American court hearing recordings and interviews - Season 5. Episode 1. April 5, 2023. In re Virgin Orbit Holdings, Inc. et al., chapter 11 bankruptcy case number 23-10405, audio of first hearing held in bankruptcy proceedings pending before the U.S. Bankruptcy Court for the District of Delaware

Episode Date: April 24, 2023

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This is the court clerk again. There's someone who I've just admitted with an iPhone number. Would you please rename yourself or let me know who you are? Thank you. Hi, this is Ana Yaramali from Latham. That cell phone line is a Latham line and we will correct the name. Thank you very much. Good afternoon, everyone.

This is Judge Owens. We are gathered together today virtually for a first day hearing in the Virgin Orbit Holdings case. We have a lot of ground to cover today, so I will turn the podium. over to propose counsel for the debtors, and you can walk me through today's agenda. Good afternoon, Your Honor. Kara Coyle, Young Conaway, Stargant, and Taylor, proposed co-counsel to the debtors, Virgin Orbit Holdings, Inc.,

and certain of its affiliates. Can you hear me, Your Honor? I can. On behalf of the company, we'd like to thank Your Honor and your chambers for making the time to hear us today. We certainly appreciate it. We'd also like to take the time to thank Ms. Sarkeesian and the Office of the United States Trustee for working with us so constructively over the past week,

I believe we've narrowed many of the issues that were raised by Ms. Circassian for purposes of today. Your Honor, we're pleased to be working with our colleagues from Latham and Watkins, many of whom you'll hear from today. They've each been admitted Prohawk Vichay. If it pleases the court before I cede the podium, the virtual podium to Miss Yeramali, I had one housekeeping matter. We're trying to meet a funding deadline today, so we were hoping to take the dip up first, and then wages and then cash management.

So we would be going outside of the order that was presented in the agenda. That would be fine. All right. Thank you, Your Honor. Unless Your Honor has any questions for me, I'll cede the virtual podium to Ms. Yeramali. Okay. And just so everyone knows, I've read all the pleadings, and since you have a funding deadline, you can tailor your presentations as you see fit.

Of course, I know how important it is to tell your story on the first day, so I don't mean to imply that you should not present in the manner that you see fit. But if we are running up against a funding deadline, I'm happy to accommodate a shortened presentations on the first days and other papers as well. Ms. Yaramali, good afternoon. Thank you, Your Honor. Good afternoon. Anu Yeramali of Lathamon-Wakins proposed counsel to the debtors. I'm here today with George Clodonis, Lisa Burton, Brian Rosen, and Mohini-Rerick. who will all introduce themselves as they take the podium.

I echo Ms. Coyle in thanking the Court for accommodating us on short notice so that we have the opportunity today to seek the very important first day relief you'll hear about shortly. Your Honor, we have a few slides that we'd like to use for these introductory remarks. May I please ask the Court to provide Gail Reiser with screen sharing privileges? Yep, we're all set. Thank you. Before we get into the substance, I want to introduce a few folks to the court. First, Dan Hart, the company's chief executive officer and one of the first day to

clearance. Brian Whitman of Alvarez and Marcell, the company's financial advisor and the other first day to clarant. Agnes Tang and Dave Zubriki of Ducera Partners, the company's investment banker. Your Honor, we filed for Chapter 11 overnight Monday and serve the motions and notice of the first day hearing on all of the relevant parties listed in the notice provision of each motion. We worked with our dip lender and their counsel Davis-Poke pre-filing and before the hearing on the form of proposed orders to accommodate their comments.

We also have had very productive discussions with Ms. Sarkesian of the Office of the United States Trustee, which has led to the resolution of almost all of the office's questions and concerns, and because of her efforts, we will hopefully have a relatively straightforward hearing today. I will provide brief remarks now about the background of the company and how we ended up here today, and then we'll turn the podium over to my colleagues to go through the agenda. I plan to introduce the debtors in their business to the court, review their corporate and capital structure, and spend some time explaining how the company arrived here today and the path forward. The dip financing is a part of this story, but I'll leave that for Mr. Clodonis so that we are not being repetitive.

I am also sure Your Honor has read the first-day declaration, and I will try to avoid redundancy. there as well. Your Honor, the debtors were founded in 2017 and from 2017 to 2020, the debtors designed, manufactured, and tested their space equipment and refined their operations for state-of-the-art satellite and launch technologies. The debtors began commercial operations in 2020, achieving 33 successful satellite launches. The company is headquartered in Long Beach, California and has a testing site in Mojave, California. The debtors provide rideshare satellite services to their customers, and by ride share, I mean that the debtors can launch multiple satellites belonging to multiple customers in a

single mission. The debtors are vertically integrated from design and manufacturing to launch equipment and operations. They offer fully mobile launch services using a modified custom-fitted Boeing 747 named Cosmic Girl, and a specially designed rocket named Launcher 1, and a specially designed rocket named Launcher 1, that is the world's first and only liquid-fueled air-launched rocket to reach orbit successfully. The debtors have the capabilities to provide mobile launch services both domestically and internationally. So why is this company different from competition?

Rather than a ground launch system that is fixed to a specific location, the company uses an air launch system that is more reliable and agile and allows the company to execute launches from any governmental licensed, horizontal spaceport, with a runway long enough to support a Boeing 747 400 aircraft. The environmental impact of the air launch system is similar to commercial aircraft, and the launch system is less susceptible to weather-caused delays. The debtors operate within the space economy, which is an exciting, growing, and competitive industry. The debtors serve both the private and public sector with several key contracts for government

and national security agencies to provide their unique capabilities both in the U.S. and abroad. On the public side, key defense and national security customers include the governments of the United States and the United Kingdom. In addition, the debtors offer their launch services to private companies like A&A, ARCIT, and SAT Revolution, and civil launch organizations like NASA and UK space. The debtors have had four successful launches in 2021 and 2022. The debtors did suffer one fill, launch in early 2023, but have already determined its root cause. The debtors expect to receive return to flight status from the FAA during the month of April, and the next rocket launch is in final integration and test phase in advance of its planned

launch in the third quarter of 2023. Your Honor, the company consists of five U.S. entities. Virgin Orbit Holdings, Inc. is the publicly traded parent company. The largest shareholder is Virgin Investments Limited, holding approximately 65,000. of the shares in Virgin Orbit holdings, and 15th investment company is another large shareholder. The stock traded on the NASDAQ until yesterday when it was delisted. Moving down the structure, there are four U.S. subsidiaries, which are all debtors. Virgin Orbit LLC is the company's operational entity, and together with Virgin Orbit National Systems LLC,

these two entities are the domestic employers, and both hold certain customer and vendor contracts, intellectual property and equipment. In addition, JACM Holdings, Inc. holds certain equipment, and finally, Viaco, USA, Inc. was part of the merger process. The company also has three foreign subsidiaries in Brazil, Mexico, and UK, that holds limited assets, and these entities are non-debtors, and these entities do not anticipate receiving funding from the debtors. Pre-petition, the debtors issued approximately 70.9 million in secured convertible notes to Virgin Investments Limited from November 2022 to March 2023 and fuse liquidity into the company. These notes are issued by Virgin Orbit Holdings and are guaranteed by the U.S. debtors. The debtors also issued approximately $51 million in unsecured convertible notes to Y-A-2PN Limited, who we call Yorkville.

in January 2022 in January 22 in March 2023 through a series of conversions into equity over time and the recent issuance of additional convertible notes Yorkville now has approximately 2 million in unsecured debt outstanding also as of the petition date the debtors have approximately 34 million in unsecured trade payables 41 million of contractual purchase obligations and are holding approximately

25 million in customer deposit as well as approximately 6 million and other unsecured liabilities or other contingent claims. With respect to the company's liquidity, it's worth going back to the beginning. The company was formed in 2017, and the debtors announced its plans to go public in July 2021 through a merger with a SPAC. In December 2021, companies de-SPAC and related transactions, including a pipe, raised $228 million in net proceeds. However, this amount was less than anticipated. Since early 2022, in an effort to meet its capital needs, the company worked with Bank of America and Goldman Sachs on strategic transactions and capital raises. Numerous parties executed FDAs and explored options with the company, including strategic acquisitions and debt financing.

