American court hearing recordings and interviews - Klöckner Pentaplast - second bankruptcy hearing in US chapter 11 bankruptcy case in Texas

Episode Date: November 12, 2025

November 12, 2025 Houston bankruptcy court hearing in the Klöckner Pentaplast bankruptcy case.

Okay, good morning. This is Judge Lopez. I'm going to call 2590642, Claire Patrofinko. I will take appearances in the courtroom. If anyone's on the line, please hit five star, and I will unmute your line. Good morning. Again, Judge Lopez, Janet Whitworth, for the U.S. Trustee. I'm standing in for my colleague, Andrew Jimenez.

Okay, good morning. Mr. Luce, good morning, and I will unmute a few lines here. 3-1-2 number. Yep, good morning, Your Honor, Jack Luz from Kirkland-Alice on behalf of the debtors. I believe my colleague, Dave Gremlin, will be on as well. All right, here's a 3-1-2 number. Another 3-1-2 number I just unmuted. And there's a 2-1-2 number.

Your Honor, Michael Cohen, gets him on behalf of the ad-up group of the funders of first-leaders. Okay, I just unmuted two more lines if you were on the line. For Cleopatra, please make an appearance. Mr. Scott, good morning. Good morning, Your Honor. Sean Scott of Mayor Brown, LOP, on behalf of Kofof, Finance, GMBH, one of the factors. All righty, good morning. Good morning.

John Higgins, Porter Hedges appearing to carp on behalf of the debtors. Okay. Good morning, Mr. Higgins. A 632 number. Good morning, Your Honor. Dave Gremlin of Kirkland analysis also on behalf of the debtors. All righty, good morning. And Bob Richards on behalf of Factor France on the 630 number.

Good morning. Okay. Mr. Luz, maybe I can turn it to you. I know, I guess I'll set the table. Debtors started this Chapter 11. a loving case on November the 4th. We held first day hearings on November the 5th, and it was a related among the first day relief. There was a motion seeking interim relief to allow the debtors to continue participating

in selling receivables under certain factoring program and modifying the automatic stay and granting additional relief. I asked to parties and they were kind enough to continue a portion of the relief requested to today. I granted interim relief on that basis, but we were going to have a second hearing just to give folks a little bit more notice. And with that said, I will turn things over to you, Mr. Luz. Thank you, Your Honor. I would note that we filed a brief supplemental declaration from Mr. Hickman. I hope, Your Honor, had a chance to see that.

I did, I did. Just providing some supplemental context and evidence. For the argument, Your Honor, I was going to turn it over to my colleague, Mr. Gremlin. You might be having camera issues. Let me just ask. I mean, I think, is there anyone who opposes the release? requested my understanding your honor that the office of the U.S. trustee is raising the same point that they raised as a first-day hearing understand we've not

receive formal or informal opposition awesome thank you that is correct your honor the U.S. trustee does not agree with the relief that's provided in paragraph 8 that super priority lien for several reasons obviously mr. Jimenez brought that up at the first day hearing just to reiterate that They're trying to solve a problem that's not before the court at this time. It's not a ripe issue. The order itself has findings that the sale of those receivables are not part of the estate. And also the issue of the challenge period, this super priority moots the ability to,

challenge the the purpose of the challenge period is mooted when the super priority kicks in because any ability to go after those other assets is gone so thank you okay let me hear from the debtors your honor this is of Kirkland Ellis. I am in the go-to-meeting. I'm having trouble, I think, getting my camera on, and I can't see anybody else's screen. But if you can hear me, I can proceed by the audio if that works for your honor. Yeah, that's how we used to do it back in the day, and it works just fine. Thank you. Please continue. Okay, well, first I'll do the housekeeping on the evidence. First, we have two declarations that are relevant to the relief requested today.

First, there's the declaration of Mark Rotella, the company's chief and ambrosial officer. That's at docket number four. Mr. Rotella is on the line and available for cross-examination to the extent necessary. And if nobody has an objection, I'd request that, Your Honor, take the declaration of Mr. Rotella in evidence. Okay. Any objection? No objection. Okay.

It's admitted. Thank you, Your Honor. We also have the declaration from Jonathan Hickman of Alvarez and Marcel, the debtors proposed financial advisor that Mr. Luz referred to a moment ago. That's available at docket number 126. Mr. Hickman is on the line as well, available for cross-examination, and I request that Your Honor admit his declaration into evidence. Any objection?

No, Judge. Okay. It's admitted. Thank you. Okay, Your Honor, I'll turn to the only item on the agenda today, which is the factoring motion in the second interim factoring order. I'll give a little background that I'll address what I believe is the U.S. trustee's concern. And so as Your Honor is aware, through both the papers that the debtors have filed in the conversation at the first day hearing, prior to filing these cases, the debtors had factoring relationships with two factors.

That's Kofos, in facto, France, represented by Mayor Brown and Dunton's in this case. As is common, these transactions were structured as true sales of receivables with a fallback in the event that the true sale is recharacterized as a financing to a secure financing transaction. The debtors would like to be able to force the factors to continue the factoring arrangement on a post-petition basis, but we believe that the contracts are at least arguably contracts to make a financial accommodation. And so it was important that we negotiated the post-petition continuation of the factoring

program on terms that the factors would accept. And Your Honor, we thought that this was a serious need for the debtors because the dip was sized, the dip that Your Honor approved on an interim basis last week, with the assumption that the debtors would have continued access to the factoring program to meet their capital needs over the next 60 days, which should carry us to and through confirmation. And, Your Honor, to give it some context, the debtors sell a little over $5 million of receivables every day, which would provide over the next 60 days approximately $280 million of liquidity on a rolling basis. As of today, the debtors do not have a committed

