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Juno USA, LP – Unsecured Creditors Object to DIP Financing; Argue that Debtors’ Foreign Parent is Taking Them for a Ride

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December 13, 2019 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ request for access to $4.5mn of final debtor-in-posession ("DIP") financing to be provided by GT Gettaxi Limited (“Gett” or the “DIP Lender,” organized in Cyprus, based in Israel and the Debtors' ultimate parent), arguing that (i) the funds are unnecessary given the Debtors' cessation of operations and (ii) worse, to use terms in the DIP financing agreement to "impermissibly lock-in the Foreign Equity DIP Lender-sponsored plan without allowing input from stakeholders to ensure confirmation of such plan is the only viable exit strategy" [Docket No. 73]. 

The Committee does not, however, stop there. Using emotive language, the DIP Lender is the "Foreign Equity DIP Lender" and the DIP financing is the "Insider Control DIP," the Committee notes that it is intent on investigating "troubling" aspects of the Debtors' use of the Chapter 11 process, ultimately hinting that the Debtors are abusing the process to protect $79.0mn of NOLs for the benefit of the "Foreign Equity DIP Lender" (and not the estates) and to force through third party releases that would shield that lender They also cast some serious shade on the Debtors' claims of having a meaningful, and much-hyped, agreement with competitor Lyft.

Previously on November 21, 2019, the Court had issued an order authorizing the Debtors to access $1.0mn of DIP financing from Gett on an interim basis. [Docket No. 29].

The objection states, “The Debtors are requesting approval, on a final basis, of $4.5mn in post-petition financing (the ‘Insider Control DIP’) from GT Gettaxi Limited or an affiliate entity thereof (‘Foreign Equity DIP Lender’), the Debtors’ majority shareholder and parent entity, even though the Debtors appear not to need the funds at this time. The Debtors are no longer operating and all assets were transferred prepetition. The Debtors have not drawn on the Insider Control DIP to date, and their own projections demonstrate that there will be no funding required in excess of the $1,000,000 previously approved by the Court until the week of February 23, 2020. As a result, the Committee requested that the Debtors adjourn the hearing on final approval of the Insider Control DIP. The Debtors have not agreed.

To the public, including the drivers and customers, – and in reality – all of the Debtors’ operations were based in the United States. The Debtors operated the third-largest ride-hailing business in New York. Notwithstanding this fact, the Debtors argue that all operating assets, including the valuable intellectual property and customer lists (the ‘Juno Operation Assets’) were held by non-debtor foreign affiliates. Yet the Debtors are unable to produce any license agreement, shared services agreement, or other customary documentation reflecting such structure. To date, satisfactory evidence has not been produced to show that the Juno Operation Assets did not belong to the Debtors or how the business dealings between the Debtors and non-debtor affiliates were conducted or the basis for the dealings and transactions. Even more troubling, the Juno Operation Assets were purportedly sold to Lyft, Inc. prepetition, and the Debtors maintain that they have no rights to the proceeds, other a nominal sum of $25,000 received pursuant to a co-marketing agreement. Regardless, the ultimate question remains unanswered: what happened to the value of the business? Without knowing more, the Committee can only assume one of three outcomes: (a) the Juno Operation Assets were assets of the Debtors and their value needs to be returned or recovered, (b) the Juno Operation Assets were usurped by the non-debtor affiliates prepetition, or (c) there was total disregard to distinctions between companies, warranting consolidation with the non-debtor affiliates. All three, however, necessitate further investigation and examination by the Committee and this Court, and deferral as to consideration of approval of the Insider Control DIP.

Rather than cooperating with and providing information to the Committee about these prepetition transactions, the Debtors and Foreign Equity DIP Lender are focused on disbanding the Committee to ensure the objectives of the Foreign Equity DIP Lender are realized and its plan executed. To date, the Debtors have failed to provide the Committee with any details regarding the prepetition shutdown of the Debtors’ operations and the sale of the Juno Operation Assets.

The Foreign Equity DIP Lender’s motive in funding the Debtors and these chapter 11 cases is far from altruistic. The objective of the Foreign Equity DIP Lender, through implementation of the Insider Control DIP, and ultimately approval of the Foreign Equity DIP Lender-sponsored plan, is straightforward: maintain control of the reorganization process to ensure: (a) the preservation of the Debtors’ NOLs (estimated to be approximately $79 million) for the benefit of the Foreign Equity DIP Lender, and (b) third party releases are obtained for the Foreign Equity DIP Lender and its non-debtor affiliates. 

These intentions are further demonstrated by: (a) certain of the overreaching provisions in the Insider Control DIP, including an Event of Default upon the occurrence of ‘any amendment, supplement or other modification to the Plan, without the consent of the DIP Lender’ (see Term Sheet at 6), and (b) imposing a 120-day deadline from the petition date for confirmation of the Foreign Equity DIP Lender-sponsored plan (see Term Sheet at 5). 

The proposed Insider Control DIP, therefore, seeks to impermissibly lock-in the Foreign Equity DIP Lender-sponsored plan without allowing input from stakeholders to ensure confirmation of such plan is the only viable exit strategy. The Debtors should not be permitted (or required), by virtue of the Insider Control DIP, to cede control of the chapter 11 cases at the detriment of all unsecured creditors.

While the Committee’s investigation into the prepetition transactions is just beginning, it is clear that the Foreign Equity DIP Lender should not be permitted to utilize its position as DIP lender to continue exerting control over the Debtors in an effort to divert the Debtors’ remaining value to itself and its non-debtor subsidiaries, lock-up any unencumbered assets, and insist on case milestones which would eviscerate any meaningful opportunity for an alternative chapter 11 process.”

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The post Juno USA, LP – Unsecured Creditors Object to DIP Financing; Argue that Debtors’ Foreign Parent is Taking Them for a Ride appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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