The company continued these marketing efforts in earnest through March 2023, including after the failed launch I had described earlier. The company also engaged in contingency planning with the assistance of Latham, Ducera, and Alvarez, and Marcell. While the company remained focused on out-of-court financing solutions up until the petition date, management proceeded down a dual track to ensure that the value of the business and the key assets was maintained. The company also formed a transaction committee in March 23 to evaluate potential strategic alternatives, including but not limited to any debtor in possession financing and any Section 3,000, 63 sale transactions, particularly those types of transactions involving the majority shareholders, including VIL.

The company has faced numerous challenges in its business operations and the ability to raise additional funding. These include significant upfront investment needs to develop launch capabilities and acquire customers and scalability issues. This is coupled with challenging financial markets and high interest rates, competition in the commercial markets, attrition, and technical issues leading to slow production. unsuccessful launch in January 23 negatively impacted the company's ability to obtain significant additional liquidity. Despite those challenges, the company's out-of-court marketing efforts

were robust and resulted in one indication of interest in a potential sale and one for structured financing transaction. Unfortunately, neither of those transactions materialized despite significant effort from parties leading up to the petition date. In the run-up to the filing of these cases, the debtors faced liquidity constraints while they continue to these out-of-market, out-of-court marketing efforts. In mid-March, the debtors paused operations and placed the vast majority of their workforce on vacation. To that end, they also raised an additional $1 million in unsecured financing from Yorkville that provided additional runway to seek an out-of-court transaction.

Unfortunately, these out-of-court efforts did not materialize, and additional liquidity was not available to the company. On March 30th, the debtors secured $10.9 million in Bridge 5-Card. financing from the parent, VIL, to implement a reduction in force impacting approximately 670 employees, which was used to provide these employees with severance COBRA and outplacement services. The company's workforce has now been reduced to 100 employees that have the key knowledge to maintain the assets and allow business operations to restart once a buyer can be identified. These employees will also assist with marketing the business, maintaining the business, the debtors assets and providing the necessary reporting during the Chapter 11 cases,

all with an eye towards maximizing value. Even after these significant measures were taken, the debtors did continue to explore out-of-court options, but ultimately came to the conclusion that a fulsome open marketing process in court would be the most value maximizing path forward. Your Honor, there are three key elements to these cases. First is the dip. Mr. Clonos will shortly provide more detail on that, but the debtors intend to fund these cases and ongoing operations using a dip facility being provided by VIL, which includes a new money

component of approximately $27 million. The company and its advisors had hard-fought negotiations with VIL and its advisors, Davis-Poke and FTI on the DIP and the timeline. Where do we go from here? We intend to continue the sale process. We've negotiated for a case timeline that will allow the company to continue marketing a sale for their assets in whole or in part. The debtors believe that the parties already identified in the pre-petition marketing process

as well as new parties will have interest in pursuing an acquisition of the debtors. Mr. Clodotas will provide more detail on the milestones, but the debtors do believe that they provide the ability to seek value maximizing bids, but will also ensure that the company does not linger in Chapter 11. Simultaneously with the sale efforts, the debtors will be working towards a plan and confirmation process. A UCC will be appointed in short order, and the debtors intend to work with all of their stakeholders to hopefully achieve a consensual and efficient conclusion to these cases. Unless Your Honor has any questions for me on the background that I just provided, I will

cede the podium to my colleague Amy Cordo-Olo. Thank you very much. I have no questions. Thank you, Your Honor. Good afternoon, Your Honor. Can you hear me okay? I can. Okay. Amy, for the record, Amy Porterlo of Latheman Watkins has proposed counsel to the debtors.

We will be offering an additional declaration when we get to the dip motion, but for now we have three declarations that we would like to offer into evidence in connection with the first day relief being sought today. First is the declaration of Daniel M. Hart in support of Chapter 11 petitions and first day pleadings. That can be found at docket number 13. Second, the declaration of Brian Whitman in support of Chapter 11 petitions and first day pleadings. That can be found at docket number 14. And third, the supplemental declaration of Brian Whitman in support of Chapter 11 petitions and first day pleadings. That was filed earlier this morning. That can be found at docket number 56.

In addition, at the request of the Office of the United States Trustee, the debtors, will make a short proffer, which is as follows. Daniel M. Hart, the chief executive officer of the debtors, is in the courtroom today and prepared to testify as a supplement to the statement in his filed declaration as follows. Mr. Hart would testify that the statements contained in paragraphs 24 through 86 of the Declaration of Brian Whitman, which is found at docket number 14, as offered in support for the first day relief being sought by the debtors here today

are to the best of Mr. Hart's knowledge accurate. Both with Mr. Hart and Mr. Whitman are on Zoom and available for questioning. I mean, accordingly, the debtors would request the court admit into evidence docket numbers 13, 1456. Thank you very much. Does anyone object to the admission of the three declarations, the two of Mr. Whitman and one of Mr. Hart, as well as the admission of the supplemental proper. There are no objection, so they're omitted. For my housekeeping purposes,

does anyone tend to cross-examine the witnesses today on the substance of their testimony? Okay, thank you very much. I appreciate the declarant's time and attention to submitting their declarations. I had the opportunity to review them prior to taking the bench and they were very helpful, so thank you very much for those submissions.

Thank you, Your Honor. I'll now turn the podium over to my colleague, Mr. Flodonis. Okay, great. Thank you. Good afternoon, Your Honor. George Clodonis of Lathamon, representing the members in possession here. Good afternoon.

I'd like to turn to the motion, good afternoon. I'd like to turn to the motion for entry of interim final orders with respect to the post-petition financing, use of cash collateral, granting leads providing super priority admin expense, adequate protection, and modifying the automatic stay. As part of that request for relief,

We submit an additional declaration for David Zubriki, who's the investment banker from Ducera, socket number 18. Okay, does anyone object to the admission of Mr. Zubriki's declaration today? Hearing no objection, the declaration is omitted. For housekeeping purposes, does anyone intend to examine Mr. Zubriki on the substance of his testimony today? All right, I'm not hearing anyone.

Thank you very much. Thank you, Your Honor. First, I'd like to thank the U.S. trustee for working with us all weekend up until right before the hearing to get to an almost consensual dip order. I do believe that the negotiations between the company and a dip lender on one hand and the U.S. trustee on the other have gotten very close to a consensual dip order. That said, the latest version that we filed was about an hour ago.

I talked at number 55. At some point we can turn to that and go through some more comments and thoughts from the U.S. trustee. But before we get into the details of the difficulty itself, I just want to highlight a few points here on the background. And my colleague, Ms. Jaramali mentioned them. But I just want to highlight that, you know, the company has been out in the market since the closing of its piece back in December 2021, trying to raise capital. And although it's been out since December 2021 or early 2022, the negotiations really intensified towards the end of 2022. More specifically, the company hired two bankers pre-petition to run a variation of a public equity raise and a debt raise and other sources of capital to try to bring in liquidity.

That process was run by two independent members of the board, but unfortunately the company was running out of money and continued to run out of cash a number of times between November 2022 up until the eve of bankruptcy a couple days ago. So at the time that Virgin Group, or VIL, which is the company's largest shareholder, had agreed to provide liquidity in the form of debt, and we call those the pre-petition notes in the declaration. More specifically, Your Honor, there were five instances that Virgin Group had provided the company with liquidity, totaling approximately $70.9 million. million dollars, seven zero point nine. A central part of the negotiations with respect to those brief petition notes pertain to post-petition financing, which would definitely be necessary if the company were to implement any transaction through an in-court process. As payables and wages were coming due, the key here was to get the company into a

Chapter 11 process as soon as possible, build consensus around a sale process, and inject these estates and the company with much need to liquidity. It's important to note that the company filed with little liquidity, enough to pay for wages, and so the dip financing here is crucial to stabilize the company. So through the dip motion, Your Honor, we're seeking to enter into, or have authorization, rather, to enter into the dip credit agreement and incur the dip financing, as well as the roll-up on an interim basis, which I'll get to in a second. In terms of the numbers and what the dip does for the company, let me just lay out real quickly.

exactly what we're asking for. There's $12.5 million of new money today on an interim basis. That's freshened capital post-petition. The company is also seeking to roll up $10.9 million of what we call bridge notes, which are pre-petition, which were issued last Thursday and used to pay for severance for pre-petition reduction in force. It also gives the debtors an additional $15,150,000,000. final date and it also has the capability of accessing $4.2 million if the company needs to

undergo another reduction in force depending on where the marketing process goes. Finally, there's a roll-up in there for a total of $42.5 million and if you do the math between both pre-petition and post-petition it comes out to be about a one-to-one ratio. Your Honor, I mean, some of the key terms to highlight, but they're pretty clear in the motion. In terms of interest, the new money in the bridge is cash pay as full percent. The role of loans are not cash pay, their pick. There are upfront fees for fresh capital to 3 percent, and that's interim, final, severance, and these bridge notes which pay for the severance.

