American court hearing recordings and interviews - Season 3. Episode 3. March 1, 2023. In re Core Scientific, Inc., et al., chapter 11 bankruptcy case number 22-90341, audio of hearing held in bankruptcy proceedings pending before the U.S. Bankruptcy Court for the Southern District of Texas #crypto

Episode Date: March 19, 2023

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Good afternoon, everyone. This is Judge Jones. The time is 347 central. I apologize for the slight delay. Today is March the 1st, 2023. And this is the docket for Houston, Texas. On the 330 docket, we have the jointly administered cases in our case number 22-90341 for Scientific Inc. Folks, please don't forget to record your electronic appearance. If this is new for you, it's a quick trip to my website, follow the link, a couple of mouse clicks. You can do that at any time prior to the conclusion of the hearing. First time that you speak, if you would, please state your name and who you represent. That serves as a benchmark for reporters in the event that a transcript request is made. If you are in the courtroom, please come to the lectern.

It's the only place you can both be heard and be seen. finally we are recording this afternoon using court speak we'll get the audio up on the docket shortly after the conclusion of today's hearing all right I have read everything that's been filed and I have a couple of comments that I'm gonna make that I don't like to make but I'm going to anything I should know before we get started we have resolved good good afternoon your honor of Ronnie Berkovich of Wild Gatchel for the debtors just for the record I've with me at council table my partners Mr. Shrock and Mr. Sekharides and we have my associate Boston

Crabtor he's been a member of the team from the beginning but he just moved from New York to Houston so you'll see him in here more often so I like I like the indication your associate so you have ownership rights I am just having fun with you he is certainly welcome I am glad that he's here has he been licensed in the district yes Your Honor, the update is we haven't resolved anything relating to the motion to adjourn or to the Equity Committee motion. We have resolved about half of the equity group's objection to the dip.

Okay. That's the update. All right. So let me make a couple of comments and then, yes, ma'am. Your Honor, I would, Noel Reed for the Huff equity group. I would say this, we have it in some sense resolved. portion of promotion for return in the sense that the debtors and the out-hawk that group did produce documents to the ad hoc note over group and that was a portion of

their objection. All right, so let me make a couple of comments to everybody. You have, at least in my view, a very fragile debtor. And I say that because everyone wants to say, you know, short winter, you know, Bitcoin going into the springtime, summertime, yeah, I challenge anyone to show me any correlation that exists between crypto and any other measure of financial success in the market. I have read every paper I can get my hands on, and to the extent that you all have some crystal ball that says we are back on a path of strength, it's going to be a hard sell in this

It is difficult. I can, I ask this question of a room full of financial professionals and lawyers last week, but what is crypto? Nobody can answer that question when I start to press them on it. And I only say that just because it's the nature of what exists. It doesn't mean it's not legitimate. I'm not suggesting that at all. I just simply mean that everything that we might look to, to get comfort that we are

on the right track, we don't have forward curves as we might in energy, we don't have correlations to consumer confidence or any, we don't have any of those things that we can rely on in an effort to try and figure out where this is headed, which is a long way of saying everybody needs to take deep breath. So let me tell everyone, making snippy comments in pleadings is not persuasive to them. I know how to be snippet, and I know how to be snippy sitting right here. You don't want to engage in it, so stop it. It's not persuasive, it's not constructive, stop it.

The last thing that you want me to do is to start looking through your invoices, which I very much detest to begin with, and trying to make assessments for what constitutes a non-productive, non-productive, non-reducts, non-contributing time entry. I hope everybody understands what I just said. Stop it. Focus on the debtor. That all being said, with respect to the Equity Committee,

if we need to have a trial, I'm very aware of the standards that the Circuit has said have to be met in order to have. And even then, I have an awful lot of discretion. The debtor has made a business decision. The committee's not objective for that business decision. I want everyone to know. That doesn't mean I have to accept it. I appreciate that you've negotiated a fee-calf. I don't have to accept it.

My inclination is this, and if we need, if people have questions, want to talk, want to talk amongst yourselves, want to ask me questions, perfectly happy entertain that. The measure of success in my mind for an equity committee is do they contribute anything for the process, and is there something to be gained to the constituency that they represent? At the same time, other classes of creditors should not bear the risk of that exercise.

my inclination, happy to hear arguments to the contrary, and Mr. Hansen, I'm going to especially be interested in your reaction to this. My inclination is to accept the debtor's decision with the following caveat. I'm going to reserve myself the benefit of hindsight, and if I determine that the interest of equity security holders has not been advanced or if I decide that it has, but at the expense of other creditors, I have a number of tools available to me and I'm reserving them all. Number one, you have a cap. That doesn't mean I have to agree to the cap. It means that it's somewhere between zero in the cap. It also means I have the ability to assess whatever the cost of the committee are to the recoveries of equity. And I know how to do that.

