American court hearing recordings and interviews - Prima Wawona bankruptcy hearing February 22, 2024 (In re MVK Farmco, Delaware bankruptcy case 23-11721)

Episode Date: February 23, 2024

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Good morning, Your Honor. Jamie Fidel of Kirkland and Ellis, on behalf of the debtors. I'm joined today by my colleague, Mr. Jacobson. There's only a single item on our agenda day, which is the solicitation motion, but last week's hearing, Your Honor, requested a status update, which I am happy to provide. Okay. Thank you.

Before diving into the latest state of play with our lender constituencies, I first want to note that the positive momentum on the sale front has continued. Since we filed our motion last week for a first batch of real estate sales for approximately $120 million in gross proceeds, last night we filed an additional motion for nine more sales that will provide an additional $50,50,500 million dollars in gross sale proceeds. Also at docket number 682, we filed a second motion. to lease certain additional real estate assets. And the first tranche of sales is set for hearing next week.

We hope to hear the second tranche sometime in mid-March. As to the lender negotiations, last week when a truce was declared at the interim dip hearing, my partner, Mr. Bennett, noted to the court that three key things would happen in the immediate near term following the hearing. The first was that there would be a call with Pearson Realty Group, which is the Lenders' Realtz. is the lender's real estate advisor, the rec lender's real estate advisor, and the financial advisors to the agents. That call happens immediately following the hearing. The second was that both sides would meet at Young Conway's office and have good faith face-to-face negotiations. I'm pleased to report we did have a productive negotiation session over the course of several

hours on Friday afternoon. And finally, each side committed to engaging in good faith negotiations. I'm also pleased to report that this has been happening as well. As of this week, the required lenders delivered a comprehensive inter-creditor proposal, which the agents are currently digesting. The debtors are also responding to a number of financial diligence requests that I think are going to be key in continuing these negotiations and hopefully bridging the gap between the two sides. So while a global deal as of today has not yet been struck, I think there is a sense of optimism shared by all sides

that we will be able to proceed with a largely consensual confirmation at the rescheduled confirmation hearing. So I'm happy to take any questions from your honor or we can dive into the agenda. I don't have any questions. Thank you, Your Honor. I will cede the podium to my colleague, Mr. Jacobson. Thank you.

Good morning, Your Honor. Rob Jacobson, Kirkland, and Ellis on behalf of the debtors. So as Mr. Fidel previewed, the first and only item on this morning's agenda is our solicitation motion, which we filed at docket number 666. I want to start by thanking Ms. Sierra Fox of the United States Trustees Office for working with the debtors since we're last before, Your Honor. I understand that Ms. Leamy is in the courtroom with us today, but I'm happy to report that the debtors and Ms. Sierra, Fox were able to work out a proposed confirmation schedule that's acceptable to both the U.S. trustee and to the debtors. I also understand that the U.S. trustee supports the form of order that we filed late last

night at docket number 678. I would also like to take a minute to thank Mr. Bellman and his team at Lowenstein for working collaboratively with the debtors, not only on the terms of the first amended plan that will provide recoveries for general unsecured creditors, but also for the committee's input on the disclosure statement supplement and providing the debtors with the committee's support letter, which we also filed yesterday at docket number 678, and that's Exhibit 6. We have received one objection to the relief requested today from the 1970s group, and at the appropriate time, I'll hand the podium over to my colleague, Mr. Gremlin, to address that objection.

But otherwise, if it would be all right with your honor, I have a brief presentation on our motion, and then I'm happy to answer any questions along the way or at the end. Yes, it's fine. Thank you. So I'm going to address three topics. First, I want to briefly explain why we filed the motion and what we're hoping to achieve through the relief we requested. Second, I'd like to highlight a handful of noteworthy aspects about the disclosure statement supplement itself, particularly the edits we made since we were last before you.

