American court hearing recordings and interviews - 5 - Saks Global Enterprises LLC continuation of first bankruptcy court hearing, 1/14/2026, 10:14 pm (fifth recording)

Episode Date: January 19, 2026

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All right, we're back on the record in case number 901013. Your Honor, this is Chris Harris. Just before we close the evidentiary record, it did want to move certain exhibits into evidence. Okay, go ahead. So, Mara 6th, which is ECF 144, we'd be moving exhibits 5 through 9 into evidence, which are three of the agreements of the debtors,

the phrase that we've been seen proud, and then the late Milwaukeeans letter, or Amazon letter we can speak. Right. Any objection to exhibits five through nine? Your Honor, we do object to exhibit eight as hearsay. That's the appraisal. Your Honor, it's clearly a business record.

It was commissioned by JLL and the ordinary course of business on its base. It's also admissible for the impact on the reader. As though both, as the debtor, CRR indicated that the debtors used it, and in conducting their analyses and determining what to do in the bankruptcy and the debt financing. So those admissible are business records and it's also admissible for a non-herstay purpose. Well, I'm not sure it's admissible as a business record to prove the truth of the matter. I think it might be admissible as a business record to prove that they received it or things like that. I think the testimony, the testimony with respect to what the company did,

has come in. So I'm going to exclude the appraisal as hearsay. I will admit exhibits five through seven and exhibit number nine, obviously, but the testimony with respect to the exhibit came in and that still stays in the record. We'll be firing Gallagher on behalf of directly into the argument now in the depth. Yeah, but let me, there are other people. Mr. Sparicino had had popped up, is there anyone else who has any, before we get into argument, anyone else, hasn't have anything to say? Yes, Your Honor. This is John Sparicino.

Can you hear me? Yes, I can hear you. Great, thank you. I'd like to make just a brief statement regarding the dip, if I may. Sure. And again, for the record, John Sparstino appearing for Westford Capital. My client holds a substantial face amount of the SGUS notes. We didn't file any papers in Connecticut.

connection with today's hearing. Frankly, I was engaged about 30 minutes before the hearing scan. That said, I do want to identify several concerns that Wexford has with the ad hoc gift proposal. Wexford is not a part of the ad hoc club, and thus Wexford faces substantial harm vis-a-vis ad hoc holders, given that Wexford is outside of the favored treatment group. But several attorneys have noted this is a very complex gift proposal, and so I want to be clear that the concerns I note now are by no means intended to be comprehensive or all-inclusive. That said, Wexford is concerned that the ad hoc dip and the roll-up are unnecessarily large, and that the fees and the other bells and whistles that appear to be granted in favor of the ad hoc group

will result in an outsized recovery to the ad hoc holders, to the detriment of the holders that are not if the ad hoc group. This concern is true even with the participation right as described by debtors' counsel. Over the next few weeks, my client intends to aggressively dig into a number of these issues, including the legality of the pre-petition documents of the favored ad hoc structure, the need for an ad hoc dip at the level that's sought by the company, the appropriateness of the fees and the other bells and whistles in favor of the that are apparently not available to the other SGUS note holders, even those that may ultimately participate in the dip as it's been described.

And finally, whether this really is the best or only dip available, we've already heard testimony that there has been, there was at least one other actionable proposal, although we haven't heard any of the details on that dip, and we intend to dig into that a little bit. So we look forward to pursuing and addressing these issues and potentially other matters at any final hearing that Your Honor sets for the dip motion. I have nothing else, Your Honor. All right, thank you. All right, go ahead. Mr. Gordon.

Okay. Thank you, Your Honor. I'll start with a little bit of just general argument, and then I'll get into Amazon's objection and then Exxonics, and to the extent there are others can take those as well. I think the testimony today very clearly established that the debt is offered today are valid exercise. The importance of the approval of both of these debts is an iconic brand in this country. Financing, it is likely to face the threat of an imminent or unable to obtain credit other than the terms we've described today.

There is no other executable financing on the table. Proposals received by the debtors were not actionable for a number of reasons. Most importantly, because the primary other alternative would have required a contentious priming fight that the debtors were not certain could have succeeded on in the face of an alternative proposal supported by over 70% of the one point is important that I've heard Amazon make. The global debtors, that we firmly believe here, there is a unity of interest among all of the global debtors, including Hold Code 2 and its subsidy. The testimony you heard today make clear what would likely lead to no recovery based on Mr. Weinstein's testimony for Hold Code 2. So there is a complete unity of interest. The idea that there needs to be a separate independent fiducian, so I'll take them each in turn.

I'll try to go briefly with them together probably. But the first argument they make in their objection is one of corporate authority, and you heard a couple questions on that today. Alleged consent rights sits at HBCGP LLC, that's near the very top of the capital structure. In cold levels above Holt Code 2 make what happened here in Ultra Virus Act. Moreover, we believe that value of hold code 2 is primary. And the only way to do that fund the rent to 12 East 49 Street. From the flawed that Hold Code 2 would be solved, Old Code 2 creditors.

It's a debtor pledging its adams arguments, including Holdco 2, have an identity interest. Thank you, Your Honor. Can you hear me? We're doing our best with the technology. Yes, I can hear you fine. Thank you, Your Honor. And good evening, and I appreciate your patience and your indulgence. Caroline Rekler of Latham & Wachshunds on behalf of Amazon.com services LLC and its affiliate.