That is my inclination. And I'm certainly happy to hear questions, comments. Again, I'm particularly interested in your reaction to this, is I want to get us all focused on trying to figure out if this is a business or safe. business worth saving and if it is how you go about saving the business that's my focus and I'm gonna do whatever I have to do to get everybody else focused on what I think is important so let me first ask no one knew this was coming I'm thinking about it for a while now folks want chance to have some privacy and talk with your own team to figure out how you want to respond, if at all.

And again, Mr. Hansen, I want to make it very clear. You're going to get your day in court if you wanted. I'm just not sure that this isn't the better result because you get the benefit to argue to me later on with the benefit of time and performance. Because, again, I'm going to say it from the third time and I'm going to be quiet. We're all going to get refocused on saving this. We're going to stop filing pleadings that are, I'm just going to call them snippy.

It just doesn't do anything, but it's going to stop. So with that, let me ask, I'm happy to hear from folks, I'm happy to give you a couple minutes to just level set with your team members. I'm also happy to choice C, which I can't really think of right now. Your Honor, we think it makes sense to take a few minutes for everybody to consider what you've just said. All fine. Let me do this. Albert, if you're in chambers, if you can make sure the attorney lounge is available if you need privacy. That block, I think, is still one, two, three.

And the room next to it is actually mine. I think I unlocked for the last hearing, but we'll make sure it's unlocked. Again, if you need privacy. If I need to find another room, I'll get somebody else's conference room if I needed. That all makes sense? So let's do this. I'm going to call that it's for, we're not going anywhere

until we get all of these issues resolved today. So if you've got flights, please tell me I want to be accommodating, but we're not leaving until we get all of these issues resolved. But I'm thinking, 415, if you need more time, just send somebody back in to tell me I'm not going anywhere. I'm going right here, because evidently if I walk away with our new security, all of my computers shut down.

So I'm just going to sit right here. Any other questions, comments before we break? Thank you. I'll see you back. Thank you, Your Honor. All right, good afternoon again, everyone. This is Judge Jones. The time is 430 Central.

I appreciate the emails that have indicated that some of the folks online were having difficulty hearing me. Again, I'm having to, and I'm still learning how to do this, to bounce back and forth between people in the courtroom that I haven't had for three years as well as people on video. I will endeavor to keep the microphone in front of me so that everyone can hear. Mr. Schrock. Thanks very much, Your Honor.

For the record, Ray Schrock, Walgachlanjee's counsel for the debtors. Your Honor, we did have an opportunity. I think everybody took a break and went back and considered it. From the debtor's perspective, we think that Your Honor has a very constructive solution that would avoid a lot of cost and expense and the need for trial, a potential discovery fight around the scope of what's necessary. Our suggestion, and I'm going to make a suggestion, and I think Mr. Hansen has a few things he wants to say.

I think Mr. Meisler for the ad hoc equity group has a few things that they'd like to just get clarified. But our suggestion is that the parties forgo having a fight on this issue today, work, use 24 hours, or when the court's next available to work on language. If we could have the accommodation to appear by Zoom or something tomorrow afternoon to reconvene, we think that that would be a good use of everyone's time and, frankly, a wise. use of estate resources rather than moving forward on this particular topic today. But I don't want to speak for the other parties. That's our suggestion. We think it makes a lot of sense and it's

the right thing to do, but we'll let the other parties say their piece on it. Of course. Mr. Hanson, you want to go first because it's primarily concerned you more than anybody. Yes, thank you, Your Honor. Chris Hansen with Paul Hastings on behalf of the ad hoc committee of secured convertible note holders. First of all, Your Honor, we appreciated your perspective when we arrived here. As an advisor to my clients, I would say that I'd like your suggestion. So I was out in the hallway and only had an opportunity to speak with a handful of the clients. We have a larger group, and I do need to speak with all of them to make sure that they're an agreement.

One thought I had, which was part of our adjournment motion, was really whether we all wanted to just pause on the formation of the Equity Committee and the implementation of this type of order until the debtor actually has a business plan because they don't have one, and then we could all come back to it then. I know that the ad hoc equity committee is not in favor of that type of a result for many reasons, which they can espouse. But from our perspective, we think that brings some clarity to the situation because we share your view that it's very hard to come up with independent

views of valuation associated with this business. So, and in the absence of you authorizing the adjournment until the debtor has a business plan to deal with this, we support the debtor's perspective, which would be take a day, let's all go talk to our respective clients and see if, in fact, your suggestion makes sense and how we translate that into the language in an order. That makes sense for everyone. But I, again, just really appreciate the court's view because the hindsight look is very important here.

