First Brands Reformulated Joint Liquidating Plan Provides Full Payment for Administrative Claims to Address UST, Court Concerns After DS Denial 

Relevant Documents:
Amended Plan / Redline
Amended DS / Redline
DS Approval Motion
Moore Declaration

On June 5, the First Brands debtors filed an amended chapter 11 plan revising the prior single-debtor plan structure after Judge Christopher Lopez denied approval of their disclosure statement on May 26. The debtors emphasize that the new joint liquidating plan provides for full payment of allowed administrative expense and priority claims against all FBG debtors on or before the plan effective date.

At a May 26 hearing, Judge Lopez rejected the DS for the debtors’ prior plan, pointing to absolute priority rule issues and the outsized scope of a proposed global settlement with the ad hoc group of prepetition/DIP lenders and the official committee of unsecured creditors. The judge said the DIP lenders’ credit bid raised potential gifting and substantive consolidation issues and objectors argued the settlement effectuates an unlawful sub rosa plan by dictating recoveries for non-plan debtors.

The amended plan replaces the separate global settlement motion with a settlement under the plan and is still supported by the UCC and ad hoc group. The debtors propose a hearing on conditional DS approval on June 12 at 11 a.m. ET and a combined hearing on plan confirmation and final DS approval on July 28. The UST’s motion to dismiss or convert the cases is also scheduled for the June 12 hearing.

The amended plan is now structured as a joint plan for the subsidiaries of First Brands Group Holdings and Viceroy Private Capital, the holding company for the Carnaby SPV silo. The SPV debtors are not plan debtors. The plan also provides distributions for administrative creditors and incorporates an administrative expense claim consent program under which administrative creditors can elect to receive distributions from the litigation trust.

The administrative claim consent program would allow electing creditors to receive earlier recoveries if they consent to a 50% discount on their claims. Further, the DS notes, the settlement payments would not be subject to clawback or disgorgement in the event of administrative insolvency.

The plan also removes the eligible/ineligible creditor construct that was previously carved back to address “death trap” objections prior to the May 26 DS hearing.

The debtors anticipate a “significant executory period” between plan confirmation and the plan effective date given the quantum of claims and the time required to monetize litigation claims and other remaining assets. The debtors’ suits against founder Patrick James and Onset Financial are currently stayed pending resolution of criminal charges against James; these two actions seek more than $2.7 billion in damages.

Judge Lopez directed the parties to provide an update on the criminal proceedings by July 13, to consider if a modification of the stay is warranted. James’ criminal trial is scheduled for Feb. 9, 2027.

The new plan broadly preserves the litigation trust framework of the prior plan, centered on a credit bid by the DIP lenders for the FBG debtors’ litigation claims. The debtors have extended the bid deadline for the claims to June 21 from May 29. The deadline to announce a successful bidder is June 22 (previously June 12) and objections to the sale are due July 20 at 6 p.m. ET.

The new plan also maintains the opt-in preference settlement for trade creditors, supply chain factors and factors that have not engaged in adverse conduct or are non-released parties. The preference settlement requires electing creditors to contribute their direct creditor claims to the litigation trust.

Trade creditors would receive a waiver and electing supply chain financiers and factors would receive modifications to new value defenses that take into account any subsequent payments made at the debtors’ request.

As before, the litigation trust would be funded with at least $75 million to pursue the estate claims, including $50 million of committed funding backstopped by certain DIP lenders and $25 million of cash from the FBG debtors’ balance sheet. The litigation trustee would be Gerard Uzzi of Uzzi and Lall.

Under the revised trust waterfall, administrative creditors would begin sharing in distributions via Class 3 litigation trust interests after trust distributions exceed $350 million. The Class 3 distributions would flow first to administrative creditors that opted for the 50% reduction, followed by remaining administrative and priority claims.

After those claims are paid, proceeds would be shared pro rata among first and second lien creditors, general unsecured creditors and allowed DIP rollup claims (capped at $3.3 billion), and finally to holders of subordinated claims.

The debtors provide illustrative recovery scenarios in a DS exhibit. According to the debtors, both DIP A claims and administrative expense claims would be paid in full if the trust recovers approximately $1.85 billion. However, proceeds would need to reach approximately $1.92 billion before priority claims would also be paid in full. At $3 billion in proceeds, holders of Class 3 litigation trust interests would receive an approximately 8.4% recovery on an assumed $11.5 billion in allowed claims.