Your Honor, by way of background, Amazon invested $475 million of preferred equity just about a year ago, December 2024, HBCG-L-LC, the ultimate parent of Sachs. Since that equity investment, H-C-C-G-P-LC governing documents have expressly provided with a consent right over the ability of the debtors to incur and guarantee new indebtedness such as the financing today. As a condition of that equity investment, which is presumptively worthless, Amazon entered into a commercial agreement with Sachs, under which Sachs, pays Amazon certain fees in exchange for selling Sachs products from a variety of luxury brands on Amazon's website.

A number of the debtors are obligors or guarantors on the commercial agreement, including, most notably the debtor we've spoken most about today, debtor fax flagship hold co, too. Through various affiliates, Amazon is also party to another business contracts with debtors, Sachs &co, Sachs.com, Neiman Marcus Group LLC, and Neiman Marcus Group, LLC, and Neiman Marcus, group LLC to cover services, excuse me, such as cloud computing and storage services. As you're aware, Amazon filed an objection to the DIC and to state the obvious, Amazon objects, and Amazon has a consent right. There are three DIP facilities, the ADL DIP facility,

the ASCOSIP facility, and the Opto DIP facility. For now, we object only to the ESCAP DIST facility because that is the DIP where only HOTCO2 is an Alvador. Amazon objects to the proposed ESCUS DIP facility primarily with respect to debtor SACS flagship Holdco 2, which holds the equity in the entity that owns the debtor's Fifth Avenue flagship property, which is the debtor's admitted crown jewel asset. That entity has guaranteed $475 million in claims to Amazon under our commercial agreement. Amazon has, excuse me, SACs has already filed a motion today to reject that agreement,

and that will be heard in the coming days. Amazon does not object to the rejection. So that will give rise to a $475 million claim against that entity and at least a $900 million claim against the other debtors. This dip will severely impair Amazon's recovery. in particular on the Hold Code 2 claim. Our objection, in some sense, is pretty straightforward. We do not believe HoldCOTU needs this dip at all,

and Hold Co2's incurrence of the dip obligations shouldn't be approved at all, and certainly shouldn't be assuming the obligations of its affiliates on pre-petitioned debt. But for today's purposes, we really just want to preserve the status quo and protect our rights, given that this is an emergency hearing, for a debtor that crashed into bankruptcy. The debtors are asking the court to do things in the dip that are more extraordinary than the roll-ups and cross-collateralization that this court already considers extraordinary

under the complex case rules, specifically rules C8B and C. There is no justification that he's provision at all, let alone on emergency basis. As I noted, the status quo should be preserved for the next 13 to 21 days so that a creditors committee can be formed and any relief during the interim period should only be granted to the extent necessary to prevent immediate and irreparable harm. Nothing more. We have little to no confidence that the debtors will emerge from bankruptcy as a going concern business.

Amazon and the brands put their trust in fact, and has since been harmed significantly by the debtor's general mismanagement and failure to pay and honor their obligations. Amazon values the brand community, who are not just participants in the industry, but its foundation and its leaders. Unfortunately for Amazon and the brands, we have serious concerns that this case may not have a successful ending,

and we think that requires extra scrutiny on what gets approved at a first day hearing. This is not a nice prepack or even a prearranged case with a restructuring support agreement. This case may end in a liquidation. And as I will discuss more, if a large interim dip with a roll-up is approved today and then there is a liquidation that would have a devastating impact on the claims Amazon and the brands have at Hold Code 2. It would all but eliminate a recovery for those Hold Code 2 creditors. and even though they would likely be paid in full today without this dip. We're asking Your Honor to preserve that recovery at least until we have a fair and full day

to litigate our rights before Your Honor and to allow all other unsecured creditors to do the same. This case cannot be run for the sole benefit of the secured lenders, and this starts us down that dangerous path. And let me just start with a few critical facts. First, Holdcuttun essentially dethrs the blackship property and leases it to SAC. That's all it does. Second, it doesn't need this dick. That was the testimony.

It doesn't need any cash at all today. It doesn't need any cash at all in the next 21 days. The lease payments more than cover its expenses. Good news. They've been reduced. And to the extent it did need cash, that's a much smaller, gift than the one proposed today. Third, just the interim dip

would impose $1.3 billion of new debt on Holt K2 for a dip it does not need. And fourth, the full dip would impose $2.3 billion of new debt on Hose Kau 2 for a debt, again, it does not need. So with that, Your Honor, I'll turn to the legal argument.

I have four main points. First, the debtor did not obtain Amazon's consent to the dip, despite the fact that it was expressly required by the governing documents of HBCGPLC. Specifically, Amazon has a consent right under Section 4.05B Roman at 6 of the operating agreement, excuse me, at the LLC agreement over the incurrence of additional indebtedness and guarantees. I've made it clear that debtors have disregarded that consent, and Amazon will not provide. with respect to this dip.

Second is the get cross-collateralization and lack of benefit to Holdco 2. And, Your Honor, my colleagues and I have spent the better part of the day talking about semantics, and I think the titles and the semantics are important here. We talk a lot about what a roll-up is, and we talk a lot about what cross-collateralization is. And Your Honor, when I read the debtor's DIP motion, I looked at the helpful chart at the front, and I was very surprised to see that they said there would no cross-collateralization. I don't know how you can make that statement. I want to be very clear that our objection is about the dip primarily at Whole Code 2.

Whether it is appropriate for Whole Co 2 to take on the obligation and grant the liens contemplated by this dip must be evaluated from the perspective of that entity. There is no substantive consolidation here. The Joint Administration Order that Your Honor signed earlier, made that clear. There are separate debtors with separate assets and separate creditors. Each entity must be evaluated separately.

The debtor's argument that this dip is all we got doesn't change that. The business judgment standard does not apply here given the absence of any decision maker who is looking out solely for old code two and the clear conflict.