Agreed. Thank you, Your Honor. And let me, and I certainly want to hear Ms. Reader, Mr. Meisler, just to give you some idea of what I have available, just so it would seem to me that that would be important. I kind of anticipated that there might be something along those lines. So I have a Laredo panel tomorrow. at 2.30 that I can't move.

And it's not very big. It's 150 cases, give or take. It'll take me an hour, maybe an hour and a half. But I've cleared the rest of the day, both before and after. So if that's helpful in terms of when you would have access,

if you needed it, you can have before and you can have after. And, of course, procedures always allow video that you don't need that's not an ask you always have that option perfect that was going to be the question I have for your own certainly mr. Reid certainly honor I think from our perspective can I just no one will be able to hear you in order to have time to confer we suggest the afternoon sure so the after rather than the before you want to just I mean you want to say four o'clock central time that enough

enough time. That works for us, if it works for everyone else. I can also tell you if it's helpful. Because again, I want to be, I'm happy to make the call. I just am, but I really want to get focused on the business. If it's helpful, just because folks are, you know, they want to get on a plane tonight, and I certainly understand that. I can clear time Friday morning if that would be more helpful.

I mean, you all tell me. Friday morning, maybe. better. We have a large group of people potentially together. All right. You wanted to say 9.30 Friday morning? That's fine for the ad hoc equity group. And all right, thank you. Ms. Transon? Yeah, that's fine. Your Honor. Thank you. And any other questions? Yes. Okay. Fire away. We have a few clarifying questions. Sure. We just want to make sure as we're conferring with a client base, because it's a part of the reason we need some time is as the court can appreciate, the actual client doesn't exist yet.

And so the formation... They'll talk to your group. Right, we'll just have to see... I got that. So we want to make sure we understand what it is that they would be consenting to here. Is the court talking about a true hindsight and not a reasonableness at the time of the expenditures? Yes.

And I will tell you, I'm probably going to do that anyway. Because I want, you know, this is the creation of a, and mind you, you have to somewhat trust me. This is, I'm not on a vendetta, I'm not trying to make a point, I'm about as apolitical as it can possibly be. I generally offend everybody. But Mr. Hanson's point really catches me, and there's always a cost involved in the problem. It's a cost that everybody bears. It has to be a rateable sharing of that cost. And mind you, and I want to try to give you a ridiculous example.

If you charged for a phone call, because you were trying to figure something out, you don't have to demonstrate to me that that phone call led to a tangible benefit. I got that. But if you embark on a piece of litigation, litigation and I conclude that it was a path taken because there was no risk to the cost, as I see a lot, then I am going to reevaluate that in hindsight using my own judgment of what

was available at the time and what a rational, reasonable lawyer who would be considering everything, including the cost of taking a particular path would consider. And again, I'm not suggesting this would be the case, but I see. I see folks all the time go, you know, Mr. Socrates is paying for it. I'm just going to take my spin at the wheel. I don't care because he's going to pay for it at the end. That I am going to look at with a hindsight approach. But again, what I want, if your clients are in the money, I get the argument and I want them

to be as in the money as they can possibly be. If they are not in the money, and I'm going to think about that too and what should have been done, could have been done, And I fully realize you don't control the market. I'm certainly not holding you to the market. You know, the best success I ever had was being involved in the ASARCO case because we delayed everything long enough that we became solvent. It was the best decision that I was ever involved in. I'm joking, sort of.

I got all of that. I do. But this is an unusual thing, and I often question the role. This is not an opportunity to sit on the sideline and simply be another party throwing bombs in an effort and try and get something. I will shut that down really quickly.

I want it to be constructive. Part of what I think your job is is to provide unbiased good information to shareholders, because, number one, they, as a group, tend to be less sophisticated about the bankruptcy process than, say, a group of commercial note holders. And so that's a big deal to me. I want these folks to be able to ask the questions that are important to them,

and I want them to have the ability to get those answers from somebody that is perceived to be not biased. So, I mean, there's a whole bunch that gets wrapped up in there. and when you undertake to do this, that's, you know, I'm trying to talk to you and give you sort of what I'm expecting out of this. And again, to the extent that you're at the table in plan negotiations, you know, the fact that you argue for something and don't get it,

that's not my viewpoint. It's whether or not you were trying to hold something hostage using someone else's money that I am going to look at. Does that make sense? It does, and to me that's, it's not truly a hindsight test to me that is an assessment of whether the course of action was reasonable when it was undertaken and was undertaken in good faith. It's not a pure results-based review. I mean, what you just described to me is perfectly reasonable. Were motions filed that didn't need to be filed that had no chance of success that weren't reasonably aimed toward creating value for the debtor or assessing value for the debtor? Weren't part of the mandate of the committee. So, and this is just important for our client, obviously, to understand. I've known you a long time. I have a lot of faith in the court and then the court,

not being vindictive toward any party in this court. And we perfectly understand. I hope the court recognizes that we worked quite hard to reach agreement, to reach a court with books. And that's our aim. It's not our aim to throw bombs. I get the pull and the tug and all of this. I just want to, again, I'm not going to say it again,

but I haven't been happy with the tone of a lot of the pleadings that have been filed lately. I want it constructive. I want us to focus on how we maximize value. And everyone says that, but I know what it means, because it means that people have security in their jobs. It means that vendors get paid on time. It means that everyone has a shot.