The following summary outlines how distributions would be made to classes of litigation trust interest holders, assuming $1.3 billion allowed DIP A (new-money) claims:
 

A confirmation budget attached to the supporting declaration of CRO Charles Moore would be funded from three sources: continued funding from the company’s original equipment manufacturers for operating expenses, proposed funding from the ABL secured parties and freed cash reserves.

Moore says the confirmation budget provides the debtors with liquidity to pay administrative claims leading up to plan confirmation and asserts the debtors would not accrue additional unpaid administrative expenses during the solicitation period. Moore says the ad hoc group and ABL secured parties “would be unwilling to consent to any budget that provides for any additional delay.”

Moore adds that the ad hoc group steering committee and UCC support the budget and confirmation schedule, and says the debtors are in discussions with the ABL secured parties to secure their consent to the budget before the June 12 hearing. The budget assumes the ABL lenders consent to a $31 million sweep from postpetition accounts receivable to pay $7 million in ABL professional fees, $9 million in facility costs and $15 million in case costs through emergence.

After obtaining consent from the ABL secured parties and ad hoc group SteerCo, Moore continues, the debtors would have the consent necessary to use cash collateral according to the confirmation budget. He notes this consent “would not extend to a chapter 7 conversion” of the cases.

Moore also discloses the debtors generated approximately $221 million from the Walbro, TMD, Horizon North America and other asset sales, which was used to pay down secured claims.

DS Approval Motion / Confirmation Timeline

The debtors’ disclosure statement approval motion proposes the following confirmation-related timeline:
 

• June 12 at 11 a.m. ET (previously May 26): Conditional DS approval hearing;
• June 22 (previously June 12): Plan supplement filing deadline;
• July 3 at 6 p.m. ET (previously June 16): Deadline for debtors to file claims objections for voting purposes or to request claims estimation for voting purposes;
• July 10 at 6 p.m. ET: Rule 3018(a) motion deadline and administrative claim record date;
• July 13 (may be extended by mutual agreement among the FBG debtors and ad hoc group): Litigation trust interest response deadline and dip collateral trust interest response deadline;
• July 20 at 6 p.m. ET (previously June 23): voting deadline, release opt-in deadline and deadline to object to confirmation and final DS approval;
• July 27: Deadline to file ballot certification, confirmation brief and replies;
• July 28 at 10 a.m. ET (previously July 2): Combined hearing on confirmation and final DS approval;
• 45 days following the confirmation date (except as otherwise provided in the plan): Preference settlement opt-in deadline; and
• 60 days following the confirmation date: Consent program opt-in deadline.

Moore emphasizes that the proposed confirmation timeline “incorporates a full solicitation process and provides all parties in interest 28 days to object to the Joint Plan after the filing of the Plan Supplement.”

Plan / Disclosure Statement

Below is a chart of the plan’s classes, along with their impairment status and voting rights.
 