and third, I'll walk your honor through our proposed solicitation of the first amended plan, including our proposed timeline and who will receive what materials and by what means. So to begin, why did we file the motion and what are we trying to achieve? As Mr. Bennett informed the court at the February 6th status conference, on February 14th, we filed our first amended plan, which incorporates the terms of a global settlement between the debtors, committee, the required lender group, the debtors equity sponsor, Payne Schwartz Partners, and Mr. Jerawan and the legal entity through which he owns equity in the debtors,

negotios Libertad. We refer to them as the Jeron interested parties. The debtors believe that in terms of this first amended plan, the plan supplement contained in the plan, is a win for all parties in interest, and particular benefits holders of general unsecured claims, who, under the initial plan that we filed, were slated not to receive a recovery and would be subject to potential avoidance actions, the Claw Black funds into the estate under that initial plan. As we highlight in the disclosure statement supplement, the first amended plan, if it is confirmed,

will provide for a waiver of those avoidance actions, and will provide for projective recoveries of up to 3.7%, an estimated 3.7% for holders of general unsecured claims in Class 7A, if Class 7A accepts the plan, and then the plan will provide for 0.7% recoveries, if the plan is not confirmed by Class 7A, or is not accepted by Class 7A, rather. As Mr. Fidel mentioned in his opening remarks,

while the debtors are optimistic that we will ultimately be able to proceed on a consensual basis at confirmation, today we do not have an impaired accepting class at the Opco entities with respect to the initial plan. Accordingly, now that General Unsecured Creditors are receiving a recovery under our first amended plan, We want to put ballots in those creditors' hands and provide them with the opportunity to have their voices heard with respect to our first amended plan and the provisions contained therein. The provisions that we believe are beneficial to those creditors.

As I just mentioned, we are optimistic about the interlender negotiations, and so we also want to provide our secure lenders who originally chose to reject the initial plan. We want to give those folks ballots to submit a new ballot to accept this first amendment. plan if they choose to do so. So this is why we're proposing to resolicit holders and claims of claims in classes three, four, five, and six. And as a quick reminder, if those holders are all sophisticated banking institutions, many of whom are represented by the lawyers in the room today. Your Honor, I want to take a minute to also explain that we are also asking voting creditors

not only to submit new ballots with respect to the First Amendment plan, but also to submit new opt-out forms, even if they had submitted opt-down forms with respect to the initial plan. We believe that this is appropriate because the treatment for general and secure creditors has improved. We're asking folks to vote, and we'd like to give everyone an opportunity to think again about whether they'd like to opt-out in light of the First Amendment plan. And as I'll touch on later in my presentation about the timeline, we're proposing to give folks 28 days, full 28 days to submit those new opt-down forms if they choose to do so.

So remind me, even though classes 7A and 7B did not get to vote on the previous clan, the previous plan, the debtors solicited an opt-out release. Okay. Okay. Correct. So if it would be all right, let me next turn to the contents of the disclosure statement. self. Last night we filed the further revised version of our disclosure statement supplement that's at docket number 677 as I mentioned at you know the February 6th

status conference February 16th status conference we're not asking for approval of a new disclosure statement instead we're asking for approval of a supplement to our existing disclosure statement and that disclosure statement was approved by your honor already as having adequate information the debtors have provided council to each of the committee, U.S. trustee, the required lender group, the sponsor, the Jero-Wan Interested Parties, and McKinsey with the opportunity

of review and comment on the disclosure statement supplement prior to it being filed. And we greatly appreciate the comments that we received from these parties, which we have incorporated into the disclosure statement supplement that is on file at docket number 677.

We believe that the disclosure statement supplement contains adequate information for it to be understood by all holders of claims and interest, including and specifically those who were being asked to vote on this plan. Indeed, we took Your Honor's feedback last time we were before you very seriously, and we significantly streamlined and simplified the disclosure statement supplement with an eye towards ensuring that it is very user-friendly for general unsecured creditors in particular who previously were not asked to vote in these cases.

So I just want to highlight five quick changes to the disclosure. statement. We endeavored to use as little legal jargon as possible and to limit the use of defined terms as much as we could. To the extent we needed to define a term to make the document more understandable, we defined that term in the four corners of the document itself. And so as a result, we believe that you don't need to be an attorney to understand what's in the disclosure statement. We tried very hard to make it as straightforward as possible. The second point I want to make is on the very first substantive page of the disclosure statement supplement, we included the projected recoveries for general unsecured creditors.