That's what I want. Understood, Your Honor. And it was our understanding as well. I mean, we would obviously disagree with Mr. Hansen's suggestion that we wait for a plan, in part just because of the practical reality of former committee it'll take I'm not you filed a motion I rule on things that get filed before me not waiting understood your honor not like the answer but I'm gonna rule

quickly understood your honor and the other the other piece is we understood we have an agreement with the note holders that between now and I suppose it's Friday morning we wouldn't use that time for any discovery I think we have that agreement Transon yeah that's that's fine from our perspective we're not going to seek additional discovery. However, if we don't, let's advance tomorrow. Friday morning if we come back and we say, yeah, our clients are not interested in this deal and we want to actually have a hearing on Friday morning. Sure. We reserve our rights to talk about the discovery that we don't have and that's missing from a record perspective because we think that's important. And I hope at some point

that's, because mind you, I mean, I've stood where you're standing before, I know what the cross is going to look like I assume that what you would do is you'd say you know this read I want you to have did you agree to have the following people present and if if they go nope you got to catch them and subpoena them well then you're probably going to get your continuance she says absolutely we'll have that person there it'll be more likely I'm going to look at you and go you were three times the lawyer I ever was and I stood before many of judges without any discovery at all and conducted across I'm gonna go let me see your a game let me see what you got no understood your honor and just so we're on the same page it's more the discovery

with respect to the debtor because it's that was an issue for us standing there I got that agree all right thank you all right thank you all right thank you all right thank you so we're gonna we're gonna take all that to Friday morning 930 and obviously if you guys get an agreed order is uploaded and I will also tell you I'm I'm perfectly happy if you get down to the point where we have an agreed order A, an agreed order B, we're all, we're down to one sentence, one paragraph. You know I like those because you can either get choice A, choice B, or most likely choice C. I'm perfectly happy to take those up.

All right. Do you go to the deal? Yes. Your Honor, I was going to start the hearing with a brief update on the business. I'm happy to give that now or I can skip ahead given the hour. That's the most important thing and that's the thing I'm most interested in hearing. So absolutely. Well, Your Honor, the debtors have been in Chapter 11 now for a little over two months.

And we're happy to say the company is adjusting well to life in Chapter 11. The business is operating normally. And due to various factors, the company is ahead of budget on our cash. So four weeks after the initial dip hearing, or the second interim dip hearing, we are 26 million ahead of budget. I'm sorry, I interrupted you. My apologies. That's okay. You're permitted to interrupt me.

No, I'm really not. Is that due primarily just to commodity change? And I don't mean anything by calling this. I got into an argument earlier this week about currency versus commodity. You can obviously tell which one I think it is. Is that just due to a change in the price? Is it due to accelerating expense cuts? What's that driven by?

I can answer that. A small portion of it is just due to timing differences, but most of it is a permanent benefit from the budget, and it's due to three main factors. One is the increase in Bitcoin prices. Two is the decrease, as compared to budget. Sure. Two is the decrease in power prices as compared to

budget and three is as miscellaneous other matters so for example at the last hearing your honor approved our motion to sell the bit main coupons that wasn't in our budget and we actually ended up getting around three million dollars for that which is more than anticipated so a variety of factors and so that's interesting so what is a I know you're not going to know this it's a rhetorical question almost what is a 10 cent or what we do have We can get that answer for you. I don't have it on me right now.

But it's significant. The power prices in particular is a very significant impact on our EBITDA. And it was the power prices were very high during much of 2020 due, among other things, to the war in Ukraine. And those prices have come down significantly since last fall. And is it just not a pure, I'm going to call it a pure spot market? Is it none of the hedge, you know, supply contracts? Most of it is spot contract.

Okay. All right. Got it. Okay. So in the last few weeks, the debtor's primary focus has been on finalizing the dip credit agreement and getting the dip approved today on a final basis. And to a lesser extent, we've been focused on this equity committee decision and litigation. We have made progress on the business plan. And after today, with our final dip in place, we should be, the debtor should be able to devote more attention to finalizing that and getting into negotiations with our various stakeholders over a reorganization plan. We also continue to consider opportunistic asset sales of our non-core facilities. And employee retention than what you hoped it would be?

