American court hearing recordings and interviews - Prima Wawona bankruptcy hearing February 16, 2024 (In re MVK Farmco, Delaware bankruptcy case 23-11721)

Episode Date: February 18, 2024

--

Good morning, Judge. Ryan Bennett, on behalf of the debtors. I'm joined in the courtroom today by my colleagues at Kirkland, Michael Slade, Jamie Fidel, Rob Jacobson, and Dave Gremlin. Your Honor, we're before you today seeking entry of the second interim dip order. That order would allow the debtors to borrow and use an additional $11 million to bridge us to February 28th, when we currently have court time with Your Honor to hear us again on the dip facility, either on an interim or a final basis.

This morning we filed a proposed form of second interim order, docket number 651, and we've also included red line marked against the first interim order. And further, Your Honor, just as of a few minutes ago, I'm pleased to announce that we reached consensus on the terms of a deal around the interim order. As you can tell by a number of people in the courtroom, that was not planned when we all arrived in Wilmington, but we worked earnestly on it over the night, and I'm happy to report that we have sketched that out. I'll have a couple of things to read into the record in a moment,

but I would like to give you kind of an update as to what's going on in the case because there have been some things, and we haven't had hearing a little bit. So before we present that second error order, we'll do a quick brief status update. We've been hard at work since we were last before you on the 17th of January, and have a handful of accomplishments to report. We've, I think, most significantly,

the debtors in consultation with our dip lenders have identified a number of transactions that we're able to move ahead with prior to the plan that will free up money that the debtors can put to work both for paying down the dip facility that we're seeking permission to borrow as well as for other purposes related to these cases as we move forward to the plan.

We filed a motion on the docket 620 seeking court approval to sell certain real estate assets as one of those transactions for an aggregate purchase price of $122.1 million. We also filed on that same day another motion document number 626 seeking to lease certain additional real estate assets. And these leases, right, will reduce the carrying costs of the properties as well as they contain a reasonable prospect of a subsequent sale of that land to the tenants for $28 million. And then finally, in the coming days, we plan to file another motion to approve an additional private sale that will result in another $38 million of value coming into the debtors of estate. So all told in total, and for only one third of our total acreage, these transactions will result in excess of $160 million coming into the estate in the relative near term,

which approved by your honor later this month would be a remarkable result through these Chapter 11 cases and provide a line of sight as to a previously disputed view of valuation that we believe should, if folks are reasonable, resolve the remaining disagreements between the lender silos. The second developments since we were before you last, the debtors have used our time wisely to collaboratively work with the creditors committee to strike a settlement with Mr. Grauwen and his corporate affiliate negotiators. Jos Livertod, like the previously announced settlement with the debtor's equity sponsor, Payne Schwartz. The settlement proceeds will be used to be distributed to the general insecure creditors for their benefit pursuant to a confirmed plan.

The details of that settlement, and we'll get into it at some point. But, I mean, effectively, it's a $250,000 cash payment from Mr. Garland and his affiliate in exchange for a release of potential causes of action. that the debtors may have had against him. Again, this is a product of the investigation that the debtors independent committee had executed in connection with the filing. And the third, as Your Honor knows, we filed our first amended Chapter 11 plan,

along with a motion, to amend our disclosure statement and resolicit our voting creditors. The first amended plan is another important achievement, particularly for the general unscure creditors, who otherwise were not slated to receive a distribution under our first plan. The amended plan incorporates the terms of the Payne-Schwart settlement and the and the Grown settlement that I just mentioned.

And with respect to that plan, we recognize that we are proposing to move forward towards confirmation on an expedited basis, an expedited timeline, which would propose to allow us to hold a confirmation hearing on March 13th, subject to your permission and availability. I understand your honor has a few questions on that front, and we're going to, you know, we welcome that. and are looking forward to them. And when we get to the right time, my colleague, Mr. Jacobson, knows the calendar backwards and forwards, and we'll be able to hopefully address all the issues, and we can iron out to schedule that works for you. And then finally, Your Honor,

