January 9, 2019 – The Ad Hoc Group of Noteholders (the “Noteholder Group”) objected emphatically [Docket No. 293] to the Debtors’ motion for an order approving the adequacy of the Debtors' Disclosure Statement [Docket No. 45]. [Please see also a separate summary of the objection [Docket No. 291] filed by the U.S. Bank National Association (“USBNA”) as to the adequacy of the Disclosure Statement. USBNA is the trustee in respect of three series of the Debtors' notes, including the Series II Second Lien Notes discussed below.]
Members of the Noteholder Group hold the Debtors’ 11½%/13½% PIK Toggle Second Priority Secured Subordinated Notes due 2020, Seies II (the “Series II Second Lien Notes”) which are part of the Plan's Class 4 and in line for their pro rata share of 5% of the emerged Debtors' new equity if they vote in favor of the Plan (by comparison, Class 3, comprised of holders of approximately $233mn of the Debtors' First Lien Notes, will receive 95% of the new equity). The Noteholder Group is angry.
The objection, before launching into page after page of the document's specific shortcomings, states, "The Noteholder Group does not like what it knows so far about the Plan. That is irrelevant to this objection. What matters at this point is the fact that neither the Noteholder Group nor any other stakeholder in LBI knows what they are being asked to vote on, what they and other stakeholders are proposed to get, and what releases, compensation and other benefits those “under the tent” stand to get (and for what consideration). Will the Company be sold, restructured or wound down, and what are the procedures and approvals that will be sought, on notice to parties in interest, from this Court to accomplish one or more of these outcomes? We have no idea. And we’ve asked, formally and informally, in writing.....From what can be gleaned from the little disclosure there is, the Plan seems to be little more than a placeholder that is subject to wholesale change depending on several toggles that have yet to be determined. At worst, it is an attempt by the Debtors to circumvent the requirements of the Bankruptcy Code and deny due process to creditors."
The objection continues, “The Disclosure Statement should not be approved because it fails to provide ‘adequate information’ within the meaning of section 1125 of the Bankruptcy Code. At its base level, the Disclosure Statement does not provide anything resembling adequate information that would allow a hypothetical or actual person to assess what they are being asked to vote for....The lack of information provided is exacerbated by the extremely accelerated timetable that the Debtors insist upon with no reason…Further, there is no explanation in the Disclosure Statement for why the solicitation is proposed to go forward before the mysterious, non-bankruptcy court approved, Marketing Process has concluded. There is no explanation in the Disclosure Statement for why another proposed path for the Debtors’ restructuring – the refinancing of the First Lien Notes – must occur before any meaningful disclosure is made about that possibility, and in fact, before the Disclosure Statement is even proposed to be approved by this Court. This is inadequate.”
The objection further breaks down the Noteholder Group's concerns into five basis areas:
- What is the percentage recovery any class of creditors stands to receive under one or more of the Debtors’ proposed alternatives?
- There is Not Adequate Disclosure as to What the Debtors are Seeking in Regards to an Alternative Transaction .
- There is Almost No Information on the Parties Receiving Releases or the Claims Being Released.
- What is the Nature of any Compensation for Insider Lenard Liberman?
- The Disclosure Statement Warrants Disclosure on the Following Additional Matters