It's been fine. You might see a motion in that regard coming sometime soon. But the employees have been doing an excellent job on keeping. the company afloat during this difficult time. And all of your interactions with customers and perhaps other folks that are in similar situations been working okay? Everything has been, yes, in that front, everything's been going well. I mean, most of our revenue is from self-mining, just the machines and the Bitcoin that it produces. So we're, in that sense, we don't have customers, but we do have hosting customers.

Got it. All right. So we get to a confirmation hearing. You stand up and make your presentation. I'm going to want to see a Bitcoin around it to build change. Understood, Your Honor. Thank you for your words. We'll see what we can do. So next, unless Your Honor has any questions, we do get to the final hearing on the replacement dip motion. That was Dock at 389. So I'm pleased to announce that we've resolved all creditor objections to the final dip order, including the two that were filed. We also worked separate from the ones that were filed who worked quite a bit with various equipment lenders and purported mechanics lien holders on their issues. And as a result, we uploaded a black line of a final dip order against the interim dip order, a docket 573. that was uploaded or filed, I should say, on Sunday night. So it's been more than 48 hours, and we haven't heard anything from creditors

telling us that that's not appropriate. So I think we're all set on that, with the exception of the one objection we did receive from the equity group. And that was filed at 584. But before that, I did want to point out that we did file the proposed final credit agreement. at docket 579. Of course, drawing under that credit agreement is subject to entry of the final order. Again, we've received no comments on that.

Before I go further, I'd like to move the court to enter into evidence two of the three declarations in support of the replacement dip that were filed on January 31st. That is the second sign declaration at docket number 390 and the block declaration at docket 391. Because we resolved all issues relating to their testimony, we did not have Mr. Singh and Mr. Block join us in Houston today, but they are available virtually for cross-examination. And also joining us, I should say, via Zoom is Michael Brose, the debtor's senior vice president of capital markets and acquisitions who was our first day declarate.

All right, thank you. May I ask any objection to the admissions of the Block Declaration at 391, the Singh Declaration at 390? Yes. No, Your Honor. All right, thank you, then, that they are admitted. Do you wish to cross-examine either one? Mr. Meisler is handling the dip, so... I'm so sorry.

I appreciate that, Your Honor, but that's why I keep looking at it. It's just fine. Mr. Meisler, do you wish to cross-examine either witness? No, Your Honor. All right, thank you. Then I will accept their declarations they are excused as witnesses. Thank you, Your Honor. So, moving on to the objection, we've been able to resolve a portion of it.

In their objection, I would point you to paragraph 9, they ask you to paragraph 9, they ask for three categories of changes to the dip order. The first is information rights, just additional information be provided to them. The debtors are fine with that, as are the dip lenders and the ad hoc group. So this would be the changes in paragraph 19A. We can also work off of the order that's easier. I want to hear you get through the rest of this and then we'll talk about where we go. Okay. The next category is 9b of their objection, which relates to notice of the exercise of remedies and the right to be heard at a remedies hearing.

Those changes are also acceptable to the debtors and to the dip lenders and the ad hoc group. We did want to add additional language into the dip order that would say that nothing final dip order shall be deemed to expand the scope of any official committee appointed in these cases. or authorized payments of any fees to any such committee beyond the scope and budget set forth in the order of pointing the committee. This is just, if they want to, if they want to object, I'm certainly going to hear them whether they're an official committee or an ad hoc committee. I'm going to still give them the opportunity to speak. And I agree. It's not pre-approval of anything. Thank you, Your Honor.

So that really leaves the change requested in 9C, which is also the last change in 9B, which relates to the inclusion of the professional fees of an equity committee into the carve-out. They also want the approved budget to include the Equity Committee professional fees. Your Honor, the debtors are sympathetic to these requests if an equity committee is appointed and would consent to these. But the dip lenders and the pre-petition secured note holders whose cash collateral we're using have refused these changes, and they've refused to include the Equity Committee professional fees in either the carve-out or the budget. So the equity holder's response to that is the court should not approve the dip financing. We do not agree with that.

The debtors require dip financing and the use of cash collateral, and we cannot force the dip lenders or the pre-petition secured note holders to agree to these requests from the equity group. So our position is that the court should overrule the limited dip objection. So let me ask, so the carve-out's actually divided into two pieces, right? A pre-noticed, post-notice? Yes, Your Honor. Right. And Mr. Hanson, which part of that are you really,

you can't really be focused on the post-notice piece, right? It's a gross number, so that wouldn't change. Your Honor, counsel for B. Riley probably wants to be heard on this as well, but since I'm closer to the podium, I'll go first. I think the perspective that we both have on this, both from the dip lender and from the party allowing cash cattle usages, in the situation where the carve-out kicks in, we're talking about a post-default remedial type situation, right? And so our view is if an equity committee is effectively saying, well, we're here, and if we wind up with language like you've suggested, right, we're essentially saying you're proceeding at your own risk here.