The testimony was clear. There is nobody minding the for hold code too. There are a lot of incredibly well-respected professionals involved and incredibly well-respected independent directors, but none of them wears one hat. But even if we assume that the sound business judgment standard applies, this dip fails nonetheless. It does not satisfy the sound business judgment standard. Why? So let's look at the benefits and the burdens of any uncomfortable. What the conflicted fiduciary for Hold Code 2 would do, and I'll start with the benefits.

This step is not to find the Hold Code 2 operations. Again, Old Code 2 has little of any operations or expenses. That was the testimony. It's a holding company that owns the flagship entity and the 12 East 49th Street entity. And that flagship entity also has little of any operations or expenses other than what we approximate to be $4.7 million in interest per month. as an interest per month on account of a CMBF loan.

The interest is more than covered by the rent paid by its affiliate 12 East. But even if that rent stopped being paid and flagship or Whole Code 2 needed financing to pay that monthly interest, we're talking about a dip that is significantly smaller by orders of magnitude and not what's being proposed today. So the benefit to Hold Code 2 from this dip, if there is any at all, is de minimis at best. And turning to the burdens, let's look at Cold Co2's capital structure, pre-dip, and post.

Mr. Harris walked through the chart with the first witness. Today, the only secured obligations that we're aware of at Cold Code 2 is a limited guarantee of certain notes held by the dip lenders and others in the amount of $200 million. But that's it. It's $200 million. dollars. The dip, however, would impose a billion dollars of new money dip claims and liens at Holt Co2 and $1.56 billion at purported roll-up loans, even though, to be very clear,

Hold Co2 only owes $200 million of those notes right now. Other than respect to the $200 million of the roll-up, this isn't a roll-up at all, and the terminology is important. Roll-ups take an entity pre-petition debt and convert it to post-petition debt. That's not what they're doing. They're taking over a billion dollars of pre-positioned debt of other legal entities on which Hold Code 2 is not even obligated and making Hold Code 2 a guarantee on a secured basis. It's not what clear was a statutory basis for that relief would be. The debtors appear to generically rely on Section 363 and 364.

But Section 364 applies to extensions of credit to a debtor. Nowhere does Section 364 authorize a debtor to grant liens to secure debt at another debtor. And Section 363 requires a showing of business justification. There's no business justification for Hold Code 2 to do this. We try to think about how to fit this into a traditional role-up framework. And the best we could come up with is that other FACS entities are forcing HoldCode 2 to do this. Code 2, which may not need a dip at all, to incur billions of dollars of obligations of dip obligations to effectively pay off pre-petitioned funded debt obligations of those other stocks and entities.

Why would they do that? It makes no sense from Hoto 2's perspective, but it makes a lot of sense, Your Honor, from the perspective of the other debtors. The reality is that the other debtors, which do have operations. They have employees. They pay utilities, rents, all the other things you've heard about, and which are liable on the full amount of the pre-petition notes. They want to use the value at the flagship in Hocot2 to hope to salvage their operation and fund their cases

for the benefit of their creditors. That's all at the expense of Holtco 2 creditors, like Amazon and the trade creditors. You heard the testimony, $180 million of trade creditors. at Holdco 2, whose claims are guaranteed by Holdco 2, and who without the dip could possibly recover in full. There was no analysis about the recovery. There were some conclusory statements.

That's it. That's not enough, Your Honor. This will probably be a very complicated case, and the debtors certainly have a complicated organizational structure. But the dip is actually quite simple. The dip lenders are using the financing needs to avoid the debtors. of affiliates of Holco 2 to transform $200 million of pre-petition claims at Holco 2 into billions of dollars of post-petition claims with recourse to potentially significant value

in Hold Code 2. So I can understand why Sachs, as an enterprise, might be willing to agree to these terms. But why would Hold Co 2? I can't think of a good answer. The debtor's best argument was, it's all we got. You know what? That's just not good enough on a legal entity-by-entity analysis. And that takes me to my third point, Your Honor.

Governance and management. Holdco 2 does not have an independent fiduciary looking out for its estate and creditors, despite the fact that Holdco 2's interests are in many ways not aligned with those of the debtors, as this did makes clear. None of the professionals were looking out only for HoldCo 2, none of the management team and not a single director. Holdco 2 is member managed. There are no decision makers there whatsoever. Decision making authority sits at the ultimate parent HVCGP LLC.

So the individuals making decisions for WholeCo 2 are the same individuals making decisions on behalf of all of the other debtors. Try as they might, these individuals can't serve all those masters. The other debtors have every reason to use value in Whole Code 2 to raise financing they need for other entities. Again, it's all they got. Hocot 2's incentives are the polar opposite. They have no reason to use that value as currency to obtain financing that only benefits other entities. And it's not just in the context of this dip that those interests may conflict. it will be persuasive throughout these cases.

As another example, it's very possible if not likely that a liquidation of Hocco 2 and the flagship property may actually be in the best interest of those creditors. The other debtors, however, would do everything in their power to avoid that outcome and will want to continue taking Hococ2's value to subsidize a chance of recovery in their own estates. And in addition to the flawed governance, Amazon has serious concerns with and questions about the debtors' management and operations. They have loan budget after budget and blew through hundreds of millions of dollars in just a few months since the August liability management financing, which has led to crashing into bankruptcy with no game plan and no exit in sight. And you know what, Your Honor, the $500 million of purported exit financing is a looseer. It's an option. It's completely conditional, unacceptable business plan, among other things. There are director and officer issues that need to be investigated, and I'm speaking...