The maturity date is July 8, 2023, and it gives the company and capability to run the sale process and get to a plan, too, at the end of the case. The company submitted, sorry, I'll just go back for a second. The company believes that the debtors have met their burden based on the first aid declaration and a declaration of Mrs. Ebricky, as well as Mr. Whitman. The company also believes that this is the best and only dip out there. Ducera did assess the market for dip financing, and in fact, not only shopped potential dip financing, but shopped the dip proposal that was provided by Virgin Group.

they not only shop that you would typically see as a junior dip and as a senior dip or priming dip, albeit on a contested basis, but also whether any third parties were interested in doing something a little more holistic in the form of refinancing the pre-petition notes to effectuate some kind of in-court or out-of-court transaction. But there was no interest. So the dip financing and the proposed roll-up amounts is integrated with the lender support for the company and the sale process, which is why we're here today. The lender, who is also the company's largest shareholder, has consistently supported this company,

both in assuring that there's adequate liquidity to run a strategic process, as well as for the company to take care of its workforce, including the employees that were severed a couple days ago. Your Honor, I mentioned the two components of the dip, the roll-up, and the fact that it's what has been referred to as an insider dip. I do have a little bit to stay on that, but I don't know if you have any questions on the dip itself. I do. Am I correct in understanding that there is an 18% interest while pick on the rolled-up loans that are currently at 16% or lower?

Yes. Okay, so it's a higher interest rate for the roll-up loan? Correct. Am I understanding that the dip lender is demanding a 3% fee on the roll-up portions, or has that been taken out? The 3% fee, which is the upfront cash fee, is on the interim, on the final, on the severance, which is the 4.2. Those are the three post-petitioned fresh new money components, as well as the bridge, which is the 10.9 that was just done pre-petition. So, yes, there's a component that's on the roll-up, but not on the interim, sorry, the interim final and severance are all post-petitioned. Was there a fee charged for the 10.9?

Bridge loan just a week ago? You mean fee charged pre-petition that we paid as a company? Yes. Has the company already, is the company already obligated to pay a fee for the 10.9 that it was extended, that was extended last week by VIL? No, we didn't pay a fee pre-petition. No fees. Okay.

All right. Thank you. Those are my only questions right now. Okay. The only complaint, I just want to touch. briefly on the roll-up point and the insider point because I think it's kind of important to the narrative. The company does view the roll-up important as part of the dip, and there's a few reasons why. First, I mean, the obvious, it's a condition to the dip financing, and we need

a dip financing, so it's important to the company. The second is 10.9 million from last Thursday. That was effectively viewed as a pre-dip financing facility, allowed the company to pay approximately 671 employee severance and allowed the company to treat its people properly and most importantly retain the people that are currently still at the company approximately 100 people so that they understand that they're still you know that the people are important to this company during this process the roll-up economics are slightly similar although to your point your honor they're a little higher at 2% on the roll-up piece the bridge notes have allowed the company

to maintain, and when I say the bridge notes, the pre-petition notes that were entered into the 10.9 million, they've allowed the company to maintain the core business, the core employees, the key components that are required to run a good marketing process here, and to entice potential buyers to make bids. And I also think a key component here, at least on an interim basis, is the roll-up is also subject to the challenge. So I'm not sure how unsecured creditors can be harmed because when a committee's they'll have the ability to challenge. And then finally, on the insider piece, I mean, there is a board here.

That board, when discussions began about DIPC decided to create a transaction committee. That transaction committee consisted of existing board members. Susan Helms and Catarita McFarland were independent. The transaction committee had authority to provide recommendations to the full board. And when the board realized that this is going more toward the Chapter 11 restructuring process, the board decided to bring in two restructuring independence to be added to that transaction committee,

Alan Carr and Jill Frisley. And in the end, there was very much active engagement between the committee and the advisors on one hand, and Virgin Group on the other hand, arms-length negotiations. At the end, the transaction committee recommended that the board entered into the dip. We think it squarely falls within the companies in the board's business judgment. Virgin Group did not fix the case in terms of this transaction. There was an independent negotiation involved. You know, the directors weren't uninformed, did not lack independence.

So we don't think the insider piece is relevant here in terms of the way the process was done at the board level. And finally, just to close it out, the company believes that if this the financing is, not approved along with the 10.9. The company will be irreparably harmed. There's virtually not enough cash on hand after we make our next payroll. So, Your Honor, we ask the motion for dip-finance and be entered on an interim basis. Well, I think you've previewed through a reply what Ms. Sarkesian's issues or objections might pee with the dip. I'm happy to hear from all the parties that are in support of the dip, and then I'll hear from Ms. Sarkesian, and then you'll have the opportunity to reply.

Mr. Resnick, are you here for the, for VLI? Hi, I'm your honor. Nice to be back before you and good afternoon. Good afternoon and nice to see you again. So I'm here virtually with my colleagues, Josh Sturm, and Jared Erickson, as well as our co-counsel from Morris Nichols, Robert Denny, and Eric Schwartz. And we are representing Virgin Investments Limited, which the 64% shareholder, as well as the existing pre-petition lender and the proposed dip lender. So as your honor has heard,

our client has been funding the company since last November, the two notes $70.9 million as the company has engaged in its process to seek various types of transactions, be it sale transactions, financing transactions, et cetera. And you are just, You know, in terms of the roll-up here, just to directly, we were very surgical and targeted

in what we're requesting for on the first day here. The remaining part of the roll-up is subject to the final order. And despite the fact that we engaged in five financings leading up to the bankruptcy, we decided, our clients decided that for these purposes to request just a roll-up of the financing that was provided four days in advance of the bankruptcy. It was to fund, as you've heard, the reduction in force and allow severance payments to 87% of the workforce, this is 671 employees, to right-size the workforce for this process.

And just to reiterate with said before, that we understand that the debtors were working until literally the petition date to find all terms. alternatives to Chapter 11. So we believe that the funding gave the company the chance of potentially avoiding Chapter 11. And we think that this is the type of funding that was done as quote unquote pre-depth

and was done expressly with a covenant to seek a roll-up of this amount. We think this is the type of funding that should be promoted and and supported, and so we think it's entirely appropriate to be rolled up. And as Mr. Clodona said, very importantly, the role of is fully subject to the challenge rights of a committee. And so we don't believe there are any issues with it, with the financing, but of course, if there were any issues with the $10.9 million financing,

a committee would fully entitled to raise whatever challenge that they have. Your Honor, I would also just echo the thanks to Ms. Sarkesian. We've been working with her non-stop since yesterday and several hours this morning, and I'm believing we've come to a largely consensual order. I do think there are a few other provisions throughout that I understand that she intends to raise to Your Honor, and we'll be happy to respond when she does stuff. Okay, thank you, Mr. Resnick. Could you shut some light?

I understand. or at least I can anticipate the issues that Ms. Sarkesian may have with respect to the roll-up and putting those issues aside for the moment. I'm interested in the bases for the higher interest rate on the roll-up loan as well as the 3% fee on the interim bridge. Can you shed some light onto that? I think that's a fairly unusual, perhaps detrimental give by the estate on these rolls. up loans.

And while I may not take issue on giving roll-ups on a bridge, this does seem to give the lender more than to which it was entitled to one week ago. And so could you shed some light on why that would be appropriate at the interim? Sure. At the time that our clients did the financing last third day, I believe we were looking to match the terms of the prior funding that had been done. So I think we matched the pre-petition rates that were in effect. That's by my understanding.