And we're in a situation where we have a dip default and or a cash collateral. default. That's a pretty tragic situation for the company, right? And so our view of that is within that window, you really are, we're not really in a solvency situation. And so our view is, why are we paying out of our collateral equity committee fees in a situation where we're seeking to exercise remedies after the debtor has defaulted on our cash collateral provisions or on the debt provisions? So you're saying it's both pieces. It is. So help me, I got, I understand the argument with respect to the pre-notice piece. I don't understand the argument with respect to the post-notice piece

because you agreed to a number of, I think it was $2 million. Is that right? Yep. And so you've already factored that in. Why do you care who it goes to? Yeah, I was about to say it's fair point. Judge, like to see what the debtor's advisors and the committees advisors have to say about that.

You know, I mean, they take on some of their wrists, but they're also the ones who actually consented to this in the first place. That's a fair point, Your Honor. That's a fair point. But I hear you that we've agreed with respect to the gross number. It's a fair point that you make. I think our objection rests on that point of in that type of post-default remedies period. I don't think things are looking pretty pretty for the debtor at that point.

I got that. But I understand your point about the bucket, and it's really a question of who shares the bucket because we've already agreed to give up the bucket. Right. Yeah. Well, I guess what I would say is in the miraculous situation where the debt is, in the committee's fees didn't fill up the full amount in that bucket, I still have an objection because if it's the equity committee,

like pretend for a second that of that two million, a debtor in the official committee or a million of it, and now we have a million over, for example. Again, for an equity committee to step in and say they should be able to soak up that post-period bucketed amount, we still think that's unfair because you're in a situation that by definition is probably an insolvency situation for the debtor. Right.

Not the argument I thought you know that's right. Okay, got it. Let me hear from them. Let me hear from you. Good afternoon, Your Honor. John Vintola of Chodhawland-Stuart on behalf of B. Riley Commercial Capital, the dip lender. Thank you for the opportunity to be heard, Your Honor. So we have a similar view on the carbon as a whole.

Conceptually, we have really struggle with this. There just seems to be an inherent kind of irreconcilable conflict from the proposed equity committee's view is that they should be appointed immediately, but they are flipping all of the risk of an administrative insolvency. onto my client. I'm going to slightly disagree because I've told everybody where I'm going. Yes, Your Honor.

And I would think that, so let me tell you where I'm headed. Okay, thank you, Your Honor. Is with, I'm going to, if it's split in the order, the pre-notice, post-notice. I think that's the vision. The post-notice, I agree,

and I wouldn't include the number two-million. I just want to see if I could get Mr. Hanson. I agree with one statement he said at that point the argument that you are in the money at that point is really out the window I'm gonna hear what mr. Meisler has to say but I get it but with respect with respect to the pre so well let me let's start first so let's assume that I approve the I approve the equity committee along the lines of what I told everybody I'm really thinking hard about doing so they're going to be a part of the interim comp order and so they're going to be going along why shouldn't they

why wouldn't you want them in the budget I mean you you have to have them in the budget again subject to the right I've already pulled everyone I've done a reserve if they get money I have absolutely no doubt that statute That's where we got to. I'm not suggesting anything by making that comment. I'm not really worried about that aspect of it. But I mean, we have to have an accurate budget, because that's what people are going to rely on and talk about.

And so I got it that you don't want them to exist at all. I got that. But if they do exist, then whatever their fees and expenses are, have to be in the budget. I mean, we just can't ignore it, but then it's not a budget, right? Yeah, I understood, Your Honor. And, of course, your comments have been very instructive to me today with everything you've sent today. Thank you.

I mean, I'm just trying to, again, I've told everybody what I want. I want people focused on the business. I want to see it saved if it can be safe. Correct. And I want to know if it should be saved. I mean, I'm not preordained to anything, but I want to stop the procedure and I want to get focused on the subject. Yeah. And I would just see.

say Your Honor briefly, we very much agree with that. I mean, my client really wants to focus on the debtors' reorganization efforts. They have come in, funded new money, taken on new risks to help support these reorganization efforts. I would just know, Your Honor, and I have to, if I could hear the rest of the arguments, and then confer with my client briefly,

this does effectively increase the carbote, though, because if the fixed part isn't growing, even if they don't share in it, this does, it grows the pre- The pre-does. I totally got it, which is really important for everybody on that interim comp order to make sure that everybody stays up to date, right? Because that's going to be the way to minimize it.

I mean, if they're going to exist, they have to be in the budget, because otherwise it's not a budget. I understand, Your Honor. So thank you. But keep walking with me for just a second. So we're going to have an interim comp order, and any order is going to absolutely provide I mean, I know everyone says they get lip service to it.

