Wednesday, May 20, 2009

Dayton Superior's Lenders Dispute Who Has the Better DIP

In an earlier post, I discussed the situation in the Dayton Superior bankruptcy. At the time, I understood that the matter would be decided in Court on May 11th. I was mistaken.

In order to properly decide this issue, both sides have been engaged in discovery. The parties were to provide a status update to the Court at a hearing today. At present, there have not been any documents relating to the results of that hearing on the public docket. The hearing on the DIP has been moved to June 5th at 9:30 AM.

Currently, GECC has scheduled depositions of DK Acquisition Partners and Silver Point Capital for May 27th and a deposition of the Official Committee of Secured Creditors for May 28th.

The Official Committee Of Unsecured Lenders filed a Preliminary Objection to the DIP Order yesterday (at least that's when it hit the public docket, I do not have access to PACER). This preliminary objection included the following statement:

Discovery, including depositions, is proceeding in this contested matter among the parties-in-interest. During the afternoon of Thursday, May 14, 2009, in the midst of that discovery, the Committee was advised that a tentative resolution (contingent on documentation, among other things), was reached between GECC and Oaktree of certain issues between them with respect to the DIP Motion. The Committee understands that, subject to the terms of that agreement, Oaktree is expected to withdraw its DIP financing proposal to the Debtor and the Ad Hoc Committee's objection to the GECC DIP Facility upon consummation of the resolution with GECC.

If Oaktree and GECC do come to an agreement, the Official Unsecured Committee has changes that they are seeking to have incorporated into the final DIP financing agreement at the June 5th hearing.

An agreement by Oaktree will take the alternative offer of DIP financing off the table as they were one of the three parties participating in that offer (the others being Whippoorwill Associates and Solus Alternative Asset Management).

Dayton Superior appears to be a great example of the state of the DIP market today. The only parties willing to offer DIP financing were the existing lenders. GECC is looking to roll-up their existing loan into a DIP facility which will improve their position from a secured lender to a secured lender with superpriority status. The bondholders were looking to provide only new financing, but only if it they were given pari passu status with GECC on their liens (and thus have a secured administrative priority status for the DIP loan).

The GECC proposal does not provide as much new cash as the bondholders' offer, and it will cost significantly more (higher fees and higher interest rate, to be charged on the entire balance rather than just the new money). The bondholders' offer charges a lower interest rate, a lower fee, and only applies to the new money (and more new money is provided), but the Debtor would have to prove that there was adequate protection for the existing liens before it could offer the pari passu status sought by the bondholders in their offer.

Since there are little, if any, in the way of assets that are not secured by one (or more) of the lenders, no other party was interested in pursuing the opportunity to provide the DIP.

I will keep watching this situation play out.

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