February 11, 2020 – The Debtors' claims agent notified the Court of Plan voting results [Docket No. 973]. The results reflect a common divergence in Plan support between secured and unsecured creditors; the degree of that divergence and the size of Class 5 ("General Unsecured Claims," between $1.35bn and $1.75bn in total estimated claims), however, will be discomforting to the Debtors who will be asking the Court to cram that class down at a February 12th Plan confirmation hearing.
This class has been something of an issue for several weeks with the Debtors "inadvertently" forgetting to circulate the recommendation of its Official Committee of Unsecured Creditors (the "Committee") to vote against the Plan and subsequently agreeing to restart voting in respect of that class when the Committee's objection did in fact get circulated. In the end, the extra noise seems to have worked in favor of the Committee and against the Debtors, with almost 98% in amount of Class 5 voting against the Plan. Of course the cram down of unhappy unsecured creditors, and a debtor's obligation to carefully lay down the groundwork for that treatment, is a bankruptcy fact of life; so the vocalness of this particularly well organized class may have little impact on the Court.
More worrisome, perhaps, is the underlying treatment of that class and the Debtors' obligation to prove that it these creditors will be better treated by the Debtors' Chapter 11 Plan than they would be in a Chapter 7 liquidation. The Debtors' memorandum in support of Plan confirmation [Docket No. 950] spends considerable time bolstering the argument that this is in fact the case. As the Debtor's liquidation analysis and table of projected recoveries (see below) show, however, this is a in fact a pretty close call with recoveries beginning in both instances at 0%.
One way or another, recoveries will depend on insurance proceeds. The Debtors argue, however, that "in a liquidation scenario, [net recoveries] are expected to be materially less than those net recoveries from the pursuit of such claims under the Debtors’ chapter 11 plan" [see Docket 950-6]. This argument is reliant on assumptions (eg, the additional cost of Chapter 7 trustee, lower net sale proceeds and an "assumed" extra $5.0mn in recovery for Class 5) that the Court will undoubtedly be carefully scrutinizing.
In a January 22nd letter, counsel for the Committee (Brown Rudnick) fired off a notice/recommendation to general unsecured creditors imploring them to reject the Debtors' Plan [Docket No. 785]. The Committee's arguments against the Plan are multiple and include, inter alia, that the auction's back-up bid is actually marginally higher, that the Debtors' proposed KEIP is objectionable, that the Debtors' approach vis-a-vis the pursuit of insurance proceeds is inadequately robust and that the Debtors' recovery would be improved if the Debtors' Philadelphia refinery were to be restarted. The existing Plan is centered around a sale that would involve cessation of the Debtors' refining operations.
The recommendation states: "Hilco contemplates an alternative use for the Debtors’ assets that would permanently shut down the Refining Complex. The contemplated use provides little to no potential value, absent cash consideration, for Holders of Class 5 General Unsecured Claims…"
- Class 3 (“Term Loan Secured Claims”): 135 claim holders, representing $577,113,019.43 (100%) in amount and 100% in number, accepted the Plan.
- Class 4 (“Intermediation Secured Claims”): 1 claim holder, representing $1.0 (100%) in amount and 100% in number, accepted the Plan.
- Class 5 (“General Unsecured Claims”): 25 claim holders, representing $2,109,591.14 (2.17%) in amount and 31.25% in number, accepted the Plan. 55 claim holder, representing $95,265,224.69 (97.83%) in amount and 68.75% in number, rejected the Plan.
- Class 6 (“Subordinated Remaining Volume Claims”): 1 holder, representing $9,956,573.00 (100%) in amount and 100% in number, accepted the Plan.