We tried to put this front and center on the disclosure statement supplement so that folks can quickly and easily see the expected recoveries for general unsecured claims and how that might change depending on whether general unsecured claimants choose to vote to accept the plan or choose the vote to reject the plan. Similarly, on the very front page of the disclosure statement supplement, we included a box with bold text, all capital letters, that specifically says we are asking for votes for folks in the general unsecured creditor class, and we provide a link to Strattow's balloting portal to make it as easy as possible for people to access. It's right there on the very front page. So, you know, we tried hard to make it so general and secure creditors wouldn't be able to miss those notices,

and we think, you know, it's providing people a sufficient alert that they now have the opportunity to vote, whereas before they did not. The third point is, in layman's terms, we have included succinct bullet points describing the plan supplement, that section H of the disclosure statement supplement itself, and we've also included a section describing exactly who is going to receive a release under this plan in connection with the plan supplement, and why the debtors believe that release is justified in that's section J of the disclosure statement supplement.

Fourth, we adopted a question and answer format for the disclosure statement supplement. We believe this is the easiest, most digestible format for folks to understand what's in there. We included disclosure questions such as why are the debtors sending me this disclosure, statement, who will holders of general unsecure claims in Class 7A, or what will those creditors receive under the First Amendment plan if it's consummated? And if I choose to opt out of the third party release, when is the deadline to return an opt-out form? Fifth, we put a notice, again, in bold, in capital letters, in Section K and Section L, that explains that the debtors are asking all parties entitled to vote on the plan to return a new ballot

if they choose to vote, and all parties receive in an opt-out form to return a new drop-down form if they choose to do so again by the applicable deadlines. In sum, the debtors believe that the disclosure statement supplement contains adequate information and we believe it is appropriate for your honor to approve it. If I may, I'd like to turn next to the solicitation timeline. We have worked very hard with Ms. C.R. Fox on this timeline since we were last before you and I'm pleased to report that we're able to agree on this proposed timeline. So rather than the 10 days that we had initially proposed,

with the motion we are actually seeking to provide folks with 23 days to vote and object on the plan making our voting and objection deadline March 20th and our plan supplement deadline would be seven days before so March 13th the debtors believe that this timeline strikes the right balance between providing folks as many days as possible under the circumstances to vote and file an objection with respect to this first amended plan will still paving the path for the debtors to confirm our plan in March in a cost effective manner.

In total, we are asking, Your Honor, to shorten the period for notice of the confirmation objection deadline under bankruptcy rule 2002 by only five days, and we believe that this is justified under the circumstances. Here, Your Honor, we're, sorry, typically we mail solicitation materials by first-class mail. Here we're proposing to deliver by overnight mail service, and we're also, you know, as and suspenders going to email folks the solicitation materials wherever possible. Whereas mailing solicitation materials by first class mail could take one, two, maybe even three or four days to arrive in the mail,

our general unsecured creditors are being asked to vote, will receive these materials in both their mailboxes and their email inboxes just one day after our solicitation deadline. So accordingly, we believe that cause exists under bankruptcy rule 9,0006,000, subsection C, section 105 of the bankruptcy code, the short notice of the confirmation objection deadline to 23 days as opposed to 28. And finally, I'd like to briefly describe for the court what materials are voting classes are going to be receiving.

As set forth in the affidavit of service filed a docket number 455, general unsecured creditors previously received copies of the disclosure statement of the initial plan, their non-voting statuses and opt-out forms and a cover letter. That was reflected on Exhibit F of the Affidavit of Service at docket number 455. With respect to this solicitation, all voting classes, including our general unsecured creditors, will receive the solicitation order once approved and if approved, the committee's support letter, the disclosure statement supplement, the first amended plan, and the updated confirmation hearing notice, as well as an updated cover letter and in the applicable ballot with a pre-addressed postage prepaid return envelope.

