purchase agreement notes consideration of $21.5mn plus estimated inventory value. As noted above, the Debtors are valuing that sale at approximately $92.0mn.
This is OPC's third bite at the Norpac apple, having previously (i) executed an asset purchase agreement on August 12th, (ii) notified the Debtors on October 18th that they were withdrawing from that agreement, (iii) further to added protection as to go forward liabilities, gotten Court approval for a revamped $155.0mn purchase of substantially all of the Debtors' assets on October 28th and (iv) mysteriously taken its offer off the table yet again. All of this had taken the Debtors to an October 31st deadline to complete an asset sale as required by the Debtors' DIP agreement with CoBank.
Relief from Stay and Forbearance Agreement
On November 1st CoBank filed each of an affidavit in support of relief from stay and a motion to approve forbearance agreement [Docket Nos. 327 and 328, respectively]. The affidavit stated that "Certain Events of Default, as defined in the DIP Financing Order, have occurred, are continuing as of the date hereof, and have not been cured, and in the case of the Milestones, cannot be cured (the 'Specified Defaults'). Further, the Specified Defaults have not been waived by CoBank."
the forbearance motion picks up the story: "Pursuant to the DIP Financing Order, the debtor-in-possession financing matured on the earlier of October 31, 2019, the closing of a sale of all or substantially all of the assets of Debtors under Section 363 of the Bankruptcy Code, or the effective date of a confirmed plan under Section 1129 of the Bankruptcy Code. The debtor-in-possession financing facility matured on October 31, 2019. Despite the Debtors’ efforts to sell their assets to Oregon Potato Company, no sale of all or substantially all of the assets of the Debtors has occurred. The Debtors have not confirmed a plan. At this time, the Debtors are in default under the DIP Financing Order. Pursuant to the DIP Financing Order, as a result of the Debtors’ failure to sell all or substantially all of their assets by October 31, 2019 and certain other Events of Default under the DIP Financing Order, CoBank is entitled to relief from the automatic stay to enforce its rights and remedies. CoBank intends to seek such relief from stay while it evaluates its options regarding the default.
In conjunction with its intent to seek relief from stay, CoBank believes that it would be appropriate to provide for a brief two-week forbearance period for the Debtors to discuss the potential of alternative sales to other buyers, and to provide for an orderly process in the event that other sales are not viable."
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The post NORPAC Foods, Inc. – Court Grants CoBank’s Request to Lift Automatic Stay; CoBank Agrees to Forbear on Exercising that Right Pending Forward Progress, Including as to Asset Sales appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.