The following is summary of classes, claims, voting rights, and estimated recoveries for the Plan's voting classes (defined terms are as defined in the Plan and/or Disclosure Statement). See also the liquidation analysis below:
- Class 3 (“Term Loan Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is [$698.6mn plus interest and fees] and estimated recovery is [ ]%. Each Holder of an Allowed Term Loan Secured Claim will receive its share of: the Distribution Proceeds available for distribution to Holders of Allowed Term Loan Secured Claims from time to time as provided in Article VIII hereof; in accordance with section 7.03(a) of the Term Loan Credit Agreement; ((ii) Cash proceeds of the Intermediation Priority Collateral to the extent such proceeds remain available after Holders of Allowed Intermediation Secured Claims are paid in full in accordance with Article III.B.4 hereof. in accordance with section 7.03(a) of the Term Loan Credit Agreement; and (iii) to effectuate the foregoing following the Effective Date, distributions on account of Liquidating Trust Units, which shall be distributed to the Term Loan Agent, as set forth in the Liquidating Trust Agreement. To the extent that such distribution is not sufficient to pay the Allowed Term Loans Claims in full, any unsatisfied amount shall constitute an Allowed Term Loan Deficiency Claim.
- Class 4 (“Intermediation Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $[ ] and estimated recovery is [ ]%. Each Holder of an Allowed Intermediation Secured Claim shall receive its Pro Rata Share of: (a) Cash proceeds of Intermediation Priority Collateral and the SOA Separate Assets and Collateral, subject to the Intermediation Facility and the Global Resolution between the Debtors and the Intermediation Lender as set forth in the Final DIP order and the exhibits thereto; provided, for the avoidance of doubt, that the amount of any surcharge applied pursuant to the Final DIP Order shall reduce the amount of the Intermediation Priority Collateral proceeds but not be deducted from the Intermediation Claims; all other assets that constitute Intermediation Priority Collateral or the net Cash proceeds thereof; Cash proceeds of the Term Loan Priority Collateral to the extent such proceeds remain available after Holders of Allowed Term Loan Secured Claims are paid in full in accordance with Article III.B.3 of the Plan (or, to the extent applicable, Liquidating Trust Units on account thereof); andto effectuate the foregoing following the Effective Date, the Liquidating Trust Units as provided in the Liquidating Trust Agreement. To the extent such distribution is not sufficient to pay the Allowed Intermediation Secured Claims in cash in full, any unsatisfied amount shall constitute an Allowed Intermediation Deficiency Claim Accrued and unpaid interest and fees thereon as of the Petition Date plus, to the extent the Intermediation Secured Claims are secured, accrued interest and fees (including any attorneys’, accountants’, appraisers’ and financial advisors’ fees, in each case that are chargeable or reimbursable under the Intermediation Facility) to the extent permitted by section 506(b) of the Bankruptcy Code. For the avoidance of doubt, the provisions of this paragraph shall be subject to the terms of the Final Order approving the DIP Facility and the term sheets attached as exhibits thereto concerning the removal of hydrocarbons.
- Class 5 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $[ ] and estimated recovery is [ ]%. Each Holder of a General Unsecured Claim will receive its Pro Rata share of (a) the GUC Election Pool or (b) the Distribution Proceeds as provided in Article VIII.K hereof and, to effectuate the foregoing following the Effective Date, the Liquidating Trust Units as provided in the Liquidating Trust Agreement. Any such distributions on account of Term Loan Deficiency Claims shall be made in accordance with section 7.03 of the Term Loan Credit Agreement provided that each Holder of Term Loan Deficiency Claim shall be deemed to elect to receive its Pro Rata share of the Distribution Proceeds as provided in option (b) hereof and, for the avoidance of doubt, shall not be entitled to any Pro Rata distribution on account of the GUC Election Pool.
- Class 6 (“Subordinated Remaining Volume Claim”) is impaired and entitled to vote on the Plan. The single claim is estimated as $[ ] and estimated recovery is [ ]%. The Holder of the Allowed Subordinated Remaining Volume Claim will receive, following the full satisfaction of all Allowed General Unsecured Claims, its Pro Rata Share of the Distribution Proceeds as provided in Article VIII. K hereof and, to effectuate the foregoing following the Effective Date, the Liquidating Trust Units as provided in the Liquidating Trust Agreement.
Liquidation Analysis (see also Exhibit J of Docket No. 780]
Projected Recoveries (see Docket 950-6 Declaration of Joseph Sciametta)
(also from Docket 950-6)
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