Oh, an interim order, no one's ever going to really reevaluate the final. The answer is, yes, we are. We absolutely are. And this will be one where I don't sit and wait for someone to do something because no one ever does. This is one that I'm going to be, I mean, obviously, I'm going to depend on you. I'm going to depend on Mr. Hansen, but I'm going to be looking at this too. I want to make sure if I do this, I mean, I got it. that the debtor is taking the path at least resistance to try and get to the result.

I got that. But, you know, U.S. Trustees said no, and it's not, you know, that means something to me. And, again, two committees in a case is a huge burden. We all know, I mean, not that you're not worth it, the lawyers are expensive. And if I'm going to do this, I'm accepting the responsibility for trying to make sure that it was right. And so I'm just talking so you hear me when you talk to your mind about what's floating around inside my head. So my view of it is that with respect to the pre-notice part, I mean, it's in the budget, everybody should be focused on the budget because we ought to live by a budget. We ought to, budget shouldn't be just because we have to get one.

Budget should be, that's how we're going to measure the performance of the entity. And people ought to be watching the professional fees. and if something gets out of whack, then I expect somebody to tell me. I got it that it's driving up the car about. I got that. But in my mind, it's not that much because it shouldn't be more than that worst. Committee fees and expenses. And I don't think it ought to be that much if everybody's really watching it.

Am I wrong in that? I hope not, Your Honor. I'm actually, I'm counting on you to make sure it's not. Well, we certainly will be attentive to you, and I can assure you my client will be. So thank you for the comments. I would like to confer with my client, given the approach the court has taken here.

And again, just want to reiterate, we really do want to get this dip finalized. We have very spirited discussions with the debtors with professionals, but very good faith in negotiating. We were very happy to get to where we were today, as Ms. Berkowitz said, have no creditor as opposed to the dip in a case this large. I got out of interest.

So, I mean, we're not done yet. I mean, what I want you to do is, you need to go talk to your client. I'm assuming they're watching. I believe so. Yeah, I know they were earlier. So I hope they are. Hoping will happen is that you can, that we can take another short break and you can step out in the hall, and you can say, okay, we heard what Jones is saying.

We can either live with it or can't live with it, then we have a much bigger problem, and you tell them not to go home because none of us are going on. Thank you, Your Honor. I will try to reach them as soon as we have a break. Mr. Hanson. Yes, Chris Hanson, on behalf of the ad hoc secured to convert an order. I guess it's an interesting point you make. I just want to point out for everybody kind of in the core room.

The debt budget would probably have to be adjusted, obviously, with respect to the appointment of the Equity Committee, because it will be, you know, a projected fee, assume it's capped at 4.75 for the purpose of the order, whatever it might be. That'd be increased in the budget. So I think you're right when you talk about, like, it's that post-budget default periods, fees in transit, as like, for lack of a better way to describe it, is really the issue. issue. And you know, Ms. Bergeridge pointed out before that the debtors were ahead on their cash. You know, you have to buy. Part of it obviously is because they're continuing not to pay debt service or any of their secured debt, right? So cash coming is not

going back out the door to pay the secured note holders. It's not going back on the door to pay the equipment lenders or anyone else. And so, but part of that budget then, again, has to adjust for the potential occurrence of these fees for the equity committee on a regular basis. And I just wanted to point out for the court, too, that the budget does demonstrate. I think two draws right now is a $20 million draw and then another $5 million draw. So in theory, you have to put another $5 million draw on that. So just to make sure the court understood, as part of the status update that you understood, there are continuing dip draws along the way, notwithstanding the fact that the company is sitting on cash.

No, I got it. And so let me ask you this. I mean, if you really wanted certainty, I mean, why not just lock up, if you're $26 million ahead, why not just lock up $4.75 now because you know it can't ever be any worse than that and that way you don't have to worry about the what if yeah we were going to try to do that in the context of the order that we hope to submit to you together on a consensus basis but of course understood thanks so let's do this so i and i don't know mr hanson if you need to talk to your folks as well but it seems to me that maybe what we ought is take another quick break, hopefully not too long. And again, I just want to make it very clear, is that number one, the assertion that it shouldn't

be in the budget, that just practically doesn't work. Whatever they are, and I'm perfectly happy if we come back and acknowledge, yes, we need to redo. We need to do the debt. And we need to go ahead and get it approved tonight, but we need to work on the budget, and we also need to get to Friday. Perfectly happy to approve the dip if you're comfortable with a to-be-submitted budget.

Perfectly happy with that. I mean, you may have to make some interim. I don't know if you have to make interim accommodations between Friday or not, but I'm perfectly happy if that works for you because you want to see what happens and how all of that unfolds. Again, I'm not trying, I'm not trying to put you in the box. You've seen me when I tried to put you in a box.