Our system will end this conference in five minutes. To extend this call for one hour, please enter the moderator pin now. Predators can be on. Your conference has been extended for 60 minutes. And whether that would be Chapter 5 causes of action, reach a fiduciary duty claims, or otherwise. and the same for the proceeds of any D&O policy. And that takes me to my final and most important point,

preserving the status quo for the creditors, for the creditors committee and other unsecured creditors like the brands, to have an opportunity to be heard and to have a full and fair day before your honor to protect their interests, before their recovery is taken from them by the secure lenders. And I want to point to something in the dip order, and I'm speaking to paragraph 7 is page 16. and I'm going to quote from the dip order itself.

The consummation of the pre-petition off-go second-out notes participants shall be final and irrevocable as to the debtors upon entry of this interim order. That's $721 million. It's not subject to challenge. It's not subject to reconsideration. Nothing. That is value that goes out the door tonight if it is approved. The debtors filed these cases last night at 11th Central, and the did it, motion was filed this morning around 1030, just five and a half hours before the hearing.

And now the debtors want to jam through a dip financing package that would put $2.6 billion of claims at Holdco 2 for the benefit of the dip lenders, even though Holdco 2 does not need financing and is only liable for $200 million a pre-petition note. Your Honor, we're talking about cross-debtor cross-collateralization. We are not talking about a routine roll-off. We are not talking about a more simplified capital structure where the pre-petition lender is properly perfected on all of the debtors pre-filing. I get it. I've been there, and I've asked Your Honor to do the same.

This is not that. The debtors have not shown that there would be an immediate and irreparable harm if the dip is not approved at Cold Co2. And again, we do not care if the dip is that approved at the other debtors. Have added, approve all of it. just leave HoldCo 2 out of it. There is no emergency that requires Holdco 2 to incur these dip obligations. Whole Co2 does not need any cash in the next 21 days, and Holdco 2 would not suffer any injury in the next 21 days.

That is the standard, Your Honor. And it's certainly no emergency great enough to deprive Amazon and other unsecured creditors of their due process rights. And on the flip side, if this interim dip is approved tonight, it will be immediately devastating to Hodeco 2 and its creditors. It will impose significant new debt on Holt2's secured and senior to all of the pre-existing creditors. It will likely mean that those creditors will go from getting a significant recovery to no recovery.

That is just from the interim dip. And on the substance, there are serious concerns with the terms of a dip, especially, but not limited to the cross-collateralization, that it contemplates. There are serious concerns with the debtors' management. There's serious concerns with the debtors' governance. The bondholders must also agree, which is why presumably most of the debtors' preconditioned executives have been terminated, and they're requiring their own independent director. There are serious concerns that Amazon and other insecure creditors, including the brands,

may have been induced to provide services to the debtors under false pretenses. time will tell if that's indeed true. And all of that impacts the dip, and parties should be given the proper time under Rule 6003 and 4 so that we can do discovery and depositions and analyze whether a liquidation may actually be better for the whole CO2 estate. Or perhaps for the negotiated resolution between now and the final hearing. But until then, we need to preserve the status quo, and I personally know that in this court, all constituents are given due process.

Whether Amazon wins or not, that has yet to be decided, but I know that in this court, Your Honor, will give me the chance to put on my best pace after discovery and afford my client the due process to which it is entitled. Only once, Your Honor has all the facts before him, is it appropriate for you to call balls and strikes when the outcome could be so consequential to those like Amazon and the brands? We cannot change the rights of creditors at WholeCo 2 and effectively eliminate any chance of their recovery in this manner on such short. notice. There's too much uncertainty in this case to make significant drastic rulings that would effectively eliminate creditor recoveries on the first day of a case. To be clear, we think the release should be denied at a final hearing, too, but at the very least, it needs to be adjourned

until then for due process. If the debtors need financing to survive for 21 days, then they can incur it at the other debtors. At the minimum level they need it, where the debtors actually have operations and an actual need for financing. But no dip claims should be opposed at Holtow 2 today with respect, with all rights reserved for all parties, a creditors committee in particular until a final hearing. And, Your Honor, unless you have any questions, I'll leave it today given that the hour is so late.

All right. Thank you very much. Your Honor, may I be heard? Yes, sir. Your Honor, I'm going to be very brief, but I'm going to start. with a statement that Betters Council made and the theory that he put. He said, I understand why people are objecting this financing could have been done outside bankruptcy, so why can't it be done inside of bankruptcy? And I think that's exactly the point. This could not be done outside of bankruptcy.

It would be a classic fraudulent conveyance. What you are actually asking for, whether this company is solvent or insolvent, is to put on a separate subsidiary over one point. billion dollars of debt and what is it getting in exchange it doesn't need the cash it doesn't need money it's not getting reasonably equivalent value that's what they're asking you to do and and they're asking for you to approve that so in the very instant so in this instance while my clients both vendors agree that they do believe the dip is necessary they do think if money is necessary for hold co-2 a dip would be a purpose

appropriate, the question is, what's the proper balance which the report should strike here? In this instance, some dip may be necessary, but if they should only have to give away the assets necessary to make sure that that dip that they need is to be repaid. So our objection really is they haven't carried their burden to show immediate and irreparable harm, and that the benefits of this dip to this entity, which is for the benefit of of other affiliates, you kept hearing it's a unified company, it's a unified company. We won't do it without that. That this company is not getting the benefit for which is giving up $1.5 billion in secure debt. You couldn't do that outside of bankruptcy. You shouldn't be able to do it in bankruptcy, certainly not in an interim hearing.

So for that reason, we would ask, Your Honor, to simply tailor the relief, let people come back on the final hearing, and actually weigh the benefits and burdens of the dip to the benefit. this company and the benefits versus the burden. So, Your Honor, we would ask that it be modified and given an opportunity to reconsider this and had a full evidentiary hearing at the final dip. All right. Thank you. Who else wishes to be heard?