I don't have it in front of me. So I think you were at 12 to 16 percent on the prior loans. Exactly. And the 4 percent differential represents, that's right, now I've just brought up. So the 4 percent differential represents the default rate. So the March 30th financing matched the interest rate. of the February and the January financings. Because if the company were to avoid Chapter 11,

then we would have been fine with the same rate being in effect. The default rate is the additional 4% that would get you to 16%. And so now, Your Honor, our view that if this is being rolled up into a debt, it should have the same rate as the new money loans, albeit I understand it's being paid in common. And then there were no upfront fees charged last Thursday. The company did not have the liquidity to pay it. So we just would have had to have upsize the loans and

and round-sides the note and round-trip the 3% to ourselves, which we didn't think was made sense to do last Thursday. And so that's why we're seeking payment of the fee today where the company will have the liquidity under the debt financing. under the good financing to pay it. Okay, well, why don't I hear from Ms. Sarkesian? Yes, thank you, Your Honor. Can you hear me? Yes, I can. Thank you.

Thank you. Good afternoon, Your Honor. So, for the record, Juliet, Sarkesian on behalf of the U.S. trustee. So I'm going to start with the issue of the roll-up. And so my understanding and counsel can correct me if I'm wrong is that on an interim basis, there's going to be a total amount of $23.1 million. Of that, $10.9 million is a roll-up. So by my math, that's 47% of the interim dip financing is a roll-up.

This isn't insider loan. So the dip lender is the majority shareholder of the debtors. controls is an indirect parent it is the pre-petition lender and it also my understanding is the licensor of the trademark of Virgin and I'll talk a little bit about that in a minute so it is unquestionably an insider loan and to have such a significant percentage of the interim financing almost 50% be a roll-up on the first day with an insider loan the US trustee objects to that. In addition, as your honor pointed out, the interest rate is 18% on the roll-up, and it's

12% on the new money. I mean, that's what I saw in the motion. I just heard Lenders Council, I thought it's something higher than that, but my understanding based on the motion is it's 12% for new money. That is paid in cash, and then the 12% is paid in kind, plus the 3% fee. So that's a very significant difference in addition to being more. more than what it was for the pre-petition piece of it. The U.S. trustee believes that the committee absolutely should have an opportunity to be heard

on the roll-up, and if a roll-up is allowed on the first day, they certainly can't, they could challenge the rest of it at the final hearing, but they will not be able to challenge rolling up that 10.9 million. Now, I heard Lenders Council say, well, you know, it's subject to the challenge period. So if someone, if the committee or another party in interest were to challenge the, say, the validity or the perfection of the pre-petition liens and that was successful, then of course the roll-up would be unwound. But that's only a piece of it. The other piece is the fact that the roll-up takes what was a pre-petition-sured loan, which would going into bankruptcy be a pre-petition secured claim and turns it into,

gives the certainly the claim, then becomes a super priority claim. So that is a difference, and that does not change. Again, of course, if the underlying pre-petition liens are set aside, if there's a successful challenge, just that would affect everything. But it may be that there's not a successful challenge,

but nevertheless, one could still object to taking the pre-petition claim, and turning it into a super priority claim. And that is something I believe that the committee should have the opportunity to object to. I do also want to put on the record that the U.S. trustee reserves its right

at the final hearing to object to the roll-up even on a final basis, but we're not addressing that at this point in time, just the interim. We also believe that a roll-up here is unnecessary. And again, this is based on the many hats that the lender is wearing here. I mean, it really appears, honestly, that this bankruptcy is being run primarily,

if not exclusively, for the benefit of the lenders, who, again, are also the majority shareholders here. And I can't, it's really hard for me to imagine an entity in this position, whether the majority shareholder, they already have the pre-petition loans, to walk away if they're not getting a 47% roll-up on the first day. And I now want to talk about that trademark issue, which is really concerning me. So it's my understanding, based on the documents, that prior to the petition being filed, that the lenders who are also, again, the pre-petition slash dip lenders,

who are also the holders of the virgin license, have terminated that license. I understand that the debtors can continue to use the virgin name until the sale is done, but it effectively means that the debtors will not be able to sell as part of the sale. And this is a, from what I understand, a fast sale case, debtors, the lenders are pushing a really fast deadline here, that they're not going to be able to market, you know, that when we sell this, you are going to be able to use the virgin name. So that's not going to be part of what's being sold. And, you know, I'm not disputing that the lenders may be within their rights contractually to have done that. I have no idea.

I haven't seen a license. I assume that the committee will look into that. But, you know, it does hamper the ability of the debtors to get, you know, the highest possible recovery for their assets. So I think in light of all of these things and how many hats that the dip lenders are wearing here, that, you know, a roll-up is just, again, on the first day, we would ask that it not be approved. Your Honor, unless you have further questions with respect to the, my argument with respect to the roll-up is finished, and I would just ask, Your Honor, you may like to hear other parties respond to my argument on the roll-up before we get on to the other issues, which are, you know, I would say, much less significant than this one.

My preference is to hear your argument in its entirety, and then I'll hear from other parties in interest, and we'll move forward. Okay, and just so everyone is aware, I have a contested dip hearing starting at three today. So while I am anxiously awaiting and will give you as much time as I can, just be mindful of that three o'clock hearing. Okay. And Your Honor, if it pleases the court, I would like to refer to the black line that was for pagination purposes, the black line that was filed with the court at around noon.

That's fine. It should be do, I believe. I have it up. Thank you. Perfect. Okay. the 31 of the black line, which is paragraph 7B is in boy. We're in, okay, one subsection B is in boy.

So the issue here is these are the dip financing liens, and this has to do with the priority of the dip financing liens. So in A talks about unencumber property, so we're not dealing with that. But in B, I had asked that these are the priming liens, and it states in the third line that this will be, these liens shall be first priority, senior priming security interests,

in all tangible and intangible pre-petition, post-petition property of the dip loan parties, which are the debtors. It's a little confusing. So I had asked, this is what I understand is standard, to have an exception, which is to make such lien subject to any valid perfected and non-avoidable lien in existence as of the petition date,

maybe other than the primes, other than the pre-petition lander's liens, and any valid non-avoidable lien in existence as of the petition date that is subsequently perfected pursuant to 546B of the code. Now, that is included in subsection C, but it's not in B. And I think that that is appropriate to be in B as well, subsection B as well. And I know that the heading of it is liens priming certain pre-petitioned party liens. If you read the language, it is not actually limited to the pre-petition-saturred party liens because these dip liens are becoming first priority senior proming security interests.

So that is, does your honor have any question about that point? I apologize. What paragraph are you in? I understand what your position is, but there's, seems as if there's three paragraphs that this could be relevant to, and I just want to make sure I'm looking at, or at least two paragraphs. 7B is in boy, and it's on page 30, it's like the top of page 31 of the foul black line. And you said that this language you requested is in another paragraph? Well, it's in paragraph C is in cat, but the differences that they specify, it's under, well, so it's one, two, three, four, starting at four lines down and C is in cat, and it continues over to the next page. The difference there is there it specifically says senior, uses the word senior liens, whereas, again, just in my experience with, at least with, at least with, norm orders, it usually doesn't say, specify, senior, just says valid, perfected, non-avoidable security interest as a petition date or that becomes so pursuant to 546 date.

Okay. So the next one is, if this is seven, I'm sorry, so the next one's in seven Died and dog. on page 32 of the black line. And this is lean, the heading is lien senior to certain other liens. And if your honor goes down starting in line and line five, going on to seven, it's including, so it's senior to certain liens and it specifies

any liens of security interest granted in favor of federal state municipal, or other governmental units. And I had requested, or regulatory bodies, and I had requested that that particular provision regarding governmental units and regulatory bodies you made subject to final order, just to give such entities an opportunity to come in

is I am not particularly knowledgeable about regulatory, governmental regulatory liens and would certainly like the opportunity for those entities to be heard at the final hearing. Oh, and that's also, it's the exact same issue in paragraph 19A. I don't think you need to look at that. It's exactly the same wording.

And unless your honor has any questions about that, I will move on. I don't. So the next one is paragraph 10. There's no subsection. Paragraph 10. And on the black line, it's at the, towards the bottom, of page 35. And this provision relates to rights and remedies upon default.

