Wesco Aircraft
Incora’s 2022 Uptier Transaction to Take Center Stage in Chapter 11 Cases; After Late Filings, Court Pushes DIP Hearing to Tonight, Litigation Stay Hearing in Coming Days
Thu 06/01/2023 18:22 PM
Relevant Document:
Hearing Agenda
Judge David R. Jones declined to consider key relief requested by the Incora debtors at today’s first day hearing because of tardy filings that hit the docket after the hearing started: the debtors’ motion to approve a $300 million DIP facility and an adversary complaint and accompanying motion to stay state court litigation challenging the company’s controversial March 2022 uptier transaction.
Judge Jones delayed the DIP hearing to this evening, Thursday, June 1, at 9 p.m. ET to give the court and the parties time to evaluate the proposed interim order, which requests $110 million in interim funding. The judge initially offered to consider a request for any funding the company may need immediately and to hold the hearing on the balance of the request tomorrow, Friday, June 2.
However, at the conclusion of the hearing, debtors’ counsel Andrew Leblanc of Milbank said that although the debtors do not require any overnight funding, the company would prefer to hold the hearing tonight to secure interim funding as quickly as possible in order to give comfort to vendors and employees.
Leblanc also explained that the DIP motion was filed late because the company and DIP lenders - an ad hoc group of first lien noteholders - were continuing negotiations with the prepetition ABL lenders, which he said have now consented to the proposed order.
Regarding the requested litigation stay, Judge Jones directed the parties to confer on a hearing date and said that he will pick one himself if they cannot agree. The judge indicated the hearing could be as soon as tomorrow, Friday, June 2, but said he would prefer to hold the hearing early next week.
Otherwise at today’s hearing, the court approved the balance of the debtors’ requested operational and administrative relief and the nonparticipating noteholder plaintiffs challenging the uptier transaction previewed their positions and also expressed concerns with the DIP.
Debtors’ counsel Dennis Dunne of Milbank walked the court through a first day hearing presentation describing the company’s background, events leading to chapter 11 and objectives for the case. Dunne said that the company is hopeful that prepetition negotiations with key stakeholders, which began in January, will progress postpetition and culminate in a restructuring support agreement to pave the way for a chapter 11 plan of reorganization.
The presentation also included certain key stakeholders:
Other primary case objectives, according to Dunne, include concentrating the issues raised in the uptier litigation in the bankruptcy court - the first step for which is the litigation stay adversary - and renegotiating “burdensome” contracts to reflect the “current economic and inflationary environment.”
Victor Noskov of Quinn Emanuel, the debtors’ litigation counsel, walked the court through the uptier transaction and ensuing litigation. Noskov emphasized that the debtors’ adversary proceeding seeks only to stay the pending litigation and does not attempt to litigate the underlying merits, although the debtors’ aim is to have the bankruptcy court resolve the underlying fight over lien priorities - specifically, whether the plaintiffs that were stripped of their first liens in the uptier exchange can now be treated as unsecured rather than first lien noteholders as the plaintiffs contend.
This distinguishes Incora’s adversary proceeding from the Serta Simmons debtors’ complaint filed on the first day of their cases, said Noskov, which sought a determination that Serta’s 2020 uptier transaction was valid. The Serta litigation is playing out in connection with their plan confirmation proceedings and awaits a decision from Judge Jones.
Before hearing from the plaintiffs, Judge Jones told the debtors that he would not consider the litigation stay motion today as requested. Although he indicated he is willing to move quickly, the judge said that the late filing gives rise to due process concerns.
Damian Schaible of Davis Polk appeared on behalf of an ad hoc group of first lien noteholders, which he said holds approximately 98% of the first lien notes, one of the new debt issuances resulting from the uptier transaction. Schaible said that the $300 million DIP offered by his clients is the “most plain vanilla form of DIP” the court is likely to have seen “in quite awhile.” He emphasized that although it is styled as a “senior secured” DIP, it is “in many respects” a junior DIP because it does not prime the $420 million prepetition ABL facility.
Bruce Bennett of Jones Day appeared on behalf of unsecured noteholder plaintiff Langur-Maize, which commenced the second of the two state court uptier challenge lawsuits in March. Bennett contested the debtors’ contention in the adversary papers that an expedited hearing is necessary and expressed concern over the DIP motion’s milestone requiring a preliminary stay of the state court litigation within 10 days of the petition date, which he suggested is intended to benefit equity sponsor Platinum Equity rather than the debtors. Bennett also emphasized that his client’s lawsuit does not name any debtor as a defendant.
John Melko of Foley & Lardner appeared as co-counsel for nonparticipating noteholder plaintiffs who commenced the first lawsuit in October 2022. Kobre & Kim represents the plaintiffs in the litigation. Melko agreed with Bennett that there is “no need for haste” on the debtors’ stay request and questioned the debtors’ need for the full amount of the proposed $300 million DIP. He also expressed concerns about the impact of the DIP protections on his clients, given that they believe they are the “rightful” first lien noteholders.
Melko asserted that the 2022 transaction is “not your garden variety position enhancing transaction,” suggesting that it differs factually from other recent uptier transactions, such as the Serta Simmons transaction.
Melko’s co-counsel Zachary Rosenbaum of Kobre & Kim also made a brief presentation, emphasizing that his clients made a series of alternative financing proposals in 2022, which the company rejected in favor of the uptier transactions. Rosenbaum stressed that his clients’ offer would have been available to all noteholders, while the transaction ultimately consummated was only offered to a “select group.”