Your Honor, I'm going to be born. Yes. From Sidney, Austin. Thank you, Your Honor. I just want to organize my closing and three main questions. Who are we? what's our issue and what are we asking for? And I think the answer is simple.

And I thank Mr. Goran for confirming two points, which makes our presentation even simpler. Thank you for confirming that our equity at SFH at HoldCo2 is not itself subject to and is senior in all respects to the diploan and to the card up. So who are we? Exonic is a holder of some of the CNBS bonds down at the HBSGVs. These were the ones that you heard earlier on in the presentation that Ms. Sinclair noted are not debtors in the bankruptcy. In addition, and most relevant here, Exonic is a secured creditor with respect to debtor Holdco 2.

Holdco 2 granted a lien in its equity interests in 12 East 49th Street. And then just an additional point of context, who are we? We have been a constructive partner to Sachs for several years, and especially for the past several months. We've been working with them to try to restructure their obligations, and unfortunately, conversations completely, and communication completely has broken down. We had no notice of these filings.

We had no notice of what they were planning to do, and we join in Amazon's objection that we just need some more time to be able to adequately make our case. So what is our issue? Our issue is that Exonic, as a secured creditor, has a cognizable interest in property of the debtors, and its rights are being trampled on pursuant to this dip. First of all, we do think that the actions that were taken were ultra-varez.

I know Mr. Gorin said that that's maybe an issue for another day. It's not. It's an issue for today. And if your honor can't rule on it today, which we don't think you can, you can't rule on it to the other direction either, and you should delay ruling on it until you have all the facts in front of you. But just to give you a preview, as Mr. Weinstein testified, apparently in the debt of night, perhaps even in the hours before the bankruptcy,

the debtors report to have amended the LLC for 12 East 49th Street to allow the actions that precipitated this objection, i.e. to allow it to file for bankruptcy and to take on the debt of its affiliates. It had not been permitted to do that for 10 years, and frankly, it was not permitted to do that at the time that it did that. The entity, Sachs and Co, as well as 12 East 49th Street, also purported to adjust the terms of the operating lease without the requisite consents that they needed. So again, these actions were not allowed at the time. We don't think that's just a breach of contract claim, and we think that that is one of the main reasons it's not appropriate for the dip to be entered with respect to this entity today.

separately, the debtors have not shown that the factors of Section 361 have been met for 12 East 49th Street. Amazon has made this point quite strongly over the past several hours. This 12th Street has no employees, no vendors, no need for operating liquidity, but its value is being used to support other debtors' operations. Mr. Weinstein said over and over, there are indirect benefits to the entity. There is overall value to the entity, but there has not been the required analysis for a priming mean on a per-debtor basis. And I just want to highlight that. You know, the conversation has been over and over by the declarants.

There's an overall benefit and everybody is gaining value from this. Well, then why wasn't the sister entity to 12 East 49th Street, the flagship entity itself put into bankruptcy? There's some selective choice going on here that we need to have a chance to look into. And respectfully to Mr. Boren, he's wrong that there's not a cognizable interest in that Exonic is not entitled to be protected. Exonic is being primed, and the debtors have the burden to show that Exonic is adequately protected. They have not done so. we've highlighted a couple of key cases in paragraph 28 of our objection, which we direct your honor to.

But essentially the punchline is courts and Congress say that the value of equity, what is being protected by the bankruptcy code for a secured creditor is the value of their collateral. For a secured claim where the collateral is equity interests, the value of the subsidiary is what is being protected. A debtor cannot come in and destroy the value of a subsidiary, which destroys the value of the equity, and say that secured creditor is just fine. That's not what the law says. That's not fair. And that is not an issue for another day. So, with that all said, what are we asking for?

We think it's simple and easily grantable. Delay approval of the dip borrowing from 12 East 49th Street until the final hearing. They haven't shown a cash need for that entity in the interim period. There are serious questions to be answered, and we need time to review and hopefully discuss. This is not an unprecedented ask. Courts often grant almost all of what a dip lender wants that delays some part of it to the final hearing. The debtors always say the dip lenders won't fund, and the dip lenders do. I'm not sitting here saying deny the whole dip, and don't pay employees tomorrow.

Of course, I'm not saying that. What I'm saying is preserve the status quo with respect to one purported debtor until a properly perfected secured creditor can properly make its case. I submit that we have a light switch here. If the debtors don't get the lien on this entity, they will be fine. If they do get the lien on this entity, we will be irrevocably harmed. In the absence of that, we join with Amazon on their at a minimum run-biz, is what I'm calling it, including limitation. of the liens on those entities to be what is strictly necessary to operate those entities in the interim period, which is probably zero, marshalling of the liens away from that collateral, at least

during the interim period, and the ability to fully unwind the transaction, including the granting of the dip liens and the filing of the entity at the final hearing. I just have one closing statement. We just don't really understand why they're picking this fight with us. Exonic has been partner to Sachs for years and has been working collaboratively for months to avoid this situation. Instead of focusing on the vendors, on their business, SACS is trying to take something from Exonic that shouldn't be taken. We hope that we can return to the consensual conversations we've been having and at least put this issue to bed for the debtors.

Thank you, Your Honor. All right, Mr. Hawkins. Yes, briefly, Your Honor, for Delche Guevano, we're one of the vendors who, has seen host code to become a co-obbler. That was presented to us as a way to make sure we had a solvent entity who could support the amount owed to us. And that is rapidly going to become untrue. It would seem if this financing is allowed to burden this particular debtor.