And I'm looking at three lines from the bottom of page 35. It's talking about what issues can be raised in an emergency hearing. If there is a default and the debtors or other parties want to run in and ask for an emergency hearing, this says that the sole purpose of the hearing would be to contest whether or not an event of default has occurred or is continuing. Your Honor, I don't know that I had this issue discussed before your honor, but I know some other judges do have an objection to the word soul, to limiting them to just addressing whether or not an event of default has occurred or is continuing.

So I'm actually just flagging this for your honor if your honor wishes to change that. Should I move on to the next? Yes, that would agree. So the next is paragraph 13, which is on page 37 of the black line. And there's two issues here. So this provision is headed payments free and clear. And is your honor caught up? Yes, I'm there.

Okay. So it says any in all payments or proceeds remitted to the dip agent by through or behalf of the dip secured parties pursuant to the provisions of this interim order, comma the dip documents. And then the next piece of it says, or any subsequent order of the court shall be irrevocable, receive free and clear of all flames, etc. And I have a concern, you know, talking about any subsequent order of the court. We don't know what those orders might be. So I was uncomfortable with having that language in here. I'm sure that if there's a subsequent order of the court that's relevant that the dip lenders will

ask for whatever they deem is necessary for their protection. But I was concerned about putting it in here. And then the other piece, and it's the same paragraph. So you'll see if you go down to line 5 and 6, there is a reference to sections 506C and 552B of the code. And there I had ask that those provisions be subject to final order, just as they are in paragraphs, 11 and 12, I believe, 11 and 12. And I know this is a little bit different because it has to do with payments, but again, nevertheless, it seemed consistent with what is typically done with respect to 506C and 552B to make that anything related to that be subject to final order so that the committee can raise any

concerns they might have. Your Honor, should I move on? Yep. Just keep clown forward and I'll let you know if we need to go slower. The next one is, what is this now? Page 46 and it's paragraph 19, right, the end of paragraph 19 is in boy, it's towards the top of page 46. And this is the actual, the last three lines. three lines of this

paragraph. It's subsection C and it says this court shall retain jurisdiction and notwithstanding such dismissal meaning dismissal of the case for the purposes of enforcing the claims liens and security interests referred to in this paragraph and otherwise in this

in order and I do know again I don't know if I have this has I've had this issue before you but I know that some judges object to this provision and surely your honor I mean, if the cases reopened, there's no question that the court would have jurisdiction, but prior to the case being reopened, this, I don't think makes a whole lot of sense here.

But again, I'm really mostly your honor flagging it for you so that you would see it and make whatever ruling is consistent with what you've done in the past. Okay, so that is 36. Next is paragraph 20, which is on, okay, 20 is payment of fees and expenses, and we're on page 49. So what this provision relates to is it requires the debtors to pay the professional fees, among other things, but the professional fees of the lenders. And it has the usual language that, you know, we negotiated in the past, and they put it in here where they They would send the invoices to our office. We would have 10 days to review the invoices.

They're limited. We're not getting full invoices. We're getting a limited amount of information, but it's at least some information. And then, you know, we have the opportunity to object if we feel that the, you know, the fees are unreasonable. And so that's fine until you get to page 49, where in the middle of the page,

they make an exception. And let me tell you what it is first, and I'll tell you where you can find it because it doesn't really stand it. Basically, the exception is, well, anything, any of the professional fees relating to the dip financing,

so the dip fees and expenses, including those relating to professionals engaged by the dip signature parties or the pre-petitioned security parties, they get paid without having to, you know, follow the provisions set forth in this order. The lenders had offered to, I understand the closing is, if the dip is approved by the court that the closing is planned for tomorrow.

They offered to give me these invoices, I guess, now. It's, you know, I appreciate that offer. It's not a lot of time, and if I had any objection to them, I would really not have enough time to run in here. I also think the committee is one of the parties that also gets copies of these. Obviously, they're not going to be formed by tomorrow. And so, you know, we think that that should come out. I think it could be subject to the same procedures.

I don't have a problem with them getting paid as long as it's subject to disgorgement. If, you know, we or the committee later challenged the amounts is unreasonable and are successful. Right now we get to paragraph 21, which is the effect of the stipulation on third parties. This is commonly what's known as a challenge provision. And it starts, there's a few issues here. It starts on page 50. So if I would go to about the middle of the page, two, four, six, eight, ten.

I think it's the beginning of ten, line ten. There's a parenthetical that says that in each case, what was it standing has to be obtained? pursuant to an order of the court prior to the expiration of the challenge period. So a party has to file the motion for standing

and Your Honor has to rule on it prior to the expiration of the challenge period. We had an issue with that. We don't think that's fair. In fact, in this case, the challenge period might even be less than 75 days because it's the shorter of 75 days

or I think plan confirmation. So we typically, the language, what we typically ask for, and I know we've certainly gotten this in many cases. Again, I don't know that I've had this issue before, Your Honor. Sorry, I'm just trying to get to my page on this. Okay. So we asked for that language to come out,

And instead, we asked for a language that said that the filing of a motion seeking standing to file a challenge before the end of the challenge period, if it attaches the proposed challenge, shall extend the challenge period with respect to that party until two business days after the court rules on the standing motion. If the court grants the standing motion, they would then have two days after entry of the court order. order to, you know, go ahead and file so that it doesn't. Otherwise, it effectively, that 75 days becomes a much, much shorter period. And again, also, I think, forces the court to have to, somebody, you have the person making the motion has to guess as to how long it's going to take the court to rule on it. So that was, that was one issue that we had. And then the other issue, and I will have to say to debtor's counsel and lender's counsel, I apologize.

I had not, this was language I gave you. You did not accept it, but in our call, I had overlooked it. So we had asked that if the case converts to a case, to cases under Chapter 7 or Chapter 11, I'm sorry, if the case converts to a Chapter 7 or if a Chapter 11, trustee is appointed prior to the end of the challenge period. So before the end of the challenge period, a trustee either Chapter 7 or Chapter 11 is appointed, then the challenge period shall be extended for that Chapter 7 or Chapter 11 trustee to 30 days

after their appointment. And, you know, with some flexibility on the days, but they, you know, if they got appointed, say, two or three days before, or the case converts two or three days before the challenge period ends, it would be nearly impossible, you know, for a trustee to fill everything together in a day or two to do what's being demanded. And again, that's pretty standard to have some period, you know, it might not be 30 days in every case, but that's pretty standard ask and a pretty standard, you know, agreement that we get. And we are getting to the end of this, Your Honor. I think...

Just two more things, Your Honor. Paragraph 24, so that is on page 56 of the black line. And this provision is titled interim order. Interim order governs. And the first, well, the only sentence now is that in the event of any inconsistency between the provisions of this interim order and the dip documents, that's fine. But then it says in the third line, or any other order entered by this court, the provisions of this interim order shall governs. So the interim order governs over any other order your honor may enter whether today or apparently at any point in the future.

And that, what we think is problematic. We're okay with the rest of that. Obviously, the interim order should govern over the dip documents, but not any other order that is entered by this court. And I think that's consistent with, I know your ruling's in the past with respect to having similar language in the actual, like, individual orders like wages or insurance that I know in the past your honor has just excised that type of a provision in those orders. This is the same provision as just in the financing order instead of the individual. They did not put that in the individual orders. And the very last thing, Your Honor, is that I just don't know Your Honor's preference for this. So it has to do with the wording of the subject to final order.

So the language that they've used throughout is just subject to entry of final order. And I know particularly that Judge Soversstein, the language that she has said that she likes is subject to entry, subject to and effective upon entry of a final order granting such release. So I had asked, you know, I think that it would be appropriate after final order to say granting such relief, because if the final order doesn't grant the relief, then you know, you're not going to get it. But again, I just bring this up so that you're on it, you know, whatever your preference is in that regard to make sure that that gets incorporated. And I believe that those are all of my issues. Okay. All right.

