“The Current State of Lending for Restructurings”, Panel Discussion at the Indianapolis Bar Association

Posted on 08. Apr, 2010 by admin2 in Conferences & Seminars, Hamernik Headlines, Industry Insights

A principal at  Hamernik participated on the panel discussion, “The Current State of Lending for Restructurings” at the Indianapolis Bar Association on March 18, 2010.  Kevin provided information that in discussions and meetings with ABLs, many were busier than ever in 2009 looking at deals, but didn’t close a single deal.  There were several accounts of preparations for DIP filings, but the incumbent lender made new advances to protect it’s existing position.  Panel consensus was that later 2011 and 2012 will increase in activity.  Kevin offered that demand for liquidity as companies begin to re-grow will increase likelihood of filings or “DIP-like” discussions as companies return to profitability but banks choose to limit increases in exposure. 

 Click here for additional data regarding DIP lending (courtesy of Ernst & Young LLP)”.  TOP DIP LENDERS

     The following selected cases were presented concerning DIPs (as summarized by Jeff Hester):

  • In re YL West 87th Holdings I, LLC, WL 199726 (Bankr. S.D. N.Y. 2010).     Creditor moved for relief from stay in debtor’s chapter 11.  The debtor pledged 100% interest in an LLC as security for the pre-petition loan to creditor.  The debtor sought to obtain a post-petition loan to reorganize and increase the value of the company.  The Bankruptcy Court held that the value of the property “as is” would only be minimally improved by the proposed reorganization.  They agreed that a successful reorganization would be beneficial to everyone, but they granted the motion because the improvement in value of the property was too minimal and the size improvement when coupled with the fact that the debtor did not establish a reasonable possibility of success from the reorganization was not enough to provide adequate protection.  This case did not quite make it to the point where the debtor could obtain post-petition financing.  The court used 11 U.S.C.A. 362 (d)(2) to make its decision.  The court looked to see if the debtor had a reasonable possibility of successfully reorganizing within a reasonable time and that the property involved was necessary to the reorganization.  The court in this case did not believe that the debtor could effectively and timely reorganize if it obtained a post-petition loan.
  •  In re Metaldyne Corp., WL 2883045 (Bankr. S.D.N.Y. 2009).  DIP with priming 30 day bridge loan to §363 Sale.  Committee objected because it encumbered assets that might go to them.  Lenders agreed to priming.  Court disagreed and approved DIP.  Court found that Debtor could not waive §552(b).
  •  Suntrust Bank, v. Den-mark Const., Inc., 406 B.R. 683 (E.D. North Carolina 2009).  Residential real estate development – classic priming fight.  Bankruptcy Court granted $2.5MM priming lien to finish construction.  DIP order was vacated because two, minor, junior lien holders were not notified of priming motion.  Lender objected that no alternative DIP lender was identified, even though Debtor testified they “beat down all doors”.  Not enough for the District Court.  Also inadequate protection argument by bank.  Debtor had provided equity cushion of 16.5% plus payments and once improvements were made the cushion goes up.  Bankruptcy Court heard argument of value:  low from bank, high from Debtor; split the difference.  Lots on equity cushion discussion.  Here court rejected equity cushion theory, saying continued construction and sell down is too speculative.  Cushion too small (10%), value too speculative. 
  •  In re Belk Prop., LLC., WL 5149209 (Bankr.N.D. Miss. 2009).  No equity cushion.  DIP lender became 51% owner of debtor, effecting a sub rosa plan where existing creditors also control debtor.  Not approved.

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