I don't have much more to say than the points that already have been made. Therefore, I'll join with the points made by. Amazon, Mr. Gilardi, and Exotic, to say that it just doesn't seem to be necessary, and we would suggest and ask that this, at a minimum, be adjourned until the final hearing, so we can find out if there's a reason to justify putting this much debt on this entity that, frankly, not only doesn't seem to need this debt applied to it for its own needs, but may not even be justifiable as a bankruptcy debtor. So for all those reasons,

we in effected during the other three. Thank you, Your Honor. All right. Your Honor, Bob Britt and Paul Weiss, I'll be up to the group of handholders and defenders. Let me hug Mr. Lahane and Ms. Houndman and then I'll come back to you.

Thank you, Your Honor. Thank you, Your Honor. Robert Leehane, Kelly, John Warren, again, on behalf of numerous landlords, including Brookfield Office, the headquarters landlord, Brookfield Retail, and they're at 18 locations. Your Honor, we believe the debtors absolutely need this dip, but we also have problems that it is not truly an interim dip as it's styled.

Specifically, with respect to the very narrow issue of the waivers, suggested in paragraph 19 of the 506C waivers, the 552B, and the marshalling in paragraph 20. The very simple fix here, make that those waivers being subject to the entry of the final order, apply also to the dip lenders. from the middle of the paragraph up to the beginning of Section A and Section B. Your Honor, this is the typical maintenance of the status quo, as argued at length by Amazon and others.

So what we would expect in an interim order is that nothing is final and certainly a 506 waiver isn't granted until the creditors committee has an opportunity to weigh in and be formed and look at these issues. 506C specifically was designed and intended to prevent a windfall to the secured credit creditors and forcing the unsecured creditors that have to pay for the expenses of liquidating the collateral. So it's not market and it's not interim for the dip lenders to get a final waiver of the 5406 on the entry of the interim order.

That's the main issue that's still open. We certainly appreciate that we made certain requests early today as soon as we could and we made some headway, but that open issue is still there. We also ask that any material amendment of the dip documents that the discussions about those notice of those be made available to parties seeking requests of those, not just to the creditors committee or the dip lenders. And if there's a material event of default or a discussion about that, that also significant parties will request notice of that be able to participate.

So, Your Honor, with that, we think this is a typical, simple maintenance of the status quo. There's no good reason why that 506 waiver can't wait until the final order so the parties have an opportunity and the creditors committee can be formed and weigh in and look at these issues. All right. Thank you, Ms. Hyland. Good evening, Your Honor. Leslie Hyland-Ballard Spar on behalf of a number of the debtor's landlords. I join in all of the statements that Mr. Rahen conveyed, Your Honor. We do believe the debtor, the dip lenders request for a first-day marshalling 506C and 552 waivers

are not customary dip terms that we usually see on a first day. and it is extraordinary relief. It is not market, as Mr. Lahane indicated. And duly prejudices the rights of the creditors, many of whom we don't even know that they are creditors yet, and they're the ones that are going to ultimately harm if this case ends in a liquidation. I will concede that these waivers are typical components of dip financing,

but usually they are not granted until approval of a final order. At a first day, on an expedited interim basis, the standard is to maintain the status quo. We've heard that a lot today. It's to preserve the rights and interests of all parties to the maximum extent possible and avoid irreparable harm until the parties have actual notice, representation, and an opportunity to review and evaluate the financing documents, the budget, and what expenses are actually captured or not captured in the budget. important as your honor heard from the testimony of Mr. Weinstein today and through our discussions

with the debtors in advance of this hearing we did learn that the unpaid sub rents estimated to be approximately $16 to $19 million are not in the 13 week budget and instead are to be paid out at the end of the cases with other administrative claims we do not know how many locations are impacted by the non-payment of those rents the debt and the state and the state sub-rent is certainly a cost of these estates that is being incurred before the entry of the final order and is an administrative expense that likely will not be recoverable by way of a surcharge if these waivers are granted today. But yet the debtors find themselves administratively insolvent before the end of the case, which is a not uncommon path we have seen in many, many

retail cases in recent years. So while this may be a standard relief on full notice at a final hearing. It's simply that too early in these cases to make this decision today. And there has been no justification for such extraordinary relief being asked on the first day. The landlords do not have access to the credit agreements. They have not had an opportunity to evaluate and conduct the diligence on the budget in the order, which has been filed in a summarily fashion or to assess that it

includes sufficient amounts for all post-petition payments, including that it how the debtors will have sufficient liquidity upon exit of these cases to pay the drug rent. Well, and your honor, as we so, as we sit here today, the evidence, there is no evidence that our rights are adequately protected as required by 363E with respect to the use of their premises from the petition date through the end of January or in this, with respect to the subsequent post-petition rent. We do think it's very curious on the.

debtors, disloenders insistence on this waiver on the first day because they're the ones who know better what is the, what the sufficiency or insufficiency of the budget is to cover expenses. Are they so concerned that there will be a default before we can get to a final order, triggering a potential surcharge of their collateral? That frankly increases our concerns here. If there is a risk of surcharge in the interim period, that is all the more reason not to grant those waivers today. And as presently drafted, if something unexpected happens, which if history is to prove us right,

we don't get to a final dip order, but the lenders will have had the benefit of the 506C immediately, and there will be no ability to surcharge or pay the administrative freight of these cases. Your Honor, it's not locked on anybody. This is a retail business, and substantially all of the collateral is sold in the land-wide premises, and the debtors are open and operating in those premises today. And there's been many, many statements today that this case and this debt is needed to keep that inventory flowing into the stores. Surcharge is not about the debt. It's actually about the collateral.