Thank you, Ms. Sarkesian. Let me ask before I hear from Lenders Council or Debtors' Council, in response is there anyone else that wishes to be heard in connection with approval of the interim dip in use of cash collateral today okay I'm not hearing anyone mr. Resnick mr. Clodonis I'll defer to you on how you want to handle the issues quite frankly I've highlighted many of the same myself then the Sarkesian pointed out so if you want to respond on certain points this is your opportunity to do that okay can I just respond on a few points

that are not in the context of the dip order, and then we can talk about the dip order. I think there was a discussion about the percentage of the ratio being 47%. I just want to be clear what we're asking for today. It's 12.25 million new money post-petition under the interim plus the 10.9 million roll of the bridge notes for the severance.

As far as the interest rate goes, I think there's a little back and forth on that. Let me just be clear. The pre-petition bridge notes are 12% with the plus 4% default rate of 15%. And then our roll-up on those notes is 18%. Right. So it's 2% higher. And the new money loan interest I read in the pleadings is 12%.

So it seems to be 6% higher than the new money loans. Is that correct? Or am I misunderstanding the pleadings? No. The new money loan for interest is 12% cashed. Okay. All right. As far as the role of the pre-petition secured claim

and farming the estate and running this process for the benefit of lender, it's just very quick a few points. I mean, if this thing gets challenged by a committee, I think effectively what can happen is 10.9, comes unsecured and it falls below the pre-positioned secured debt. And by the way, VIL is the only other pre-petition secured funded debt holders. So there aren't like other inter-creditor issues here. I think effectively we get to the same place that ends up being unsecured.

As far as, look, running for the benefit of the lenders, I mean, I think the process is being run for the benefit of as many people are being benefited from there, which includes employees, vendors, taxing authorities, insurance. things we're asking for on day one, because I think the alternative would have been something worse, and at least we can stabilize on day one to get people paid on account of certain claims. And then we'll see where the process goes. We don't want to say where it's going to go, but we're optimistic and we're hopeful if the process is going to go well. On the trademark issue, Your Honor, I mean, yes, it was terminated.

I think it was in Mr. Brickie's declaration that the trademark was terminated pre-petition. the counterparty had the right to terminate pre-position unilaterally. We decided if we could get a better deal by mutual termination, we should do it. We thought we could and we did. Basically, we have supposed to de-brand, which is called debranding for Virgin by the time of the disposition, the sale order effectively or the closing of the sale, so it gives us some time and some runway. I mean, I don't think we'd be able to assume an assignment. it as a licensee over their objection.

And the reality is, look, people can do whatever they want intentionally. If there's a buyer and there's a conversation with anybody on this point, they'll have the conversation. But we at least wanted to make sure that the bidding process was open and clear that everybody understands where we are in terms of the virgin, you know, trade bond. Other than that, I mean, we can get into the orders, like the specific things that were raised. I don't know, Brian, if you have anything you want to add. Hold on. Before I move forward, I just want to be clear.

I'm not approving anything today in connection with the trademark termination. Am I? Is there something in the dip document that I did not see? No. No, we just thought it, I mean, look, it's a condition to funding. Okay. But it's already happened. You already signed the agreement, correct?

Correct. And we don't want to bury it in the credit agreement, so we put it in one of the declarations declaration so people saw it and we understand somebody might have questions about it but we don't want it to come up a month from done but wait a second what is this trademark thing so we thought putting it in someone's declaration so that people saw it okay thank you i just wanted to make sure that i wasn't essentially approving that termination it's just a disclosure issue it sounds okay thank you mr resnick yeah sure thank you and i agree with everything mr clodonis just said and I'm happy to walk through the various provisions of the order that's helpful and express our view.

So starting on page 31, I don't think there's a disagreement on substance here, Your Honor. I think it's just drafting, but Section B talks about the pre-petition secured liens, and I just don't think it's the right place for the 5406B language, which is in Section C, that refers to the lien junior to certain other liens. So this is where C is the section that describes the GFleans being junior to other liens, and so I think it's just

a proper placement of that provision, but I don't believe there's anything substantive that we have disagreed on there. I'll pummel through, but please stop me if you have any questions I want to discuss any of it. So

I believe page 40 five was the next one and that is the part actually I'm sorry you I'm sorry to interrupt you did skip one which was page 32 sorry that's seven D is in dog seven D okay I'm sorry page 30 what 32 this is the issue about the means by governmental and regulatory so so right this is the The dip liens are senior to any liens that come up, including those that may be in favor of governmental units. If a governmental creditor wants to raise an issue at the final, they can do that.

But we're not used to seeing this as being subject to the final order. So if any highly unlikely event that anything were to happen in between interim and final, we think this is perfectly appropriate relief that you don't have to worry about there being other liens that are inappropriately ahead of the Kipleen, and quite frankly, I just haven't seen that to subject entry of the final order. Okay. And then, Your Honor, in terms of the issues that the debtors can raise at a remedies hearing, I understand that this goes both ways and judges have their preference. I mean, our view is that, you know, a committee can come in and raise what the committee wants,

but the debtors have entered into their agreement with the lender here as to what happens if there's a default. And of course, if there's a debate about whether, in fact, it was a default, and that's perfectly properly before your honor, but if there is a default, then the debtors have agreed that lender has the rights that they have under the agreements. And so that would be our position on the word of Seoul.

But we do understand that courts go various ways on that one, but we think it's appropriate as between the agreement between the lenders and the debtor. Page 37, paragraph 13, so I read this provision is basically saying that if there are any payments made to the dip, but lenders, so repayments of the dip loan,

that those are irrevocable and, you know, free of the plans, et cetera. And this has the subject to sections 506 and 552B of the Bankruptcy Code. So this is different than I think the section to L-square that refer to the 506 waiver and the equities of the case being subject to final order, which they owns are.

This refers to actual repayments of the dip loan. And so, well, I'm not entirely sure we're going to get repayments before the final order. If the diploma is repaid prior to the final order, our view is that those should not be disgorgeable or subject to any claims retroactively under 506 . I will move to, I think, oh, sorry, there was one of other point on that paragraph 13, I believe Mr. Cuisian raised that payments are free and clear if they're required under any other subsequent order of the court.

So I think this is a little bit more theoretical, to be honest, but if another order of the court were to require pay down of the dip loan with proceeds, say, of an asset sale, I think that paydown should be irrevocable. And I mean, this Arcadian's view is, well, the other order could say that. But, of course, our clients are extending the credit today based on this dip order and based on an expectation that if it receives repayment under the dip, that that is not not disposable. With that, I will move to page 46. This is the court retaining jurisdiction,

like for purposes of enforcing claims. I think it's appropriate. I understand, you know, maybe courts go different ways on this, but we think it's perfectly fine for the court to retain jurisdiction following dismissal of the case for the purpose of enforcing the div claims. I don't think we're going to be worried about that in this case, but it's perhaps theoretical, but we think it's fine inappropriate.

Page 49. This is the payment of fees. So in our experience, Your Honor, payment of fees, payment of lender fees are always paid at closing and are not subject to the review period. that the number of experience starts thereafter. The dip lenders are the dip lender here to dealer is funding it's funding an amount that takes into account pre-petition and fees incurred through through closing and it would be appropriate and is universal.

Quite frankly, we couldn't find a precedent otherwise for fees to be paid at closing and not subject to the 10-day review. period. We also think this is not a practical issue, but we don't anticipate any issues on the fees, but just as a matter of kind of what is customary and appropriate, we know that it's the lender is funding and amount today that accounts for fees to be paid at closing that those should be paid and should not be discordable based on any process. We have nothing to hide with with the respective professionals fees and we have offered to share those today with Ms. Sarkesian

to be paid at its closing but that would be our position on that one. Paragraph 21 is, oh, this is the challenge period in terms of whether a committee or somebody else pursuing a challenge has to get standing by the deadline or to file a challenge. We understand, Your Honor, that courts go different ways on this. We do have several precedents of Your Honor that provide for this formulation. We think, you know, we'd like this to be a quick and orderly case, and you think having this requirement will help in that regard as opposed to having a lender continue to fund

an ongoing longer process. But we do respect the fact that courts go both was on this. this issue and would defer to your honor's preference on it. So we believe this is justifiable. I think paragraph, okay, this was, the extension of the challenge period for 30 days after the appointment of a trustee. Your Honor, I think if a trustee were appointed,

we have no doubt that they would come in, Your Honor, and seeking attention to pre-legislate for that, we don't think is necessary. necessary and if so 30 days is perhaps a long period but we would defer to your honor on that one. Paragraph 24 in terms of the interim order of governing. So your honor we did have language in all the other orders and said they were you know subject to the dip order in the dip budget and we had specific language on the dip budget and stuff. We we agreed to to delete that although I do think it's helpful language that is justified. I believe what Ms. Sarkesian has an issue now is just the reference to any other order of the court.

