First Brands Group聽said it intends to kick off a marketing and sale process for its assets this month, and creditor Evolution Credit Partners asked the court to cut off the debtor鈥檚 access to collateral following alleged violations of an adequate protection order.
Debtor counsel Sunny Singh of Weil Gotshal & Manges provided a status update this morning (Jan. 7), alerting the court that First Brands would likely propose a bid procedures motion contemplating a sale process that would conclude by the end of January. The company doesn’t have a lot of time for an extended sale process unless it can find a way to enhance its liquidity, he said.
First Brands is focused on case funding and negotiating a path out of chapter 11, and the company is looking at all available sources of liquidity, as the $190mn of unrestricted cash that First Brands has on hand will get the case through the end of January, Singh said. The company received a term sheet for a potential capital injection from its existing debtor-in-possession (DIP) lenders, and the debtor will need to evaluate that offer and negotiate, he said.
Singh said he expects that the DIP lenders will participate in the sale process. The term sheet sent by the DIP lenders this week includes a bid for certain assets, he said. Investment banker Lazard began informal outreach this week, he added.
鈥淲e recognize that we鈥檙e asking the parties to move quickly, but we really do believe that this timeline is necessary and warranted under the circumstances,鈥� Singh said.
Singh further noted that the debtor reached an agreement with secured lenders to debtors Carnaby Inventory II LLC鈥痑nd鈥疌arnaby Inventory III LLC to adjourn consideration of their聽聽to dismiss those debtors鈥� chapter 11 cases and for stay relief as to those debtors to Jan. 22.
Elsewhere in the case, factoring counterparty Evolution Credit Partners said First Brands was actively violating adequate protection orders by using Evolution鈥檚 collateral without maintaining collateral thresholds. Evolution counsel Vincent Indelicato of Proskauer Rose said the debtor has at least a $43mn deficit on that collateral maintenance covenant threshold while continuing to use and sell Evolution鈥檚 collateral.
Evolution filed an emergency motion on Dec. 23 to enforce the stipulation and adequate protection order. Evolution and First Brands refrained from pressing the collateral issue with the court because the debtor assured Evolution that it would provide the adequate protection, and that a proposal from the DIP lenders was forthcoming, he said.
Indelicato asked the court to schedule an emergency hearing because every day that passes with First Brands鈥� 鈥渨illful鈥� violation of the adequate protection order leads to diminution and degradation of the collateral. He also asked that the court prevent First Brands from continuing to use the collateral until the court takes up the issue.
鈥淭hey can鈥檛 continue to use our collateral to fund the optionality of their case,鈥� Indelicato said.
Singh said that he doesn’t disagree that there is an issue with cash collateral but that First Brands is not blatantly violating a court order. First Brands is continuing to sell inventory in the ordinary course, and you can鈥檛 shut down a 鈥渕assive operation鈥� overnight and stop shipping because it would destroy the value of the business, he said.
Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas scheduled a hearing on the matter for Jan. 13.
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Kennedy Rose
kennedy.rose@levfininsights.com
+1 646 943 6248
