Specialty Retail Shops Holding Corp. (Shopko Stores) – Creditors Committee Sees Disclosure Statement (and Everything Else About Debtors’ Chapter 11 Comportment) as Inadequate

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February 26, 2019 – The Debtors’ Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ request for Court approval of the adequacy of the Debtors’ Disclosure Statement arguing that it “is inadequate, inaccurate and describes a plan that is not confirmable on its face” [Docket No. 515].

The objection states, “The Debtors’ approach throughout these cases has been to withhold and misrepresent information, disregard proper notice procedures, bypass due process requirements and flaunt the requirements of the Bankruptcy Code. Nowhere is this more evident than in Debtors’ efforts to obtain expedited approval of their disclosure statement which, even as amended, is inadequate, inaccurate and describes a plan that is not confirmable on its face.

The Amended DS Motion cannot be approved because, among other reasons described herein, the Amended Disclosure Statement does not contain adequate information, it describes a plan that is not confirmable and that plan is not proposed in good faith. The Amended Disclosure Statement lacks the information necessary for general unsecured creditors to evaluate the plan, the plan releases or determine whether the First Amended Plan is ‘fair and equitable’, meets the ‘best interests of creditors’ test or otherwise meets the myriad requirements of Section 1129 of the Bankruptcy Code…. The Amended Disclosure Statement does not sufficiently disclose how the plan treats general unsecured creditors (‘GUCs’) under an Equitization Restructuring. It provides two alternative treatments, either 100 percent of the new Shopko Interests (but subject to over 100% dilution) or a Pro Rata share of the GUC Equitization Reserve, which amounts to no recovery. The prior plan made clear the second option would be imposed if creditors voted against the plan. Now there is no disclosure of any criteria upon which the Debtors will make their treatment election. Similarly, the Amended Plan provides for alternate treatment of Term Loan Secured Claims in an Equitization Restructuring, but provides no explanation of how Debtors will determine the treatment of those claims.”

“The Amended Disclosure Statement also misstates the nature of the plan, purporting to describe two possible ‘restructuring transactions’ – an Equitization Restructuring and an Asset Sale Restructuring. The asset sale restructuring is no more than a liquidation of the Debtors’ assets which Debtors allegedly believe, without any rationale or factual support, ‘will provide for a going concern transaction.’ Debtors should properly characterize the alternative plan transaction as an ‘Asset Sale Liquidation.’ They should also disclose the foundation, if any, for their stated belief that an Asset Sale Restructuring will lead to a going concern transaction.”

The objection continues, “Although the Amended Plan does not substantively consolidate the Debtor entities, the Liquidation Analysis appended to the Amended Disclosure Statement is presented on a consolidated basis. Absent detailed financial information regarding the assets and liabilities of each Debtor, creditors cannot understand the relative solvency or insolvency of each entity or whether the amounts of distributions projected to be made to creditors meets the ‘best interests of creditors’ test, or unfairly discriminates against creditors…. The Amended Disclosure Statement represents that proceeds of causes of action are to be used to fund plan distributions, but there is no description of such causes of action or value ascribed to causes of action in the Liquidation Analysis. The Debtors disclose that they may have a claim against McKesson but there is no such claim or value listed in the Liquidation Analysis. The Debtors also fail to disclose the existence of 77 Debtor-owned properties or their estimated fair market value. There is no value ascribed to potential claims against the Released Parties under a chapter 7 liquidation. As these funds may be unencumbered and available for general unsecured creditors, the failure to include any potential value renders the Liquidation Analysis meaningless to general unsecured creditors. The Debtors also fail to provide support for the Plan Projections and lack disclosures that might enable creditors to evaluate their underlying assumptions.”

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