Checkout Holding (Catalina Marketing) – Nielsen Objects to DIP Motion’s Lender Protections, Chicken Little Warnings

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January 4, 2019 – The Nielsen Company (US) and NC Ventures (together, the “NCS Claimants”) objected [Docket No. 159] to the Debtors’ request for authority to enter into debtor-in-possession (“DIP”) financing arrangements [Docket. No. 30]. The objection cites the “Chicken Little” nature of the Debtors’ decision to offer up lender protections that are both (i) un-necessary to secure DIP financing (ii) and injurious in respect of the NCS Claimant’s claims. The NCS Claimants further point out that, from their perspective (as creditors left with nothing) a Chapter 7 liquidation would be preferable, not a position that the Court should sanction. 
The objection begins, “The DIP Motion seeks to provide the Lenders with liens against Avoidance Action proceeds, insulate the Prepetition Secured Parties against challenges to their liens and claims, pay the fees and expenses of undersecured and unsecured creditors in contravention of section 506(b) of the Bankruptcy Code, roll up a portion of the undersecured Prepetition First Lien Obligations, waive surcharge rights under section 506(c) of the Bankruptcy Code, waive the “equities of the case” exception under section 552(b) of the Bankruptcy Code, and exempt the claims of the Prepetition Secured Parties from marshalling….Although courts often express reluctance to approve these types of provisions in DIP financings, debtors and DIP lenders put courts in an untenable position when they claim (as they often do) that these are the only terms on which the DIP lenders will extend credit, and, without such financing, the debtors will be forced to shut down and convert their cases to chapter 7 liquidations. In the right case, perhaps these Chicken Little warnings are appropriate. Not this one….The DIP Lenders are the holders of the Prepetition First Lien Debt Obligations. But for the purported ‘gift’ the holders of the Prepetition First Lien Debt Obligations are making to the holders of the Prepetition Second Lien Debt Obligations, the holders of the Prepetition First Lien Debt Obligations will completely own and control the reorganized Debtors. As such, any threat that the DIP Lenders will let the Debtors collapse if they do not get a lien on the Avoidance Actions rings hollow. Moreover, through the guise of granting the DIP Lenders ‘DIP protections,’ the Debtors propose to shut out the NCS Claimants from the only potential source of recovery on account of their monetary claims – proceeds of Avoidance Actions.”

The objection continues, “The Debtors have made it clear that they currently expect to reject their contracts with the NCS Claimants and propose to make no distribution to the NCS Claimants on account of the NCS Claimants’ monetary claims, notwithstanding that the Debtors are proposing to pay all trade creditors (including other creditors with contract rejection claims) in full, leave intercompany claims unimpaired, and distribute 10% of the equity in the reorganized Debtors to the wholly unsecured Prepetition Second Lien Debt Obligations. In light of the Debtors’ position, chapter 7 poses no threat to the NCS Claimants, and at this stage of the case, this Court should not sanction treatment that would result in the NCS Claimants faring worse than they would fare if the Court today converted these cases to Chapter 7 liquidations.” 

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