EXCO Resources – 1.75 Term Loan Lender Objects to Plan, Cites Classification Issues and Favorable Treatment for “Insider Settling Creditors”

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December 03, 2018 – 1992 MSF International Ltd. and 1992 Tactical Credit Master Fund, L.P. (collectively, the “1992 Funds”) filed an objection to the confirmation of the Debtors’ Plan citing concerns about the classification of its claim with those held by insiders [Docket No. 1376]. The objection explains and said, “The 1992 Funds, each holders of 1.75 Lien Term Loan Facility Claims, object to confirmation of the Plan. The 1992 Funds believe the Plan improperly impairs their rights in order to benefit Fairfax and Bluescape (collectively, the ‘Insider Settling Creditors’). The Plan seeks to settle colorable claims and causes of action that could have been asserted against the Insider Settling Creditors, as a result of alleged inequitable conduct by the Insider Settling Creditors, with non-insider 1.75 Lien Term Loan Facility claimholders being forced to provide the value for this settlement. While the Plan was the result of mediation, and generally speaking, mediated settlements should be praised, this settlement unnecessarily and unfairly harms holders of 1.75 Lien Term Loan Facility Claims who are not the Insider Settling Creditor.
 
The 1992 Funds, like LSP, are not, and have never been, targets or potential defendants related to the causes of action being settled under the Plan. Thus, the Insider Settling Creditors should not be permitted to subsidize the consideration that they agreed to pay in return for a release of claims against them….Yet, the Plan requires the 1992 Funds, like all 1.75 Lien Term Loan Lenders to effectively pay their portion of the Unsecured Equity Distribution (i.e., 18 percent of New Common Stock), to certain unsecured creditors in return for a release which exclusively benefits the Insider Settling Creditors. Tellingly, the Plan, as drafted, does not even release 1.75 Lien Term Loan Lenders other than the Insider Settling Creditors. This fact alone reflects that this is a sham settlement for 1.75 Lien Term Loan Lenders other than the Insider Settling Creditors.
 
To the extent necessary, the 1992 Funds intend to file their own adversary proceeding against the Insider Settling Defendants seeking to equitably subordinate the 1.75 Lien Term Loan Facility Claims to the 1.75 Lien Term Loan Facility Claims held by the 1992 Funds or intervene, as a plaintiff, in the existing adversary proceeding (Adversary Case No. 18-03295) commenced by LSP against the Insider Settling Creditors. To the extent that LSP’s objections to the Plan and/or its adversary proceeding against the Insider Settling Creditors are settled, the 1992 Funds believe that they should receive the same treatment of their 1.75 Lien Term Loan Facility Claims as that of LSP’s 1.75 Lien Term Loan Facility Claims. Ultimately, 1.75 Lien Term Loan Lenders other than the Insider Settling Creditors should not be forced to bear the costs of a settlement that was entered into for the benefit of the Insider Settling Creditors. Because the Plan treats the claims of all holders of 1.75 Lien Term Loan Facility Claims in the same manner as that of Insider Settling Creditors who are receiving a valuable release through the Plan, the Plan is not confirmable. The Plan improperly creates a single class of 1.75 Lien Term Loan Facility Claims in violation of Section 1122…The Plan also impermissibly provides exculpation and injunctions to the Insider Settling Creditors notwithstanding the fact that holders of 1.75 Lien Term Loan Facility Claims may opt-out of the third party release provision under the Plan. It is clear that including the Insider Settling Creditors in the Plan’s exculpation is a violation of established Fifth Circuit law.”

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