And that collateral is being commingled in the store as soon after you enter this order. So it makes no difference if that we're granting a single single. surcharge waiver or waivers on the first day solely to the dip lenders, but reserving the pre-petition lenders because it's the collateral that matters, and the harm will be already done if it's granted today. The rights that the debtors are asking this court to waive today are precisely the rights designed and put into the bankruptcy code specifically to protect the interests of creditors, providing post-petition goods and services to these debtors. Those rights should not be waived on an expedited basis on the first,

prior to the formation of the creditors committee to evaluate these issues, to evaluate the budget, and certainly not before a final hearing on notice and due process. And again, I think we all said this, the simple solution here is one that has been reached and frankly agreed to only virtually every retail case in recent history. Those provisions should be subject to the final order and everybody should have notice for those provisions. Thank you, Your Honor. All right. Thank you. All right. Mr. Britton.

Thank you, Your Honor. I'll be brief. It's late, and I just want to clarify a few points. I think that in closing argument, various counsel models, facts, and evidence have been presented to your honor today. So I just want to make four very brief points. First, to be very clear, no Hold Code 2 creditor is being primed by our dip, other than ourselves. We are consensually priming our own lien. None of the other liens being taken by any credit or misportity client or any other secure client within Old Code 2. Second, what the dip order says in response to the landlord's argument to honor is that with respect to the dip loans, 506C and 552 don't apply the way it does it the first day to the extent they would apply.

But they do not grant us and what we have not asked for is a 506C way. waiver, 552B waiver with respect to any pre-petition debt on an interim basis. So to the extent that the landlord are concerned about those issues, we're not asking for it. Third, Your Honor, there was some dialogue in cross-examination about, well, if you made up a hypothetical valuation for old code two, for the flagship stores, and some made up unrealistic hypothetical valuation might there be a recovery to credit even in the liquidation. And yeah, sure, if you want to make up numbers,

at some number, you're going to get to a recovery. But the uncontroverted evidence and testimony from the debtor's CRO was that he believes, and he believed that his other fiduciaries who made decisions here around incurrence of the dip financing and the filing of these bankruptcy cases believe that without a going concerned business, at the opto, without continued rent payments

to the flagship entities, that those creditors will be a zero. And liquidation, which is what that would be, they would get no recovery. The debt preserves their ability to fight for another day, Your Honor. Third, fourth, I guess, and this is the most important, just one simple point. There's been a lot of argument, a lot of statement,

a lot of supposition along the way by Ms. Forty, by others, that well dip lenders always say they will fund, but they always do. And what we should do is just maintain the status quo for 30 days. And inherent in that statement, Your Honor, is that we're willing to fund the status quo for 30 days. It's going to be abundantly clear. Without the value of flagship two, this loan is not financial. This is not a loan that we can underwrite or we can carry to a 30,

to a second date hearing, do we try it again without the value of the non-prining means that the judges have proposed to place on flagship to, there is no dip load to get us to a second day hearing and maintain the status. Thank you. All right. Any further response? Your Honor, if I may. Yes, sir.

Again, for the record, Dan Fiorlo from our own. of a co-counsel to the B of A Bank of America, the administrative agent for the ABL bank group. Your Honor, I'll be brief as well. I just want to respond to a few points, and I'll try not to repeat what's already been said. The dip financing facilities of both the ABL and the note holders are actually... Sorry, I'm going to echo. They're basically constructed to work in tandem. What I mean by that is the ADL.

dip, which is going to provide approximately $240 million of incremental liquidity that the company did not have prior to the bankruptcy as a result of the bank group releasing various reserves against the collateral is a substantial contribution to the company's cash flow and liquidity needs. That money will be released when the note holders dip tranches, three tranches, the first of which is $400 million, and the next two will be $300 million and $300 million. million, those monies are all being funded at the same time in accordance of the budget, which is intended to get this company through a restructuring process. These dips are not, and I repeat, not structured to liquidate the collateral through some

store-wide closing sales. That is not the goal. That is not the way these dips are designed. And to hear the landlord say, this is just another retail case and the likelihood is, we're not going to get to the final order without the fault in liquidating these stores. It is completely contrary to the negotiations that we've all had over the last week, every night, all night, weekends, not getting sleep. We are doing this to give the company the best shot to restructure and reorganize the businesses and maintaining going with certain value. And, Your Honor, the waivers that we've asked for, as counsel for the note holders noted, is only regarding the dip loan status.

With regard to the pre-petition loan status of both the ABL and the note holders' secure claims, the 5060 waiver, the 502 equities of the case waiver, the Marshall waiver, those will be final order issues. What we're asking for, however, is in consideration for the $550 million of first-day liquidity that will be provided between the ABL and the note-holder dip facilities, We do want those waivers in effect with respect to those post-eitition loans that we're making to effectively give this case the best jumpstart we can to successfully navigate through the Chapter 11. And Your Honor, I'll make one more point with regard to the concerning vendors and the concession vendors. We are not priming their interests. This interim order does not affect their interests or rights to reserve.

We fully anticipate engaging with counsel for those vendors. in an attempt to get language that many of us have seen in other hip orders in Chapter 11 cases such as this to get a consensual resolution and obviously between the interim hearing and the final hearing all those rights will be reserved while we negotiate thank you honor right anything further yes yes yes absolutely I'll be very brief $175 million claim against Poldco 2 and crystallized yet yes we filed a motion to reject their contract it hasn't been rejected yet even once it's rejected, the actual size of that claim is still to be determined. So at the moment, all they have is a contingent claim.

