January 9, 2019 – U.S. Bank National Association (“USBNA”) objected [Docket No. 291] to the adequacy of the Debtors’ Disclosure Statement [Docket No. 45] citing numerous informational deficiencies. [Please see also a separate summary of the objection [Docket No. 293] filed by the Ad Hoc Group of Noteholders (the “Noteholder Group”) as to the adequacy of the Disclosure Statement. The Noteholder Group is comprised of holders of the Series II Second Lien Notes, discussed further below.]
USBNA is the trustee in respect of three series of notes, (i) the Debtors’ 11½%/13½% PIK Toggle Second Priority Secured Subordinated Notes due 2020 (the “Series I Second Lien Notes”), (ii) the Debtors’ 11½%/13½% PIK Toggle Second Priority Secured Subordinated Notes due 2020, Series II (the “Series II Second Lien Notes”) and (iii) the Debtors’ 11% Senior Notes due 2017 (the “Holdco Unsecured Notes”). The objection estimates that $262mn is outstanding in respect of the Series I Second Lien Notes and Series II Second Lien Notes (collectively, the “Second Lien Notes”) and $6.8mn is outstanding in respect of the Holdco Unsecured Notes.
The Second Lien Notes sit in Class 4 and are in line for 5% of the emerged Debtors' new equity if they vote in favor of the Plan (by comparison, Class 3, comprised of holders of approximately $233mn of the Debtors' First Lien Notes, will receive 95% of the new equity). The Holdco Unsecured Notes, which sit in Class 5, predictably fare even worse; nominally sharing their share of whatever cash (presently near zero) sits in the Debtors accounts. Given these modest recoveries, it is perhaps unsurprising that USBNA is inclined to object to the Debtors' Plan; and USBNA's objections are many....
The objection states, “Because creditors rely heavily upon the disclosure statement in determining whether to approve a proposed plan, debtors have an affirmative duty to provide a disclosure statement that contains complete and accurate information….In considering what constitutes ‘adequate information,’ a court is to ‘consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing additional information’.…The Court should also consider the Debtors’ decision to attach ‘death trap’ consequences to negative class votes, especially classes that will receive nothing under the Plan if such class exercises its statutory rights to object to confirmation and require cram down if such class votes to reject to the Plan. This added weight to the voting decision militates against allowing the Debtors to defer disclosures needed to make the Disclosure Statement adequate…
The Disclosure Statement Should Provide Adequate Information For Class 4 Noteholders to Evaluate the 5% New Equity Interests Being Offered. Under the Plan, in the event of the contemplated Reorganization Transaction, Class 4 will receive 5% of the New Equity Interests in the Reorganized Debtors, but only if Class 4 votes in favor of the Plan, and Class 4 will receive nothing if it votes to reject the Plan. If the Motion were granted with the Disclosure Statement in its current form, Class 4 Noteholders will know almost nothing about the bundle or rights that would ultimately be included within the proposed 5% New Equity Interests at the time the proposed voting period begins on January 22, 2019…There is no basis in the Disclosure Statement to ascertain what rights and limitations would attend to this 5% interest; there are no organizational documents and no indications about the restrictions that will be imposed upon these interests by shareholder agreements or bylaws or the like.
They should also be required to include in the Disclosure Statement their future business plan, and pro forma cash flow, income, and balance sheet projections for the Reorganized Debtors for the next five (5) years or such other period as is practicable.
The Debtors should be required to include in their Disclosure Statement all information regarding what Mr. Liberman and other insiders (including his father, Jose Liberman) have received since consummation of the HPS refinancing transaction earlier this year and what they will receive in connection with Debtors’ Plan. Moreover, any communications pertaining to post-Effective Date powers or compensation to insiders should also be disclosed.
The Disclosure Statement should provide more complete information regarding the ‘extensive factual and legal analysis’ conducted by Mr. Goldman and provide more background regarding the State Court Litigation other than the mere recitation of the counts asserted in the State Court Litigation complaints…The Motion fails because it would determine the subject matter of the Plan based on an unauthorized and closed bidding process that contains none of the customary protections necessary to guarantee a robust sales process. In chapter 11, a sale of assets outside of the debtor's ordinary course of business requires court approval before it will bind the debtor.”