we're continuing to try to drive to a global deal here, right, where we actually have consensus amongst our lender silos, not just on this hearing, right, and getting to, you know, tomorrow, but actually closing the case down. And I think, again, accommodated by these asset sales and transactions, we think that that we have a line of sight into that conclusion now that we didn't have a month ago when there was some speculation about what proceeds could actually be attained through various transactions. So our plan is to go from here. Instead of, you know, taking direct and cross of several witnesses, use that time, go over to Young Conway, sit down with the various parties and try to get to that ultimate. resolution and the the and so with that regard I'm going to just if your honor would

indulge me just kind of read into the record what what I spent the last 48 hours trying to get folks to zero and on okay all right so so again we're gonna we're gonna leave here go over in person to young Conway sit down and earnestly work in good faith together with the agents advisors and with our Diplendor advisors towards a settlement as to the go-forg capital structure of the reorganized company and the the diplomas have committed to come down off their prior position in the negotiations as to the capital structure and likewise the agents have agreed to counter and engage on that front as well and so we are hopeful that that will

yield progress particularly I think given that we were able to achieve just even this this I call it ten temporary arrangement with respect to the interim order. I think it's the first real step where I've been able to get these folks who previously were not even talking, right, to come together. And I'm hopeful that it will be the first step toward the end. That seems good. Yes, yes, ma'am. And so the other components, in addition to just making that statement about our good faith negotiations,

we have some reservation of rights language that will find its way to you in a revised form of order, basically just reserving folks rights in the context of the inner mortar arguably implicitly it's already in there but we got explicit because folks wanted it and largely that reservation of rights language focuses around the the allocation of the dip obligations across the different debtor borrowers and and then the debtors will arrange a meeting or a telephone conference with the Pearson Realty Group which is the lenders real estate advice and who has been responsible for steering the transactions that are in helping us

steer the transactions that are taking place in later this month and and provide due diligence and information to to the agents advisors in the context of that telephone call and then finally we we wanted to the debtors wanted to clarify something there was some language in the chapter 11 plan that I think you know created a little confusion or consternation with the agents and it was around what the estates would do with the proceeds from these assets sales, these transactions that are coming to the extent they came in before the plan was confirmed or the promissory note in particular was issued

under the plan because there's a certain understanding as to the priority of where the promissory note will sit and what will have access to in terms of recovery. So they asked to us to clarify that despite you know that some of the language in the file plan that while that while the plan is still pending and the promissory note can still be issued under that plan or an amended version of that plan if we are holding asset sale proceeds we will not pay down the prop code debt and that's just what they they asked us to so we'll make that that statement and then with that that's that's essentially our arrangement on the on the continuance judge and and then I can take your honors questions or we can move to the to the

dip to the extent you have questions on the dip order or and then we can also move to the schedule after um um interest have done yes ma'am okay all right so i guess we're still not there um so judge um i think we'll need a break unfortunately um if you i mean we can it's it's with respect to some of the language that i just read um uh i don't think there should be an issue but um but i think we just need to make sure okay it's settled okay how long would you like um 15 minutes, please? Thanks, Judge. You've finally broken loose from work.

Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call, because real protection means showing up, even when things are in the rough. Cincinnati Insurance, let us make your friends. bad day better. Find an agent at C-I-N-F-I-N.com.

Hi, Judge. Ryan Bennett again on behalf of the debtors. Thank you for that time. We were able to sort out the clarification. And this relates to what we will or will not do with the asset sale proceeds while the plan is still pending, right? And the clarification is that, you know, that we will not use those proceeds to pay down the Propco pre-petition debt while the plan or an amended version of that plan are still pending and the promissory note can still be issued under those plans. Now there are some circumstances, right, where if the class that is set to get the promissory note votes down the plan, right, then there will be no promissory note. In that case, this restriction comes off, right? There are cases where, you know, the plan itself may not be confirmed.

The plan itself may be withdrawn, right, by the debtors. and in those scenarios, right, that this promise effectively, you know, falls off, right? But in the situation we find out then. Exactly. That's right. But right now we want the plan that we filed, right? And we want, and we're not going to disrupt that plan by, you know, precipitously paying down debt that we argue we can't even do without further order from your job. Your Honor.