This order says a lot of things and there are a lot of protections in this order and I think we just wanted to be clear that there's no other order that could impact or take away all the rights, protections, liens, and claims and everything else that is very carefully and meticulously spelled out and granted in this order. And then I have, oh, the language of subject entry to the final order. Yeah, Your Honor, we went with the simple version that we see in many precedents. And we just think it's appropriate. I think you were to add additional language, which is arguably superfluous.

It could lead to an ambiguity and a question of whether the relief that we're getting is similar to the same to the very usual and customary relief that's granted in other orders. so yeah, I have a preference for our formulation. I believe I hit all the issues, but I would ask Ms. Sarkesian or anybody else to let me know if I missed any. You hit them all. You hit them all. Thank you very much. I will say this is one of the more thoroughly argued dip orders.

And in the interest of time, I am prepared to rule, given what I have after this hearing. So let me just say, Based on the facts and circumstances described in the declaration and on the records today, record today, I have no doubt that the relief requested here, the dip and the cash collateral usage are absolutely necessary to the success of these cases. The issue here, as demonstrated by the parties and myself, comes down to what would be reasonable terms. Let's talk about the roll-up first. Given that the roll-up is subject to the challenge period and the fact that the pre-petition bridge loan was extended a few days prior to the bankruptcy,

I have in the past allowed roll-ups under these circumstances, even if it is an insider providing the pre-petition bridge loan, which, quite frankly, is one of the more common circumstances that I find on the first day, given the liquidity issues that are presented by a debtor coming into a case and the lack of available third-party funding. effectively it's a pre-dip dip as one mentioned and so I don't take issue with that nor the amount but I am wary of allowing the roll up on it at this interim hearing on less than 24 hours notice if it will be on less favorable terms than what the pre-petition loan was that's something that this court has consistently disfavored and so I'm taking issue at the interest rate which is

18%, which is above the new money loan interest at 12%, and higher than the pre-petition interest. And I also am wary of the 3% fee being approved at this time. I would ask the parties consider that those two items be subject to an interim, provided that I would be prepared to approve the same interest rate on the roll-up loans, the 12% or the 16, whichever one it was prior to the filing. If you want more, you can seek it at a final. And I think the 3% fee, given that it's paid on the closing, I'm not prepared to approve that because it would be out the door before a chance for a committee to review that and weigh in.

So those are two material issues, and I wanted to effectively address those head on. With respect to the actual form of order and the terms of the lending to the extent that VLI is willing to, move forward with the diploan given the my comments with respect to the interim roll-up. I am fine with most of the changes suggested by Ms. Sarkeesian. I think they're reasonable. However, there are a few that I will not require, and I'll just, for the sake of time, tell you what those are. Those are the changes that were requested by Ms. Sarkesian in paragraph 7B, 7D, 19B, the standing

issue in paragraph 21. For this point, I see that as a final issue, and I'd like to committee to weigh in on that. And the final point about subject to entry of a final order. I have two other further comments to the form of order, and then I think we need to talk about breaking so I can handle my hearing and coming back at a later time to finish this hearing. So let me just highlight the two other issues I have with the form of order, Mr. Resnick, with research. respect to the remedies period my position has been that the debtor can raise what it wants to raise so that provision would need to be struck but there's a paragraph after these the at issue sentence that starts except to set forth in this paragraph 10 or otherwise

ordered by the court prior to the expiration of the remedies period and then it goes on that the debtor waives this right and shall not be entitled to seek relief under 105 or any other provision that would impair or restrict the rights of remedies of the dip agent and the other secure parties. I think that's inconsistent with the prior paragraph or the prior sentence. If a debtor could come in and raise what it would like to raise with me during the remedies period, then this waiver is not an appropriate waiver. So I would ask that sentence be struck. My second and final comment.

Your Honor, I just want to make sure I'm sure what sentence. that is. It's still in paragraph 10? Yes, it's the paragraph that starts after the sentence that you had issue, the clause, and I'm sorry, I lost my page, and it starts with accept for. So, but it's still in the main part of, did the debtors know where the language is? As long as the debtors know, I'm fine. I'm just having trouble for you. top of page 36 bottom of page 35 where the reference is section 105

I see it okay okay so that entire sentence should come out then your honor yes and I'm sorry I'm sorry that I'm asking quickly but I have many many people waiting outside my door so I'm just trying to push this along so my last comment is in paragraph 35

in the paragraph that states payments held in trust it's more of a question I certainly understand the point of this provision. I guess I would ask if there's non-primed lien holders that receive payment, are they required under this paragraph to hold the funds in cash? It is the dip collateral. So I don't think that's what you intend, Mr. Resonick.

I think if you're not priming someone and they receive payment on account of their non-prime statutory lien, it's, of course, not going to be held in trust for you. So if our understanding is in line, is aligned, perhaps we need to tweak this paragraph to account for the non-primed lien holders. So I don't think my comments to the form of order, quite frankly, are material. However, I will defer to your client, Mr. Resnick. But my comments with respect to the interest rate and the fee are material. And I understand that I'm asking something of the pre-petition lender that perhaps it was not expecting. And so I guess I would ask from you, how would you like to proceed, given my timing constraints,

and also for now, basically, and the need that we get this order entered as fast as possible if your client is going to continue to lend? So, Your Honor, I would like a brief time period to confer with our clients. I think we could do it briefly if Your Honor didn't have. But in light of Your Honor's hearing, is there a time later this afternoon that you could hear us, and does that work for the debtors? Well, let me ask, on the balance of the first days, I have examined all of the first day pleadings, as well as the orders that were submitted. Are there open issues with respect to those orders?

that are going to be argued to me today. Your Honor, if I may speak, Julia Tarkation on behalf of the U.S. trustee, from the U.S. trustee's perspective, the only thing that was open is we needed a clarification with respect to insurance to be put on the record, and I am required to re-hand by my client to read into the record a statement relating to a 345B requirement. These are the only two things I'm aware, from the U.S. trustees' perspective.

Okay. Just in the interest of time in attempting to conclude this hearing and give you all adequate time, as well as my other case that I have, I am going to do something that's very unorthodox, which is I am going to take all of the remaining orders that are being presented to me on an interim basis. I'm going to ask, does anybody that's appearing today wish to be heard in opposition to those to the interim rules? relief. Okay, I'm not hearing anyone. I have no questions or concerns with respect to the substance of that interim relief. Again, I've read all the declarations. They are entered into evidence and support the necessity for that relief. It's clear that the U.S. trustee has weighed in and commented on all those forms of order, and they are consistent and customary with those that I've seen in every one of my cases. And so, subject to the representations that are going to be made on insurance and cash management, I am going to approve those orders. I also take solace in the fact that we have a local role that provides reconsideration of these orders within 30 days,

given that we're under extreme time constraints today. So why don't we hear those two representations? And then Ms. Coyle, you can announce on the record what the second day hearing is going to be. Once those orders are uploaded, we will get them entered as soon as possible. contingent, of course, on the dip. So why don't we take the insurance representation first, and Ms. Sarkesian, I'll hear you on your 345B representation or explanation that my understanding is your office is going to put on the record. Good afternoon, Your Honor.

My name is Mohini Rarick on behalf of proposed counsel to the debtors for Latham and Watkins. So for the insurance order at Ms. Sarkisian's request, we can confirm that the debtors seek authority to pay premiums for workers compensation and aircraft hull policies under the insurance order. And these policies benefit only the debtors, specifically only debtor Virgin Orbit LLC, and not any of the foreign non-debtor subsidiaries to Virgin Orbit Holdings Inc. Thank you. Thank you very much. Ms. Rukesian. Thank you, Your Honor.

