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June 19, 2019 – The Court hearing the Cambrian Holding Company cases issued an interim order authorizing the Debtors to (i) access $12.0mn in debtor in possession (“DIP”) financing on an interim basis and (ii) use cash collateral [Docket No. 116]. On June 17, 2019, lenders Deutsche Bank AG, London Branch, Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC (collectively, the “Term Lenders”) objected to the proposed DIP financing, citing concerns with fees and the adequate protection package being offered to the DIP lenders. The DIP lenders can thank the Term Lenders for the fee haircut, notably a halving of the exit fee, highlighted below. Small potatoes on a DIP financing of this size, but an effort that will not be forgotten. As with most gifts, including unwanted ones, its the thought that counts.
The Debtors' DIP motion stated, “Prior to the Filing Date, the Debtors, through their financial advisors, Jefferies LLC, attempted to obtain post-petition financing proposals from other lenders and financial entities, but were unable to obtain post-petition financing in the form of unsecured credit allowable as an administrative expense under section 503(b)(l) of the Bankruptcy Code and/or unsecured credit allowable under section 364(a) or (b) of the Bankruptcy Code. In addition, due to their urgent financial constraints, the Debtors are presently unable to obtain, in the ordinary course of business or otherwise, credit allowable under sections 364(c) or 364(d) of the Bankruptcy Code, except from the DIP Lender on the terms and conditions contained in the Interim Order and the Final Order.
The financing available under the DIP Term Sheet and the DIP Orders will enable the Debtors, among other things, to avoid the cessation of its operations, maintain the continuity of its operations, and maximize the value of its business.”
Key Terms of the DIP Financing
- Borrowers: Cambrian Coal, LLC, and Shelby Resources, LLC, as debtors and debtors-in-possession (collectively, the “Borrower”).
- Agent/Lenders: Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC, and any other lenders from time to time party to the DIP Loan Agreement (collectively, in such capacities, the “DIP Lenders”). Richmond Hill Capital Partners, LP shall serve as administrative aget for the DIP Lenders (the “DIP Agent”).
- Borrowing Limits: Up to the amount of $15.0mn (the “Maximum Amount”) of which approximately $12.0mn shall be available prior to the entry of the final order (the “Initial Amount”).
- Maturity Date/ Termination Date: Earliest to occur of (i) the effective date of a confirmed Plan, (ii) six (6) months after the Petition Date, (iii) the date on which the obligations under the DIP Facility are accelerated following the occurrence of an Event of Default, (iv) the date of the closing of a sale of all or substantially all of the Borrower’s assets pursuant to §363 of the Bankruptcy Code, and (v) the date on which the Bankruptcy Court approves the extension of any other credit facilities to the Borrower or Guarantors, or to any entity whose bankruptcy case has been ordered by the Bankruptcy Court to be jointly administered with the Cases, over the objection of the DIP Lenders.
- Interest Rate: The interest rate shall be 12.00% per annum. Default interest rate shall be at a rate of 3.00% above the otherwise applicable rate. Interest shall be 50% payable in kind (PIK) and 50% cash.
- 2.5% of the DIP Lenders’ total commitment (50% of which shall be payable at exit)
- 0.75% exit fee reduced from 1.5%
- $45,000 agency fee reduced from $75,000
- Payment of fees and expenses of a financial advisor to the DIP Lenders
- Indemnification provision
- Legal fee reimbursement
- Roll-Up: The proceeds of any TECO PP&E Collateral (as defined in the Intercreditor Agreement), and all other payments received by the Debtors prior to the entry of the final order (other than proceeds received in the ordinary course of business of the Debtors) shall be applied, or deemed applied, first to the repayment and satisfaction of the prepetition RH Fifth Amendment Loan (as defined in the Pre-Petition ABL Credit Agreement), and thereafter applied to repayment of the DIP Facility. Upon entry of the Final Order, any outstanding prepetition RH Fifth Amendment Loan shall be deemed to be Obligations arising under the DIP Facility (the “Roll-Up”). The RH Fifth Amendment Loan as of the Petition Date in the principal amount of $500k.
Term Lenders Objection
On June 17, 2019, lenders Deutsche Bank AG, London Branch, Tennenbaum Opportunities Partners V, LP and Tennenbaum Opportunities Fund VI, LLC (collectively, the “Term Lenders”) objected to the Debtors’ debtor-in-possession ("DIP") financing motion [Docket No. 43] arguing that the Debtors' prepetition ABL lender (Richmond Hill Capital Partners, now the proposed DIP financing provider) is being offered "excessive economic benefits" in the form of non-market fees and an "onerous adequate protection package."
The objection states, “The proposed debtor-in-possession financing (the ‘DIP Financing’) offered by the RH Lenders is a quintessential one-sided deal that confers excessive economic benefits to certain prepetition secured creditors at the expense of the Debtors’ estates and their other creditors and stakeholders. The interest, fees, expenses, and other charges payable to the DIP Lenders alone are unreasonable and above-market for transactions of this type and scope. And on top of interest, fees, expenses, and other charges payable to the DIP Lenders, the Debtors propose to provide the RH Lenders and the ABL Lender an onerous adequate protection package. Over the first twelve weeks of these chapter 11 cases, the Debtors’ propose to pay just over $1 million in interest and fees on what is nominally a $15 million facility, plus the DIP Lenders’ and the ABL Agent’s professional fees. Moreover, the $1 million that goes out the door to the DIP Lenders and the lenders under the ABL Credit Agreement in the first three months does not even capture the deferred portion of the commitment fee, the exit fee, or accrued paid-in-kind interest, all of which is paid at maturity. The Debtors’ obligations under the proposed terms of the DIP Facility will severely impact the recoveries of the Debtors’ other creditors to the sole benefit of the RH Lenders. This Court should not permit the Debtors to be extorted for the sole gain of prepetition, allegedly over secured creditors.
In addition, in striking contrast to the generous adequate protection the Debtors propose to provide with the RH Lenders and the ABL Lender, the Debtors have refused to provide any form of adequate protection to the Term Lenders for the diminution in value of their interest in the ABL Loan Priority Collateral (as defined in the Intercreditor Agreement as a result of the priming of their liens by the liens securing the DIP Facility. The Debtors, in agreeing to provide post-petition interest to the RH Lenders and the ABL Lender in respect of their prepetition claims, suggest that the RH Lenders and the ABL Lender are over secured, and yet they simultaneously imply that the Term Lenders’ claims are ‘out of the money’ with respect to the ABL Loan Priority Collateral. Section 364(d)(1) of the Bankruptcy Code unambiguously requires that the Debtors adequately protect the Term Lenders’ interest in the ABL Loan Priority Collateral as a condition for the Debtors’ obtaining a DIP Financing that would prime the Term Lenders without their consent, and the Intercreditor Agreement unambiguously requires the Term Agent and the Term Lenders to receive certain forms of adequate protection if they are primed with respect to the ABL Loan Priority Collateral. As a result, entry into the DIP Facility cannot be approved unless the Term Agent and the Term Lenders are provided such adequate protection.”
The Court scheduled a final DIP hearing for July 23, 2019.
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