So, thank you. So, Your Honor, with that, I'm going to yield to my partner, my partner. Mr. Fidel and you can answer your questions on the DIP order and we'll take that out and then we'll move to the what effectively I think will be a status conference right I don't have any questions on the DIP order if the parties have agreed to the form of order and it's going to be revised to reflect whatever the new arrangement is okay great thank you judge and then I guess just for completeness we'd like to move the declarations into evidence And so first we've got the docket number 604, which is the second supplementer declaration of Mr. Bokin, who's in the courtroom today. Your Honor, if we could submit that and have that declaration be admitted in evidence.

And objections. Thank you, Judge. And then second, we have two additional declarations, docket number 605 and docket number 650. These are two declarations from Mr. Sandel, who's our lead investment banker from Hulahan. Mr. Sandel's in the court today, and I'd respectfully requested his declarations be admitted to evidence as well. Does anyone object? Great. Thank you, Judge. And we will submit that revised order with the, including the reservation of rights that was part of this deal.

And then if we want to pivot to the status conference to talk about scheduling, I'm going to yield. of my master of calendars mr. Jacobson thank you good morning your honor Rob Jacobson Kirkland and Alice on behalf of the debtors so I received a motion to short notice on the request for approval of the supplemental disclosure statement and plan and at first in that motion I didn't see any kind of a timeline I found one in the motion it's It's a very tight timeline. But I also want to discuss on my quick review of the supplemental disclosure statement.

I don't, it's very dense and there's no plain English, almost what Mr. Bennett said today, here's what's happened, here's the money that's coming in. I can't even tell from the couple of pages. in the supplemental disclosure statement how much money the settlement is with the committee what's in the gut trust who's being released I would like to have a plain English directed really at the general unsecured creditors here's what you're getting you weren't getting anything before and now here's what you're getting and here's what it consists of and here's who you're releasing because it

just looks like almost you took the plan and put it in the disclosure statement and it's just you can't read anything without having your defined terms and it's just difficult so before we have that hearing on the supplemental disclosure statement I wanted to give you a heads up that this is what you need to do okay In terms of the schedule, I'm just not sure logistically how it works. As I'm reading it, well, first of all, I'm not sure how it complies with our local rules because I haven't gone back to look at that.

But it's very truncated. And again, logistically, I don't know how it works even if I were to shorten it to this. You have solicitation going out on February 26th, and 10 days later, people have to have received it, read it, and voted, and mailed it back in. That just doesn't happen. That's not the world we're living in where the mail goes that quickly.

And it doesn't work. And then I'm also curious, though, about the separate deadline, which could be confusing for people, but the second deadline for the opt-out, which is not the same as the voting deadline. So I'd like to understand that. But that's what I'm looking at. Whether I'm available to 13th, I actually don't think I am,

but even if I were, I'm just concerned about the timeline. Understood. So let me begin with the 3017 local rule requirements. So we are proposing to have approved a supplement to our disclosure statement. our view is we're not we're not asking for approval of a completely new disclosure statement. It's just extra additional information that we'll go back and make sure it's in plain English and simple to understand. Additional to what has already been approved as adequate. So let me ask you on that front.

Did the disclosure statement go to the two general unsecured classes? Yes. Okay, because we were, we thought it did not. based on the previous order, that it wasn't part of their solicitation package. But you're saying that General Unsecured's already got that. Yes, and that's reflected in affidavit of service docket number 455. Okay. Exhibit F.

Okay. So those are the General Unsecure claimants. They got a plan. They got a disclosure statement. They got pretty much everything. Okay. Yep. That's helpful.

Okay. but this time they're voting and what is our rule say about the amount of time that they're supposed to have on that or that's the disclosure statement rule is I believe the disclosure statement rule for a 3017-1 is 35 days following service of the disclosure statement that's when we'd have to have our hearing and 28 days after service for the objection deadline to the disclosure statement. Okay. So that we're actually truncating from yesterday, was it?

When we filed our documents? Yes. The 14th. Okay. The 14th to you want a hearing on, when did you want a hearing on that? On the 22nd. On the 22nd. So that's being shortened to eight days.

It's pretty short. Okay? Let's assume we get there. Now let's talk about voting and solicitation. What are the rules on that? I'm not sure that there is a rule prescribing how many days minimum for voting. If there is, I apologize. I suspect it's in 2002, but that's a guess.