Again, for the record, Juliet's Sarkesian on behalf of the U.S. Trustee, I will read this as quickly as I can. That would be great. Section 345 of the Bankruptcy Code obliges the debtors in possession to require from an entity in which estate monies are invested. Number one, a bond having features defined in the code section 345B or alternatively to the deposit of securities consistent with 31 U.S.C. Section 9303 unless the court orders otherwise. So in connection with the cash management motion, we make four options. First, Section 345 places an obligation on the debtor and possession to require protection

for its monies from the institutions what hold such monies. Second, while Section 345 does not mention the United States Trustee's Office, this office in its supervisory role pursuant to 28 U.S.C. Section 586 assists with protection of debtor and possession funds by its entry into uniform depository agreements, but also known as UDAs. The UDAs obligate depositors to maintain collateral for bankruptcy funds on deposit in an amount not less than 115% of debtor in possession and trustee deposits which exceed FDIC insurance limits. The United States trustee maintains information on the banks who have executed UDAs regularly, provide this list to debtors advisors, and is working to post a current list to its website. Third, in order for a debtor and possession to comply with Section 345 where a UDA bank is involved, the debtor and possession must first identify and disclosed all of the depository accounts when monies are held, and second, contact those banks

to ensure that the relevant accounts are designated as debtor and possession accounts. If the debtor and possession does not identify all of its accounts and take steps to ensure that its accounts are properly designated, then the bank will not treat such accounts as debtor and possession accounts. Fourth, recent bank failures highlight the importance of the debtor and possession's compliance with Section 345 for the benefit of its stakeholders. U.S. trustees seek specific language in any interim cash management order that identified concrete steps and a definite time frame to achieve compliance with Section 345 that was done

in this instance. The United States trustee encourages the debtors to act promptly to ensure full compliance with Section 345 and reserves the right to be heard on the cash management motion at the final hearing. Thank you, Your Honor. Thank you, Ms. Hercision. I think that that statement is very helpful, and I'm glad that it's being read. into the record. As I mentioned, this is very unorthodox. I understand that there are many first-day motions and applications that have been filed, but again, given my time constraints,

I'm going to make the ruling that based on the facts and circumstances described in the various declarations emitted into evidence today, I will approve the relief sought in those interim, excuse me, I will approve the interim relief sought in those motions and applications. With one exception, of course, Kroll is being retained on a final basis, and so there's no interim relief with respect to that. It's on a final basis. I am satisfied that the debtors have met their burden necessary

to carry the motions and applications, including that of Rule 6003, and that the relief is appropriate and warranted. I thank all the attorneys that have worked on all the various first-day motions and applications. I appreciate that many of you were going to present them today. Perhaps it was your first or second time. presenting in court and I don't take that lightly and I apologize that you did not get your

opportunity to do that but I hope to see you in second day hearings and further hearings at the podium and you'll certainly get I'm sure your opportunity to do that so this is not the last time I will see you miss Coyle when is the second day hearing for all those that are participating the second day hearing will be May 1st at 930 in the morning excellent thank you and then the objection Objection deadlines will be when? April 24th at 4 p.m. Okay, perfect.

Okay. And Your Honor, just before we close it out, the orders have all been uploaded with two exceptions. With respect to the critical vendor order and the lien holder order, we noticed there was a typo where we referenced the trade agreements as being attached to the order. I don't think that's a substantive change, and we were going to submit reverse. revised orders removing that and we'll submit those under certification of counsel right after the hearing and upload the orders excellent thank you very much all right mr. resident given that we're only going to be hearing the dip in cash collateral I would suggest we come back at 330 and I would give you

15 minutes at that point and then I have to go forward on an emergency contested dip hearing so I cannot give you any more time but I certainly want to give what this case needs so let's come back at 330 unless you feel like you can get an answer quicker than 3.30? That should work, Your Honor. Can I ask one clarifying question? Because 330 will work. Okay, great. Can I ask one clarifying question? We've been sort of going back and forth and I just want to make sure you heard there was a discrepancy in what we heard. In terms of paragraph 20, Your Honor,

You have heard different things on whether this is payment of visa closing, whether you are requiring any changes to that effect? Well, I guess I would say you have two ways to go. Either you delete the subject sentence that Ms. Sarkesian highlighted, which effectively nullifies her review period, or you make it subject to disgorgement because you're using estate funds to pay fees and claims and they need to be reviewed by the U.S. trustees' office and their office needs adequate time to review them. One day is not sufficient.

So I have no issue with you getting paid and I think Ms. Sarkasian made it clear she has no issue with you getting paid, but we need to have a true review period. Understood, Your Honor, thank you. And when I say discorsesia, I don't mean it to be a lengthy process, okay? If I get if it, right, okay.

Yeah, yeah, at least, Your Honor, I would presumably be the same review process as to go forward. Once that 10 days passes, I assume the discordment ends. Right. The same review process, essentially. Yes. Thank you, Your Honor. Your Honor, could I ask one clarifying question as well?

Sure. On the provision relating to the challenge period, I heard your rule. I heard your ruling regarding standing. How about the issue of if a Chapter 7 or Chapter 11 trustee is appointed prior to the end of the challenge period, getting some additional time? I agree with you. My only issue with that paragraph that I don't think needs to be incorporated is changes to standing, because I want the committee to weigh in on that.

However, it is customary and appropriate for the trustees to have additional time if the challenge period has not run prior to their appointment. So I agree that change should be made, and I apologize for not being clear and running through these issues very quickly. Does anyone else need anything clarified before we part ways and I see you at 3.30? Okay. If something comes up between now and then, you bring it up at 3.30, all right? So we'll take a momentary adjournment. Thank you all. I'll see you at 3.30.

Good afternoon, everyone. We are reassembled for continued hearing in Virgin Orbit Holdings. Mr. Resnick, when we broke, you were going to check with your client regarding the status of the, of the dip funding given my requested changes in the interim period. Were you able to connect with her client? I was, and as it turns out, the news for your honor is actually even better than you may have hoped for, which is that there's an incredibly convoluted set of confusing defined terms in these dip documents. As it turns out, the 18% rate doesn't actually kick in until the second roll-up at the final order,

and the rate being charged on the interim roll-up of just the $10.9 million is actually lower to 12%, which is the same as the rate being charged on the new money loans, payable in cash. And as I mentioned, the note is in default. And so had we not done the roll-up, there would be extra. percent of default interest would apply. So the roll up is actually saving the state 4 percent. Excellent. Okay. And then on the fee issue. Yes, Your Honor, my clients are fine having that due subject to the final order and therefore not paid at closing. Okay. Well, then based on those changes, I am prepared to enter the form of final dip order with the, and cash collateral order with

the appropriate revisions as we discussed previously. I think I mentioned this, but I'll make a more formal ruling based on the facts and circumstances described in the declarations today, as well as on the record. I am prepared to approve the interim dip and cash collateral relief sought, subject to the appropriate revisions being made as we discussed on the record today. I am satisfied that the debtors have met their burden necessary to carry the motion, including that of Rule 6003, that the relief is appropriate and warranted and that the terms are reasonable and as well as that the parties acted in good faith in negotiating and reaching the terms of the final dip and use of cash collateral.

I will look for a revised form of order today, hopefully, and have it entered as soon as possible. Ms. Coyle, when do you anticipate submission of the order? We're working on it right now, Your Honor. We anticipate hopefully within the next, you know, 20 minutes after we've circulated to the parties in interest for their sign-off. We have a funding deadline of 5 p.m. So we'll get it over to you as soon as possible. Okay. All right.

Thank you all very much, Ms. Coyle. Please email it over to Chambers after it's – after it has been filed. If I'm on the bench, I'll try to take a break so I can review it and have it entered prior to 5 o'clock. Thank you, Your Honor. very much appreciate it. All right. Thank you. Thank you all very much.

I'll just ask, is there anything that we need to discuss before we part ways, and I see you at the second day hearing? No. No. Okay. Thank you very much. Thank you all very much for your time and attention of this matter. The first day papers were excellent, as well as the declarations. I really understood the issues prior to taking the bench, and I know a lot of hard work went into drafting those papers, as well as the agreements reached in the dip.

Look forward to seeing you all as we move forward. in these cases and with that we're adjourned and I'll see it the second day hearing thank you all very much thank you your honor thank you