So folks can, if they choose to return by mail, can do so easily. For Classes 7A and 7B, while they've already, and those are our general unsecured creditors, while they've already received a copy of the disclosure statement, we're going to mail them another copy just for good measure and make sure everyone has what they need. Lastly, Your Honor, I want to point out that our proposed order provides that parties will have 10 days after either receiving the updated confirmation hearing notice or receiving a notice of an objection to their claim to file a motion to temporary allow such a claim for voting purposes. Here we are not expecting to object to any claims prior to confirmation.

In fact, our first amended plan provides that the Guck administrator will take up the responsibility to clean up the claims register post confirmation. And so we're not expecting any issues with bankruptcy rule 3018 in that regard. To the extent parties file the proof of claim that was contingent or unliquidated, wish to vote an amount greater than $1 as our voting procedure set forth. Debtors will use commercially reasonable efforts to work constructively with those parties to stipulate to an acceptable voting amount prior to the voting deadline if it is appropriate to do so. In conclusion, Your Honor, we believe that the disclosure statement supplement

contains adequate information as a supplement to our disclosure statement and that our confirmation timeline is appropriate and necessary to put these Chapter 11 cases, on a schedule that will allow us to confirm our first amended plan in March and exit chapter 11 shortly thereafter. So I'm very happy to answer any questions your Honor may have. Otherwise, would respectfully ask that Your Honor enter the order. Well, first let me say that I think that the new supplemental disclosure statement is great. I like the format. I like the question and answer.

I like how readable it is, and I think it has accomplished what I would like to see accomplished, so thank you. I do have some questions, but it is, to say the least, a vast improvement over what was filed, and it could serve as a template for not only supplemental disclosure statements, which we don't have very often, but for disclosure statements, or at least executive summaries in the beginning of disclosure statements. It's very helpful. The one thing that I think, well, I want to talk about the releases, the third-party releases. And I am not understanding why.

If somebody has opted out already, why I should. disregard that opt-out and make them have to opt-out again understood your honor I think we we set it up this way for to be so that it would be very clear that we have a before the opt-outs for the initial plan opt-outs for this plan and so it was very clear who was opting out for this plan in particular for general insecure creditors who might have received an opt-up who would have received an opt-out form before and may have returned And now we're asking them to vote on the plan. And if they vote to accept the plan, the way our releases are currently set up,

is that if you accept the plan, you are agreeing to not opt out of the plan. And so perhaps a middle ground that the debtors could live with is to the extent there's a ballot that supersedes a previously delivered opt-out form, you know, the ballot will control and you won't be a releasing party. So that was just your sort of starting position? No, I just see where I'm anticipating where you're going and I'm just trying to be flexible. Okay. Yeah. Okay.

I think if somebody has opted out, they have opted out. I'm not going to make them opt out again. If they subsequently vote in favor of the plan, that's, to me, different. I think it needs to be clear and maybe it is that a subsequent vote would nullify your opt-out. But I think parties that have actually read everything and made a decision to opt-out. opt out, have done their work, and they don't need to do any more work. And I'm going to accept those. Okay. Understood, Your Honor.

So to the extent something needs to be changed here to indicate that, then I'd like it to be made clear that if you've already opted out, your opt-out counts, but if you vote to accept, the debtors will, are asking the court that you have now accepted the release. You have now granted the release. Understood, Your Honor. You might add to subsection J in the supplemental disclosure, which is the question who was a released party.

You might add a first paragraph that says that the debtor is seeking releases from you of third parties, of any and all claims you have against them. So they know what that release is, and then you tell them who the release party is. Okay. Okay, and the change in ballots, the resolicitation of the four classes,

which is the four classes, what, three through six? Okay, they all have to vote again, so their previous ballots do not count. Yes. Which is sort of the opposite. of the way it usually works but I'm not hearing any objection to that and I'm comfortable with that given the makeup of those classes that they are involved they know what's going on they're sophisticated they have counsel

they will figure out what they want to do so I am comfortable with that hearing no objections to that in your when is paragraphs in and in what is the deadline to vote and if I choose to opt out if you can add that the vote the deadline is when the vote must be received I think that would be helpful absolutely okay the timeline that three hearings on the 27th the 3018 deadline is that really relevant as I recall mr. Barry can correct me if I'm wrong I think I just said put the kibosh on a 10-day period for the 38-motion motion yesterday. So I kind of don't see how I can do that today.