2002 B 28 know that we have a local rule that does anything with that but even sort of ignoring the federal rule I just don't see how 10 days

works I don't tend to you put it in the mail on day one and people have to have read it and have it back by day 10 that's not my world with the mail yeah understood So even assuming I consider the supplemental disclosure statement on February 10, so February 22, the confirmation schedule doesn't work.

Can you, I assume I have power to shorten the 28 days, but I'm not going to shorten it to 10. Understood, Your Honor. I think in our motion, we may have said that it would just be 10 days, but I think... Oh, sorry, never mind. I'm getting my days next up. Would we understand. Would 14 days be reasonable compromise? Oh, U.S. trustee here?

Ah, Ms. Sierra Fox. I know this is not the time for the hearing. So maybe we'll discuss this. if I give you the 22nd, and you should have a discussion in the meantime with the Office of the United States Custee. Okay. And, but can you explain just so I understand the additional time for the opt-out deadline? Yeah, so of course, we just wanted to give people extra time, more time to fill out an opt-out form and send it back.

we were trying to be accommodating as much as we could because we understand you know we're asking for votes the confirmation hearing very quickly and then compressed timeline and you know we wanted to give people the opportunity to opt out for a full 28 days um irrespective of how we were trying to get our the timeline we're trying to get our plan confirmed okay i will hear this on the 22nd at 10 o'clock to hear the disclosure state request the motion to approve the disclosure statement, the supplemental disclosure statement. And I'll hear objections at that point in time on whether people have had enough to time to look at the supplemental, whether, and the request that is actually being made here,

and the timeline that you want it heard on, the betters want this hurt on. But as you're hearing me, it's too tight. Understood, Your Honor. That was it. I want to give you a heads up on those things since we were here today rather than leave it until the 22nd to discuss. Well, thank you. We appreciate it. Okay. Okay. So do we have anything else for today? Mr. Zatz.

Good morning, Your Honor. Andrew Zatz from White in Case. on behalf of Bravo Bank as the bridge agent and a pre-petition lender. We're joined today by Ms. We're joined today by Ms. We're sitting from Silly Austin who represents RBC as the APCO agent and also a pre-petition lender. We had jointly objected to the dip, and as Mr. Bennett described, we are sitting on our objection pending final approval of the dip based on the agreement that Mr. Bennett read into the record.

I just want to note that while we did not object to the submission to the declarations as evidence for today's purposes, we're reserving rights with respect to any final hearing that may be held on the DIP motion. Since we are in status conference mode, I just wanted to very quickly give the court an update on where things stand in the case from our perspective. We have been in close touch with the other OPCO lenders who are not in the required lender group and who unanimously voted down the debtor's prior plan. As I think the court is aware, even though it has not yet been before it, we do have this inter-creditor dispute over the $30 million promissory note that is to be issued to the Opco lenders as agreed under the pre-petition lender support agreement,

which Robo Bank and RBC signed in their aging capacities and as lenders. That dispute is ongoing. As Mr. Bennett said, we're going to sit down after this hearing and see what we can get done. And as Mr. Bennett, I think, implied, we've been at a bit of a standstill, really since just before the confirmation objection deadline. And at that point, we did file a joint objection to confirmation. to not do so would be to effectively accept the filed note that we believe is non-compliant with the lender support agreement. And so I think in light of the objection that we filed, parties became a bit entrenched. I will note that we were the last to submit a proposal.

We submitted yet another proposal. Debtors tried a straw man proposal. Wasn't able to jar anything loose yet, but I'm encouraged by the required lender's agreement to sit down today. to move off their prior position and re-engage. I will note, however, that the amended plan that the debtors filed the other night incorporates the committee settlement, but really does nothing to address our dispute

and the issues that we raised in our confirmation objection, I think it may even raise some new confirmation issues. So we're gonna continue talking, and hopefully that can get resolved. One aspect of the plan I do wanna note, I know it's not a lot, I know it's not up for the court today, but Mr. Bennett noted what is a death trap under that plan, where if the bridge lenders and op-go lenders vote to reject the plan, it says that they do not get the promissory note.

