First Brands Group, Evolution Credit Partners Reach Agreement on Interim Cash Collateral Use

The First Brands Group debtors have just filed a stipulation with Evolution Credit Partners that would permit the debtors to continue using Evolution’s collateral under its receivables facility and financing agreements during the interim DIP period in exchange for certain adequate protection from diminution in value. The stipulation specifies that the total principal obligations outstanding under the Evolution facilities is $230 million.

The parties acknowledge in the stipulation that the Evolution collateral “may have been commingled with the assets of the FBG Debtors.” Further, the stipulation says that the “validity, amount, perfection, and priority of Evolution’s asserted security and/or ownership interest in the Evolution Collateral and its secured and unsecured claims is not agreed, and will remain subject to review and challenge by the Debtors and other parties in interest.” In light of this, the stipulation expressly preserves all parties’ challenge rights.

The debtors’ special committee is investigating the commingling issues and potential “third-party factoring irregularities.”

Pursuant to the stipulation, the debtors are authorized to use Evolution's collateral in the ordinary course through the earlier of 30 days and the entry of the final DIP order,

The stipulation provides for Evolution to retain its first priority lien/ownership interest in its collateral and on replacement collateral. Within five business days of receipt of payment on any Evolution collateral, the debtors would deposit the cash into a segregated adequate protection account, to the extent the property is identified as Evolution collateral.

The stipulation notes that “Alvarez & Marsal will exercise good faith efforts to identify Evolution Collateral,” and says that “All Parties’ rights, including as to the proper owner or beneficiary of such collateral and disbursements from the Adequate Protection Accounts, shall be fully preserved.”

No bankruptcy court order will grant any liens or claims against Evolution collateral that is senior to or equal to Evolution’s liens.

The FBG debtors will receive a second lien and superpriority administrative expense claim against the two Evolution Borrowers (Patterson and Starlight) for their share of bankruptcy administration costs (e.g., professional and U.S. Trustee fees), though this lien is expressly junior to the Evolution lien in all respects.

Today’s first day hearing has been adjourned for an hour while the parties work to resolve objections and will resume at 11 a.m. ET. Ahead of the hearing, several financing parties filed limited objections to the debtors’ DIP financing and cash management motions, defending their security interests and criticizing the proposed rollup.

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