He tried really hard, I will say. He didn't get it. But is it really an issue here? I mean, if the debtors are not filing any objections and not planning to, then what are we anticipating? Objections already filed, or what? No, Your Honor, I agree that I don't think we have a 3018 issue. We haven't objected to any claims, and we aren't currently planning to.

Okay. Then I just think it's not relevant. Okay. So if somebody comes forward with an unexpected Rule 3018 motion, I'll deal with it. But let's not build in a deadline that I just yesterday found was an inappropriate deadline. and in a situation where we don't need one. Okay, understood, Your Honor. Okay.

I think those are the comments and questions I had with respect to the supplement. And I recognize we still have an objection outstanding, but let me see if I had anything else. Okay, an email is just a supplement to the overnight. Correct. Correct, Your Honor. If there are, if the debtor uses its discretion, with respect to counting votes extending voting deadlines etc I would just like that

reported in the the voting report so that all parties are aware of it so that if there is an issue we can address it at the hearing apologies thanks for bearing with us so I just want to make one point related to the opt-outs and folks submitting or their old opt-out forms being counting versus not counted. So that's fine with us. I just want to make clear that we have a few tweaks that we may need to make to the released or releasing parties provision, but those won't affect docs and that has to do with the inner creditor disputes.

So we may be making those tweaks in the plan. We reflect in disclosure statement supplement to the extent we need to, but that's all. Okay, well, I don't know what tweaks are going to be made or what? what that exactly means, but I will deal with it at confirmation if the releasing parties are changed and it, or the released parties are changed and it makes any difference, I'll address it then. Okay. Okay. Okay, Your Honor, for the objection, I'll hand the podium over to Mr. Grimling.

Thank you. Thank you. Good morning, Your Honor, Dave Gremlin of Kirkland and Alice on behalf of the debtors. As Mr. Jacobson noted, last night, we We did receive one objection to the relief we're seeking this morning from the 1970s group. I'm pleased to report that I believe that objection is resolved. I'd like to give a little bit of context about the debtor's relationship with the 1970s group and then give you our quick resolution for purposes of today's hearing.

The 1970s group historically has helped the debtors meet their statutorily required collateral requirements for their workers' comp coverage in California. They have helped the debtors source letters of credit that their insurers can draw on in the event that the debtors are unable to meet their requirements under their workers' comp coverage. And so the relationship that it creates is essentially if a workers' comp claim comes forward, the debtors' insurers pay money in connection with that claim. The debtors are unable or unwilling to contribute their portion. then the insurers are able to draw on their LCs provided by an LC bank. The LC banks then have a right of reimbursement against the 1970s group, and contractually the 1970s group have a right of reimbursement against the debtors. The debtors at the end of 2023, in light of the partial liquidation that we're contemplating

in the significant wind-down of their operations, did not renew their workers' comp insurance for the year 2024, It's primarily provided by Zurich, but I believe there are one or two other providers as well. However, the 2023 coverage is still in place and the LCs related to that are still in place because the statute of limitations for a worker in California to bring a claim is I understand one year from the date of injury or the date that a year from the date that the company stops providing care for them. So there's obviously a tail period that needs to be addressed which could extend until the end of 2024. So this has created a situation where there may be situations where the insurers are providing money to the claimants and then they would draw on LC's and then with the debtors future very much in question the 1970s group may have to reimburse LC banks and then would look to

the debtors. They raised a couple of issues which I believe were primarily plan or claim related issues and I think for purposes of today we've agreed on four points. One we are going to work with them to modify the definition of insurer to provide that certain benefits that insurers get under the plan such as the ability to administer the workers' comp program are extended to the 1970s group who is an integral part of that program. We will work constructive with not only the 1970s group, but also our insurers to insure two things. First, that any draws that are made on the LCs are judicious and related to the needs of a workers' comp claim rather than a preemptive draw of the full facility that may not be necessary based on the workers' comp claims that are coming in.