alternative to fill the liquidity hole that would result from the factoring program being terminated, and as set forth in the Hickman Declaration, even if the debtors were able to quickly source incremental financing to fill the hole less by termination of the factoring program, it is likely that an alternative financing would include all of the following. A higher cost of capital in the way of fees and interest, it's not a secret that dip financing intends to be relatively expensive capital where the factoring program is relatively inexpensive capital, and it would also likely include senior liens over the receivables, which is part of what we propose as our conditional relief for the factoring program, and it would also likely

include super priority claims similar to the conditional release that we're requesting here. So recognizing the need to continue the factoring program rather than, for example, in increasing the size of the dip facility that is negotiated with the factors and the dip lunders were part of that conversation to continue the pre-petition factoring program on a post-petition basis on terms acceptable to the factors. The terms are by and large consistent with the pre-petition terms and they continue to represent a cost-effective source of liquidity. And like in the pre-petition transactions, the post-petition transactions are structured as true sales

with a fallback to a secure post-petition financing type transaction in the event that a post-petition receivables transaction is recharacterized. I want to pause and emphasize two points in there. The first one is that the liens and the super priority claims only come into effect in the event that a factoring transaction is recharacterized. If the true sale nature is not disturbed, then they never come into play. And this conditional relief is only applicable to post-petition factoring transactions. It is not relevant to the pre-petition financing transactions that have already

happened. The U.S. trustee argues, I think, that the grant of a super-friety claim undercuts the ability of parties in interest to challenge the pre-petition financing transactions. This is inconsistent with how the order is set up. The order provides. a stipulation that defactoring transactions are true sales in paragraph 3, but this stipulation is subject to the challenge period set forth in paragraph 22, which provides a challenge period for until the earlier of confirmation or 60 days. And as your honor is aware, our confirmation hearing is scheduled for December 16th. So currently that would be the earlier date.

Instead, the super priority claim is a necessary component to secure the beneficial liquidity that the phagging program represents, and we think it's an integral protection for the factors reasonable expectations in the context of these Chapter 11 cases. And just a note on that, Your Honor, what we're talking about, and I think Mr. Scott aptly characterized as a corner case last week is the unlikely scenario where a court, I think we're specifically concerned about foreign courts recharacterize the factoring transactions from sales to financing transactions, and then we think that the super priority claims are appropriate protection for the factors in that context, because the foreign court

wouldn't necessarily stop at recharacterizing the factors as a senior secured financing transaction, the automatic grant of a lien in that context may not comply with local laws requirements for perfecting a lien. Additionally, that same foreign court might order that the lien is invalidated, the lien that de factoes hold, or grant a senior lien to another party. So what the super priority claims are designed to protect is not only a recharacterization of the transactions, but what is essentially an erosion. of the factor's ability to get recourse against the receivable that they thought that they had

and make sure that they are made whole notwithstanding the conflicting order of a foreign court. And because it came up at the last hearing, I also want to address the release in paragraph 4, which relates solely to the pre-petition status of the factors. It has no effect on the post-petition transactions. We think that the release is a valid use of the debtor's business judgment in the light of the serious need that the debtors have for the liquidity provided by the factoring program. But I also want to point out that the release itself is just a debtor release, not a third-party release, and remain subject to the challenge period set forth in paragraph 22. So simply put, the super priority claims that we believe the U.S. trustee is focused on are granted only to the extent that the receivables transactions are later deemed to constitute a financing, in which case we think it's entirely appropriate to view them through the lens of 364 and grant them liens and super priority claims, which we think are par for the course in the event that we are examining these transactions as post-petition financing transactions. The vast majority of dip orders, I want to every single dip order, including the dip order in this case, grant super priority claims to parties providing post-petition financing.

The only difference here is that granting such claims may be, and we're hopeful that it will be an academic exercise because such claims are granted only if a party successfully recharacterizes a post-petition factoring sale as a financing. And the debtors, I'll just note, for the record, Your Honor, the debtors have received no objections to this release from any, from this relief from any economic stakeholder. In fact, the vast majority of those affected, and I'm talking about the dip lenders and the parties to the RSA, who are over 90% of the first lien lenders and over 80% of the second lien lenders, which are the only classes of creditors that would be impaired under a proposed plan, have affirmatively contended to this relief. In light of that, the debtors respectfully request that the court overrule the U.S. trustee's objection to enter a further interim order permitting the debtors to continue their factoring arrangement. Unless Your Honor has any questions, I would request that you enter the order that we submitted at docket number 124. Okay. I'm going to just know for the record the court granted interim relief on this point.

And we had a second hearing. I wanted to make sure that we had a little bit more notice out to parties who may be affected by this and to think about it. The concern raised by the debtors and the factoring parties is that they are. purchasing foreign receivables and subject to exposure potentially by a farring court and there's nothing improper. It's just there's always an inherent risk in some here. This case is set for plan confirmation next month to a lot of whether someone can successfully challenge something in a month and a foreign jurisdiction is outside of my realm of expertise, but we're talking really academic stuff, but to someone who was buying receivables, it is important. And so this is a factor with kind of a fallback that they can

convert essentially into kind of a debt, a form of financing. And I understand it. I'm an overall to trustee's objection. I think it's permissible. I think this is a ship that will never reach shore. But yet, still, it's important for foreign entities to have some comfort that if the receivables are there, that this would convert into a dip. I think this is kind of really unique in this case, and I don't see these happening too often. And so I think this is a unique solution to unique problem. And I'm comforted that we took a little bit more time. I think the trustee was right to bring the objection. I'm just comfortable with where we all. are and I'll sign the order and we'll see where we are and sounds like next month

so we're seeing each other next month next yearings early December the second day your honor will be up for final approval then all right folks well sounds great you'll have a good day thank you very much I've signed the order thank you thank you all right thank you all right thank you