Treatment of Claims and Interests

The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
 

• DIP A claims (Unclassified): On the confirmation date, each holder would receive on account of its allowed DIP A claim:
  • On account of the estate claims credit bid, its pro rata share of the Class 2 litigation trust interests;
  • On account of the DIP collateral credit bid, its pro rata share of the Class 2 DIP collateral trust interests;
  • On account of any initial litigation trust funding commitments, its pro rata share of the Class 1 litigation trust interests according to the litigation trust agreement; and
  • On account of any DIP collateral trust funding, its pro rata share of the Class 1 DIP collateral trust interests according to the DIP collateral trust agreement.
  • Remaining DIP A claims would not be discharged or released under the plan, would remain enforceable against the DIP loan parties and parent guarantors, and/or the SPV debtors, as applicable, and would continue to accrue interest, fees, and expenses according to the DIP order until the effective date, at which point such claims will be released.
  • Estimated allowed amount: $1.335 billion
• Class 1 – Other priority claims: On the later of the effective date and the first business day after the date that is 45 days after its claim becomes allowed, each holder would receive cash distributions from the litigation trust for amounts payable according to the litigation trust waterfall or other treatment necessary to satisfy section 1129 of the Bankruptcy Code.
  • Estimated allowed amount: $0
• Class 2 – Other secured claims: Each holder would receive, at the option of the claims ombudsman, either payment in full in cash on the later of the effective date and the first business day after 45 days from the date the claim becomes allowed, return of its collateral securing or other treatment to render the claim unimpaired.
  • Estimated allowed amount: $0
• Class 3 – Allowed rollup claims: On the confirmation date, each holder would receive on account of its allowed rollup claim its pro rata share of the Class 3(a) litigation trust interests.
  • Remaining rollup claims, or rollup claims in excess of the aggregate amount of distributions anticipated to be made to holders of allowed rollup claims under the litigation trust waterfall, would not be discharged on the confirmation date, would remain enforceable against the borrowers as applicable and would continue to accrue interest, fees, and expenses until the effective date, at which point such claims would be released.
  • Estimated allowed amount: $3.3 billion. The debtors say the total amount of rollup claims is approximately $3.577 billion; however, for purposes of the plan settlement and Class 3(a) litigation trust interests, the rollup claims would be deemed allowed against the FBG debtors in the amount of $3.3 billion.
• Class 4 – First lien claims: On the confirmation date, each holder would receive its pro rata share of the Class 3(c) litigation trust interests.
  • Remaining first lien claims, or first lien claims in excess of the aggregate amount of distributions anticipated to be made to holders under the litigation trust waterfall, would remain outstanding until the effective date, at which point they would be deemed released.
  • Estimated allowed amount: $1.991 billion
• Class 5 – Second lien claims: On the confirmation date, each holder would receive its pro rata share of Class 3(c) litigation trust interests.
  • Remaining second lien claims, or second lien claims in excess of the aggregate amount of distributions anticipated to be made to holders under the litigation trust waterfall, would remain outstanding until the effective date, at which point they would be deemed released.
  • Estimated allowed amount: $600 million
• Class 6 – ABL claims: On the confirmation date, the ABL agent would be deemed to have foreclosed on the ABL collateral trust assets of the FBG debtors and transferred such assets to the ABL collateral trust, and each holder would receive its pro rata share of the ABL collateral trust interests.
  • ABL deficiency claims, or ABL claims against the ABL loan parties in excess of the fair market value of the ABL collateral trust assets, would remain enforceable, provided that such deficiency claims would not be secured by the ABL collateral trust assets, provided further that on the effective date, holders of the deficiency claims would be deemed to have contributed all of their rights to proceeds of the ABL deficiency claims to the ABL collateral trust to be distributed in accordance with the plan waterfall.
  • If the ABL secured parties hold allowed oversecured claims (the value of the ABL priority collateral exceeds the allowed amount of the ABL claims), as determined by the bankruptcy court, holders would be entitled to postpetition interest at the contractual rate to the extent permitted by section 506(b) of the Bankruptcy Code, payable from the ABL collateral trust assets prior to any turnover of excess proceeds to the DIP collateral trust.
  • Estimated allowed amount: $367 million. For the avoidance of doubt, the allowed amount of the ABL claims for voting purposes would exclude the U.S. Bank obligations, as defined in the DIP order.
• Class 7 – General unsecured claims: On the confirmation date, each holder would receive its pro rata share of the Class 3(b) litigation trust interests.
  • Estimated allowed amount: $5.641 billion
• Class 8 – Subordinated claims: Holders would receive their pro rata share of Class 3(b) litigation trust interests.
  • Estimated allowed amount: TBD
• Class 9 – Intercompany claims: On or prior to the effective date or as soon as practicable afterward, all intercompany claims would be adjusted, reinstated or released to the extent reasonably determined by the wind down administrator, and no distributions would be made on account of the claims.
  • Estimated allowed amount: TBD
• Class 10 – FBG debtor interests: On the date an FBG debtor’s chapter 11 case is closed (which in the case of FBGH and Viceroy would not occur until all distributions under the plan with respect to the FBG debtors have been made), FBG debtor interests would be canceled and holders would not receive any distributions until any allowed claims for which such FBG debtor has a continuing obligation to pay following the confirmation date are satisfied in full, in which case each holder would receive its pro rata share of any residual distributable value of such FBG debtor.
  • The continuing rights of holders of debtor interests in FBGH and Viceroy would be nontransferable and nonassignable except by will, intestate succession or (subject to the reasonable prior written consent of the wind down administrator) operation of law.
  • Estimated allowed amount: N/A

Other Plan Provisions

The new plan adds the FBG debtors and special committee members William Transier and Benjamin Duster, as well as Goldman and Duster in their capacities as independent managers, to the release and exculpation provisions.

The debtors say a complete liquidation analysis will be provided in the plan supplement to supplement the illustrative projected recoveries laid out in the Moore declaration.