I am not trying to put you in a box. If you decide that you want to just wait and see that unfold, I'm more than happy, but it needs to be in the budget. And I like your term. The fees in transit, that's just fair. I got your point, although you've got me there and around it that way. I got your point with respect to the post notice. And again, so long as the Equity Committee knows,

then they can react accordingly. I got that. You need to go talk to your folks? Yeah, I was going to suggest, John, I, it's the debtor's, you know, the debtor needs to know this is done because, you know, everyone, every media reporter is on the line listening and this will all go out over all of the things. So we're not ending the hearing until we have this issue resolved.

The question is, I like, yeah, what I was going to. say around as I like the idea of trying to sort things out right now yeah and then waiting to either enter the order until Friday when we work out the rest of this or do it on a subject to be agreed upon budget that we all work on but that's I think let's go out and talk in the hallway and come back oh okay that's perfectly fine mr. mr. miser I keep looking at miss Reed I'm not trying to pick one over the other I promise you she's just right there and I know her so mr. miser I apologize come on up thank you very welcome to calling miss Reed too I you know

I agree with you. She's far smarter and eloquent than I ever hoped today. And me too, Your Honor. Your Honor, you did all the work for me, Your Honor. We're fine with your suggestion on the dip carve-out. We agree if that notice is triggered. There's very little left for us to do. Your Honor, we also obviously agree with you on the budget,

and ultimately our fees are subject to your court allowing those fees. So, Your Honor, I think Warren knocks up with this court. You're in fact. Okay. We just need to figure out, we need to figure out sort of logistics. But again, I want to make sure that the debtor has the comfort that it needs. And there are going to be vendors who are watching this as well who need to know there is certainty going forward. And I want to make sure that certainty gets conveyed tonight.

So I'm sorry. And, Your Honor, one other point to the extent that it's helpful, it's going to take two weeks, maybe three weeks, for the committee to be up and running, for the U.S. trustee to accept applications and to interview members and, et cetera. So there's no change to the budget for at least the next couple weeks. With that, Your Honor, I can sit. No, I got, well, let's see. Again, I want to make sure that people have ample time to talk to creditor representatives. I also, again, I want the world to understand that the debtor is here. It's adequately funded and is conducting business and making best possible use of the process.

Your Honor, I spoke to counsel to both the DIF lender and the ad hoc note holder group just now. Could you possibly do that? I was sneaking. I was seeking. I don't think we need a break. We're okay getting the order entered with the language that the equity group wanted subject as modified by what I said earlier and changing the post-notice carbout amount not to include them and we'll work in good faith on the budget.

It's absolutely true that even if they were appointed under the interim comp order, the first they would even be paid if they started work tomorrow is in May and there's time. for that. So let me ask, do you have the order here in the courtroom and somebody with a computer? Yes, I have a computer. So if I step down, I mean, I'm happy to say right here, but if I step down, you know, just work out the terms of the order. If there is a problem, then I'm happy to come back out, and at which point I'm going to start typing, magic fingers. But if not, you can just upload it from here. and once it's been uploaded, everybody can go, and I'll just sign it before I go home.

Does that work for everybody? Yes, Your Honor. That works. Everybody okay with that? Mr. Hanson? Yes, Your Honor. Am I making you nervous again? No.

Okay. Before we break, Your Honor, three quick points for the record. One is, because we're ahead on budget, we don't plan to make those draws that Mr. Hansen mentioned, right? You don't need those draws anymore. The next budget would not include those draws. That's number one.

Number two, for every one cent, decrease in the price of power per kilowatt hour. That is an extra $50 million of costs, savings to the debtors, which directly translates into $50 million in additional evita. So the business is very sensitive to price changes. So 1% drop on an annualized basis? Is that where the 1 cent? 1 cents.

Right. On an annualized basis, right? On an annualized basis. It's not like you to drop one penny for a day, you make that money, right? Correct, correct. Over, over a year. Yes. sense that an annualized date.

I'm going to get in the business in it. And then the other point is our power is a combination of the spot market, the tariff market. We do have one power agreement. So I did want to clarify the record on that point. I was just surprised if it were all this day-day purchase. I was going to be shocked. Okay, I got it.

We will take the time to fix the order. I don't think it will take a lot of time. The directions were pretty clear. I got it. All right. Then I'm going to let you all do what you do so well. appreciate you working through the issues. Again, I'm happy to come back out, but if everybody signs off on it, you know, upload it, I'd ask you to either send Mr. Alonzo a text or

buzz on the door and, you know, we'll get it done before we go home. Okay. Thank you, Your Honor. I mean, the milestone expires tomorrow, so if it's going to take more than just a few minutes, we will let the courtroom know so that people don't. Yeah, nobody can go until it's uploaded. Okay, well, I like that. All right. Thank you, Your Honor. safe travel so we'll be adjourned thank you all right