Little bit no confidence will emerge, no game plan is belied. I don't believe they would do that. The only world we live in now is the world where we're in, which is the only dip financing that will fund this company is the one that requires a lien at Holdco, too. And we are... Your Honor, may I just respond very briefly? Yes. Mr. Gorin says we point to nothing.

We do point to things. We point to things in our objection. I've stated things on the record, and that's why we need the time to be able to develop the record for your honor. So I sort of say the other side, which is it can't be the case that the debtors can just say, you know, we can come in here and impair a secure creditor's rights,

and they don't get an opportunity to protect those rights because it's the first day. All right. Thank you. All right. Anything further from anyone? All right. So, you know, we've been here for almost five and a half hour, no, six, five and a half, no, seven and a half hours.

Seven and a half hours. And I think a significant factual record has been developed. And so a lot of what was discussed today really doesn't go to the debtor's bird. under 364 to get, or under 363 and 364 to obtain the financing. The arguments about, you know, management and all of those things, I mean, those can be addressed at other places. I think they were highlighted in the motion. So I'm going to focus on, you know, number one, the evidence, and number two, the requirements

of Section 364. Based on the evidence, I find that the testimony has been that this is the only actionable dip, that it was well marketed and well developed, and that the premise that anyone could finance this company without the flagship debtors is just simply not borne out by the facts. So then the question becomes, is that a proper exercise of the debtor's business judgment? And when the evidence clearly indicates that the alternative is liquidation, I believe that that is properly a proper exercise of the debtor's business judgment. I also think that it's a false narrative to say that, the H2 debtors are going to have a billion five in additional debt.

I mean, they will incur that amount, but they will also have contribution rights from all the other subsidiaries. There are significant assets in the other subsidiaries. So we're not really talking about the contribution rights with respect to that. I agree with counsel that this isn't a priming lien. This is not a situation where the only priming here is consensual. To the extent these acts were ultra-virus, again, I'm not deciding that today. To the extent there were ultra-virus and the debtor didn't have the ability to do that, I think that that's a risk that the debtor is running because I'm not making any determination as to whether

it was alter virus. So as it relates to the business justification, I think that there is a business justification. I think the evidence compels the business, compels the business justification. And I think the narrative that you can, in essence, pull out H2 and not look at it in the context of the money that is being funded for the flagship store to operate,

to pay the CMBS to do all of those things that you need in order to maintain in the ordinary course of business. I think that that is just a false premise and it doesn't go to the debtor's business justification with respect to that. I had three major concerns about the proposed form of order. I think these are all technical. One was the 506C. waiver. I think that's properly and I understand that you've limited it to

the new money, but again, I think that you're getting the liens on the assets, so I think that's properly subject to a final order. Second, there was only a $50,000 budget for the unsecured creditors committee. I think we need

to increase that budget to at least to $250,000. And then third, there was, in your paragraph, in your paragraph, with respect to the remedies at 16A, a little six in the hole and little seven in the hole, with respect to those two remedies, I think the way you have it is that, there's a remedies notice period I think you really the way that we've structured these here is that you need to come back to court to get it but I think that you

know on a similar to the one that the the cash collateral order that was signed before I think it's the same effect but I think it's all as a result of I don't know what happened there there we go I think I think it's just a procedurally, I want it before you can actually foreclose on the collateral, I think you need to get a court order, and we can do that on 48 hours notice, have the hearing on that on 48 hours notice. So with those three, what I consider, cosmetic changes, I'm prepared to grant the dip. And with that, and also I want to make sure that the check The challenge period is the challenge period and to the extent that there is a challenge, it's subject to the challenge period. And nothing that is other than the new money that's being put in, nothing in this order affects the ability to challenge it.

And I think 60 days after the creditors committee is appointed will do it. but I'm prepared to approve the dip with those three minor changes. Your Honor, may I ask the clarifying question? Yes. This is Omine Bortes on behalf of Exxonic. If at the final hearing, if we're able to convince Your Honor that the filings were ultra-virus or that this is a priming lien, which we respectfully continue to believe that it is, would the liens then be able to be sort of come off of?

of our subsidiary. Yeah, I think we'd have to consider that at the time. I don't, I mean, I would need some briefing on that. But I think we would need to consider that at the time. I'm not going to give an advisory opinion today on what the effect of that would be. So, Your Honor, we would ask for a stay of the order with respect to that entity so that we could take an appeal of that issue. All right. The stay is denied.

Yeah, Mr. Britton. Thank you. Thank you, Your Honor. Just quickly on behalf of the dip letters, I wanted to confirm that we'll work with the debtors, Your Honor, to make the changes that you've requested to the order. It's no problem. All right. Thank you.

All right. So, Mr. Gorin, try to get that order to me as quickly as possible. There's a whole day seminar tomorrow, so Mr. Laws is going to have to get me. downstairs in the building and Mr. Olaas will get me out to sign the order. Okay, yeah, we will, I'm just like it's all ready to go more or less of a bit than those changes. Okay, so we did, we just for your honor's reference, we have been working throughout the hearing and have added language resolving a lot of the comments you heard earlier from the consignment concession folks as well as the landlords.

So we, that language has already all been inputted in the order. that should be ready to go. We'll input these three changes and get it over to your chambers they're up. All right, thank you. And you can look at the language in the cash collateral order, which I think tracked what the way I'd like to see the remedies period, just with respect to the, you know, sub six and sub seven. I mean, they can obviously terminate the commitments, stop funding, et cetera,

all of those things without, it's just foreclosing on the collateral. All right, so we'll be in recess. Thank you all. Thank you, Your Honor. Thank you, Your Honor. Thank you, Your Honor.