And we'll work with them to determine what reserve may be necessary and what size, of reserve may be necessary to cover potential administrative expense claims related to workers' comp claims that arise as we move forward through 2024. Their rights are fully reserved with respect to the priority of any claim that they may have related to an LC draw and a reimbursement claim against the debtors and their rights to object to the plan at confirmation are also fully reserved. So it's those four points, the definition of insurer, We'll work with them on a reserve.

Their rights with respect to the priority of any claim are reserved. The rights to object to confirmation are reserved. And with that, I see Ms. Johnson has come camera on, but with that I understand that for purposes of today's hearing, we are reserved. I mean, resolved. Ms. Johnson. Yes, thank you, Your Honor.

Erica Johnson, from Byrd, on behalf of the 1970 group. Thank you, Your Honor, for allowing you to apply Zoom this morning. I appreciate the exception. Mr. Gremlin has appropriately and correctly stated the resolution on the record. I did want to provide some context for the record respect to the necessary reserve, and we are going to discuss this in good faith. But the draw request of renewal fee to date, Your Honor, has been about $5.1 million, but the exposure could be as high as $17 million, so it is an important issue

with respect to plan feasibility potentially. But nonetheless, we agree that the quantum of the reserve can and will be addressed by the parties, and we will confer an attempt to reach an agreement between now and the confirmation hearing. And we do appreciate the debtors' counsel's professionalism and willingness to confirm resolve these issues on a short timeline. Ms. Your Honor has questions. Thank you. I do not have any questions. Thank you. I'll confess to knowing next to nothing about workers' comp because it's not.

an issue that comes in front of me. In fact, this is the first time I think I've ever heard that a debtor tell me that they have not renewed their workers' comp for a year. And so if this issue is going to come in front of me, I need some education. But that surprised me a little. A factual correction, we didn't renew with Zurich. We do have workers' comp insurance provided by the state of California. It's more like month to month. month arrangement in light of the timeline that the debtors operations are currently looking at for rolling down.

Thank you for that clarification. Ms. Leamy. Good morning, Your Honor. Jane Leamy for the U.S. trustees filling in for my colleague. I just wanted to clarify debtors' initial comments, Council's initial comments. U.S. Trustee's office isn't supportive of the order, we just don't have an objection to the entry of it in the revised form. Given the prior solicitation in this case and the debtor's financial constraints,

our office does not have an objection to the revised timeline. But to be clear, we do have outstanding confirmation issues on the revisions to the First Amendment plan. In particular, we are evaluating the propriety of conditioning acceptance of the plan on providing a release of non-debtor parties, where the plan now ties increased recoveries to the general unsecured class if the class accepts the plan. So we reserve all rights with respect to confirmation. Thank you, Your Honor. Thank you. My approval of the disclosure statement obviously doesn't decide that issue. Okay. With the objections resolved and the new supplement, which as I said, I found greatly improved and appreciate,

I will approve the revised supplement as meeting the requirements under the code and permit the resolicitation of the four classes and the first solicitation of the unsecured creditor class to go forward in the way suggested what we need to do is take a break so I can see when we can fit in the confirmation hearing and I will say I have a lot on my calendar during this time frame. If this turns into a contested hearing, then we're in a different place and we'll deal with it then. But in terms of a uncontested or mostly uncontested hearing, that's what I'm looking for a time for. So let's take five minutes.

Thank you, Your Honor. I'm going to schedule you on the 27th at 11. I have a 10 o'clock in Kitt of Finwell. It doesn't look like it's going to be a whole lot, so we'll put you behind that. You may have to wait, but we'll put you at 11. And again, that's really if it's uncontested, if we've got an op-go, prop-go, agent, and trick-creditor dispute, then I don't think we're going forward that day, though. we may have a status and see where we are.

But you're in at 11. So y'all probably owe me a couple of revisions. When you submit them, please notify chambers so that I can take a look at them and get an approval order for you. So you can get started. Absolutely. Thank you, Your Honor. Okay. Anything else?

Okay. We're adjourned. Thank you.