The hearing on the DIP motion will continue this evening at 9 p.m. ET. The court scheduled the second day hearing for June 29 at 11 a.m. ET.
Hearing Agenda
Judge David R. Jones declined to consider key relief requested by the Incora debtors at today’s first day hearing because of tardy filings that hit the docket after the hearing started: the debtors’ motion to approve a $300 million DIP facility and an adversary complaint and accompanying motion to stay state court litigation challenging the company’s controversial March 2022 uptier transaction.
Judge Jones delayed the DIP hearing to this evening, Thursday, June 1, at 9 p.m. ET to give the court and the parties time to evaluate the proposed interim order, which requests $110 million in interim funding. The judge initially offered to consider a request for any funding the company may need immediately and to hold the hearing on the balance of the request tomorrow, Friday, June 2.
However, at the conclusion of the hearing, debtors’ counsel Andrew Leblanc of Milbank said that although the debtors do not require any overnight funding, the company would prefer to hold the hearing tonight to secure interim funding as quickly as possible in order to give comfort to vendors and employees.
Leblanc also explained that the DIP motion was filed late because the company and DIP lenders - an ad hoc group of first lien noteholders - were continuing negotiations with the prepetition ABL lenders, which he said have now consented to the proposed order.
Regarding the requested litigation stay, Judge Jones directed the parties to confer on a hearing date and said that he will pick one himself if they cannot agree. The judge indicated the hearing could be as soon as tomorrow, Friday, June 2, but said he would prefer to hold the hearing early next week.
Otherwise at today’s hearing, the court approved the balance of the debtors’ requested operational and administrative relief and the nonparticipating noteholder plaintiffs challenging the uptier transaction previewed their positions and also expressed concerns with the DIP.
Debtors’ counsel Dennis Dunne of Milbank walked the court through a first day hearing presentation describing the company’s background, events leading to chapter 11 and objectives for the case. Dunne said that the company is hopeful that prepetition negotiations with key stakeholders, which began in January, will progress postpetition and culminate in a restructuring support agreement to pave the way for a chapter 11 plan of reorganization.
The presentation also included certain key stakeholders:
Other primary case objectives, according to Dunne, include concentrating the issues raised in the uptier litigation in the bankruptcy court - the first step for which is the litigation stay adversary - and renegotiating “burdensome” contracts to reflect the “current economic and inflationary environment.”
Victor Noskov of Quinn Emanuel, the debtors’ litigation counsel, walked the court through the uptier transaction and ensuing litigation. Noskov emphasized that the debtors’ adversary proceeding seeks only to stay the pending litigation and does not attempt to litigate the underlying merits, although the debtors’ aim is to have the bankruptcy court resolve the underlying fight over lien priorities - specifically, whether the plaintiffs that were stripped of their first liens in the uptier exchange can now be treated as unsecured rather than first lien noteholders as the plaintiffs contend.
This distinguishes Incora’s adversary proceeding from the Serta Simmons debtors’ complaint filed on the first day of their cases, said Noskov, which sought a determination that Serta’s 2020 uptier transaction was valid. The Serta litigation is playing out in connection with their plan confirmation proceedings and awaits a decision from Judge Jones.
Before hearing from the plaintiffs, Judge Jones told the debtors that he would not consider the litigation stay motion today as requested. Although he indicated he is willing to move quickly, the judge said that the late filing gives rise to due process concerns.
Damian Schaible of Davis Polk appeared on behalf of an ad hoc group of first lien noteholders, which he said holds approximately 98% of the first lien notes, one of the new debt issuances resulting from the uptier transaction. Schaible said that the $300 million DIP offered by his clients is the “most plain vanilla form of DIP” the court is likely to have seen “in quite awhile.” He emphasized that although it is styled as a “senior secured” DIP, it is “in many respects” a junior DIP because it does not prime the $420 million prepetition ABL facility.
Bruce Bennett of Jones Day appeared on behalf of unsecured noteholder plaintiff Langur-Maize, which commenced the second of the two state court uptier challenge lawsuits in March. Bennett contested the debtors’ contention in the adversary papers that an expedited hearing is necessary and expressed concern over the DIP motion’s milestone requiring a preliminary stay of the state court litigation within 10 days of the petition date, which he suggested is intended to benefit equity sponsor Platinum Equity rather than the debtors. Bennett also emphasized that his client’s lawsuit does not name any debtor as a defendant.
John Melko of Foley & Lardner appeared as co-counsel for nonparticipating noteholder plaintiffs who commenced the first lawsuit in October 2022. Kobre & Kim represents the plaintiffs in the litigation. Melko agreed with Bennett that there is “no need for haste” on the debtors’ stay request and questioned the debtors’ need for the full amount of the proposed $300 million DIP. He also expressed concerns about the impact of the DIP protections on his clients, given that they believe they are the “rightful” first lien noteholders.
Melko asserted that the 2022 transaction is “not your garden variety position enhancing transaction,” suggesting that it differs factually from other recent uptier transactions, such as the Serta Simmons transaction.
Melko’s co-counsel Zachary Rosenbaum of Kobre & Kim also made a brief presentation, emphasizing that his clients made a series of alternative financing proposals in 2022, which the company rejected in favor of the uptier transactions. Rosenbaum stressed that his clients’ offer would have been available to all noteholders, while the transaction ultimately consummated was only offered to a “select group.”
The hearing on the DIP motion will continue this evening at 9 p.m. ET. The court scheduled the second day hearing for June 29 at 11 a.m. ET.
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