We believe that that death trap is not approvable and is not compliant with the lender support agreement. But for now, the delivery of the promissory note is live. The required lenders are agreeing not to try to get the pre-petition propco facility paid down. down in the interim, that would require a court order, but it was important for us today to have it confirm that they're not going to seek to do that while we remain in the status quo that we are now because otherwise that would be a very big step backwards in our ongoing negotiations. So it's always been made clear that the promissory note would come ahead of that facility, if nothing else. And that's a very important point for us. I want to quickly inform the court as to why we were pressing our dip objection today. The dip, first of all, the second interim approval that would get the availability of the dip up to $17 million is almost the entirety of the dip.

The dip is $22 million, and I think two of the $22 is optional. So, you know, we obviously had issues with the dip that I'm not going to raise today, but when it, as a pertains to the dispute over the lender support agreement it was pertinent because it contemplating putting priming liens on the op-go facility and there are potential contribution claims that could go back and forth between Procco and Opco depending on who repays the dip that's what relates to the reservation of rights that we agreed to that's going to make its way into the order and so you know one of the issues and it goes back to the death trap that I

mentioned is if the promissory note were to get pulled and kind of all bets we're off on the lender support agreement, we don't want to be prejudiced by having this facility in place while we do recognize that the debtors need additional funds. I think that the reservation of rights get us what we need to fight that fight if we ultimately have to, and so that's why we're comfortable with the resolution that we reach today. Just one more point I'd like to make, and then I'll sit down, unless there's more of the court wants to hear from me on, is that we're encouraged by debtor's sale motion, but we need to learn more. We need to learn just how advanced these potential sales are, how firmly committed they are.

We need to learn how much of the real estate's going to be left if these sales close. Because that's the key issue when it comes to the promissory note. How much asset value is there to pay down all this debt that the debtors want to put on? the company post-emergence. So that's why having this call with Pearson was important to us, and we hope that that call helps people get comfortable. And if all these proceeds are coming in, I think both sides should be more willing

to come to the middle and get to a deal here. There is one change in the second interim order when you compare it to the original interim order, which is that now the required lenders have review, review and objection rights over professional fee invoices, which is an unusual change compared to other dip orders that we've seen. I think it's quite clear that they are making a not particularly subtle threat as to professional fees. Not subtle. Yes.

So I just want to reserve rights on that. Our position is that under every order that's been entered and the pre-petition loan docs, these fees are all owed, but we'll simply reserve on that today, and we really hope that that doesn't become a dispute before the court at a future date. With that, I think that concludes my remarks unless there's anything the court would like to know. No, I did not have any questions. I'd like to share your optimism and encourage parties to talk. All right. Thank you, Your Honor. Anyone else?

Rosa Sierra Fox. Rosa Sierra Fox on behalf of the U.S. Trustee. Your Honor, with respect to the solicitation motion that you just granted short a notice on, I just wanted to confirm that the objections could be orally made at the hearing or whether you wanted

written objections. You make them orally at the hearing. Okay. Thank you, Your Honor. Yes. Good morning, Your Honor. Rachel Losseri of Robinson and Cole on behalf of MetLife and Certain of the Farm Banks. I rise just to respond briefly to Mr. Zatz's comments.

Your Honor, the plan is not before the court today. We are in the process of scheduling, as we've just discussed. Any objections that Mr. Zatz's notes that are set forth in the objection of RBC and Rabo are appropriate for another date, but that's not today. We have agreed to sit down and discuss with the agents the pending of potential sales with Pearson. that that discussion is to happen shortly. I'm not sure it's quite been calendared, but we have agreed. We have also agreed to sit down and talk right after this hearing, Your Honor. And so as asserted, as we set forth in the reply, we believe there are violations and needed

to reserve our rights with respect to that and have done so. Again, we are hopeful that today's discussions will be fruitful, and we look forward to being back before you. Thank you. Thank you. One of the things I'm going to want to hear about to on the 22nd is obviously whether any progress has been made among the lenders because I'm going to have to consider is this a contested hearing or an uncontested hearing in terms of scheduling it.

I saw notices of deposition on the docket. And then if we're starting to get into that, that's a whole other level as well. So I'll want to hear about progress, not lack of progress. I'd like to hear about progress at the 22nd. Okay, anything else? Thank you then. We're adjourned.