During the three weeks following the date of its bankruptcy, Bashas’ has locked horns with its secured lender group (a consortium including Compass Bank, Wells Fargo and BankAmerica) on numerous matters – all substantive and all important for Bashas’ prospects. They finally have found an issue on which they agree – they all want to pay big dollars for restructuring advice.
What Bashas’ and the Secured Lenders Been Fighting About?
First, Bashas’ sought the right to borrow up to $45 million to help finance the reorganization. The secured lenders (who had already been asked – and had apparently declined — to provide such “debtor-in-possession” financing) filed objections. The objections, evidently shared by the institutional holders of Bashas’ debt offerings, were based on the value of the assets being offered up as collateral to secure the proposed debtor-in-possession financing. Specifically, the lender group said that the collateral requirement was too great for loan advances in excess of $14 million under the proposed financing. Consequently, Bashas’ post-petition financing is, for the present at least, capped at $14 million.
Next, Bashas’ sought blanket court-ordered approval to negotiate and pay up to $6.8 million of pre-petition claims that are secured by federal lien laws protecting vendors of perishable agricultural products and bulk meat (“PACA” and “PASA” trust claims). The lenders, presumably concerned about the first-priority status of PACA/PASA liens and their effect on the secured lender’s collateral, insisted on the right to monitor and keep tabs on the progress of Bashas’ resolution of these federal lien claims.
Bashas’ also sought bankruptcy-court approval to pay some of the pre-petition claims of its “critical vendors” who might otherwise refuse to do business with Bashas’ so long as there were unpaid balances owed for shipments of goods made prior to the date of Bashas’ bankruptcy. The secured lenders objected to Bashas’ “critical vendor” motion, and after three weeks it remains unresolved and presumably abandoned.
So what did these Strange Bedfellows Agree on?
On July 13th, in one of its “first-day motions,” Bashas’ sought bankruptcy court approval to hire an accounting firm for advice on its reorganization plans. The matter was heard on July 29th, at which the accountants’ hourly rates (and the debtor’s ability to pay them) became an issue. After the hearing, the accountants’ pay rates were evidently reduced (to a maximum of $495/hour), but the motion was denied on July 31st.
On August 3rd Bashas’ asked the judge to reconsider the matter, though Bashas’ did not offer any new grounds for reconsideration. The secured lender consortium joined in debtors’ motion for reconsideration, though they did offer any additional grounds for reconsideration. So despite their differences on many matters, Bashas’ and its secured lender group have agreed on a matter they consider to be self-evident – the need for accounting services at rates not to exceed $495/hour. Hearing is set for August 12th.
And Where Stands the Official Committee of Unsecured Creditors?
The docket in Bashas’ bankruptcy proceedings indicates that the Official Joint Committee of Unsecured Creditors (the “Committee”) was appointed July 24, 2009. It is unfortunate that, inevitably, there is a lag of 2 to 3 weeks before an official committee of unsecured creditors can be appointed by the US Trustee, select and retain its counsel and get up to speed. We have seen some cases where this lag time rendered the unsecured creditors committee ineffective; the course of the bankruptcy case had already been set.
The Bashas’ Committee has a great opportunity to make a difference in the Bashas’ bankruptcy. Where debtors and secured creditors are constantly at odds, bankruptcy judges can and often do look to the Committee as a voice of reason. Counsel to the Bashas’ Committee only now is jumping in – 24 days after the bankruptcy filing. However, the Committee is not that far behind. The fighting between Bashas’ and the secured creditors kept this bankruptcy on the produce aisle.