Court Approves GoldenPeaks Poland’s $162.8M DIP, Bid Procedures Citing ‘Bleak’ Prepetition Circumstances, Orders $75K Increase to UCC Investigation Budget

Relevant Documents:
DIP Financing Order
Proposed Bidding Procedures Order
Bidding Procedures Order

At a bench ruling this morning, Judge Alfredo Perez approved the GoldenPeaks Poland debtors’ $162.8 million DIP facility and bid procedures under which prepetition and DIP lender Brookfield Asset Management will act as stalking horse purchaser. The judge overruled objections from mezzanine lender Berenberg Alternative Assets, or BeGo, and the official committee of unsecured creditors to both motions, although he increased the UCC’s investigation budget to $100,000 from $25,000.

Judge Perez found the terms of the DIP and bid procedures reasonable under the circumstances of the debtors’ cases. Judge Perez also denied BeGo’s request for reconsideration of the interim DIP order, rejecting BeGo’s allegations that reconsideration is required because Brookfield misrepresented its relationship with the debtors.

Octus’ live updates from today’s bench ruling are HERE. Read Octus’ coverage of days one, two and three of the evidentiary hearing on the DIP and bidding procedures motions.

The DIP facility includes $150.7 million in new money and a $12.1 million rollup of Brookfield’s bridge financing. About $92 million of the funding is discretionary and allocated for specific construction costs.

Last week, testimony from the debtors’ investment banker, David Hilty of Houlihan, and independent director Jame Donath revealed that the debtors face “significant” – up to $390 million – of construction costs to bring many of their assets online. The DIP is at the OpCo level and junior to prepetition OpCo debt but structurally senior to the debtors’ MidCo and TopCo debt.

Brookfield will act as stalking horse under the bid procedures. Following discussions with the UCC and BeGo, Brookfield’s credit bid is capped at DIP funds actually advanced as of the auction date and limited to assets with valid Brookfield liens. Under the Brookfield stalking horse agreement, Brookfield is entitled to reimbursement of up to $3 million for its related fees and expenses, but is not entitled to a breakup fee. The overbid increment is $1 million.

The sale timeline approved by the court is below:
 

• July 27 at 6 p.m. ET: Bid deadline;
   
• July 29: Deadline to designate qualified bids and file auction notice;
   
• July 30 at 11 a.m. ET: Auction (if needed);
   
• Aug. 3 at 1 p.m. ET: Sale objection deadline; and
   
• Aug. 4: Sale hearing.
   

In today’s bench ruling, Judge Perez found that the debtors’ credible evidence of their “bleak” circumstances justifies the terms of the DIP and the bid procedures. Judge Perez also said that he understands the debtors may face a value-destructive, multijurisdictional liquidation without the DIP funding.

Addressing the DIP financing first, Judge Perez found that the proper legal standard is business judgment, not the higher “entire fairness” standard. Judge Perez also found that the terms of the DIP were “the best available” and reasonable under the circumstances.

The judge said the debtors’ independent directors, Donath and Josiah Rotenberg, reasonably exercised business judgment in negotiating the DIP, referencing testimony from Donath last week.

Moreover, the facility’s fees, including the 1.75x multiple on invested capital, or MOIC, were justified under the circumstances, Judge Perez said, even though the facility has more elements of an equity financing than a senior secured facility. Other terms of the final order, including liens on avoidance actions, are standard, Judge Perez said.

The judge rejected BeGo’s argument that the court should reconsider the interim DIP order because Brookfield falsely represented to the court at the first day hearing that it was only a lender to the debtors. At the time this statement was made, BeGo had argued, Brookfield was actually acting as a secured lender with liens on controlling equity in the TopCo debtor and exercised rights to appoint Brookfield-affiliated directors Michael Rudnick and Mickael Deligny.

However, Judge Perez said the court was “fully aware” of Brookfield’s equity holdings in the TopCo debtor, and there was “no evidence that Brookfield acted as anything other than a lender as it relates to the DIP.”

Turning to the bid procedures, Judge Perez found that the circumstances of the case warrant a “fast track” sale timeline and that there was no credible evidence that the bid procedures would chill a competitive bidding process. The stalking horse asset purchase agreement was negotiated in good faith and at arms-length, Judge Perez continued, and the expense reimbursement is justified, especially since there is no break up fee.

BeGo and the UCC objected to both the DIP and the bid procedures. Under the DIP, Brookfield is an insider lending to itself on terms that allow it to leapfrog other lenders and acquire the debtors’ assets at a bargain, they argued. The “insider DIP” is too expensive, they added, especially because of the MOIC, which added an additional $53 million to the cost of the loan, according to testimony from the debtors’ investment banker, Hilty of Houlihan.

BeGo and the UCC also objected to the bid procedures. The procedures, they contended, are “rigged” to chill a competitive bidding process with a compressed timeline and an “exorbitant” $3 million expense reimbursement for Brookfield. Moreover, there is no emergency that justifies the expedited sale timeline, they said.

The debtors and Brookfield defended the DIP, bid procedures and stalking horse bid as reasonable under the debtors’ difficult prefiling circumstances. The debtors were compelled to file chapter 11 when mezzanine lenders threatened to foreclose following the expiration of standstill agreements, the debtors said at last week’s hearing, and only Brookfield agreed to step up with bridge financing that bought the debtors additional runway to explore restructuring options.

In addition to the threats from mezzanine lenders, the debtors’ financial records were in disarray, making it even more challenging for the debtors to obtain financing. Following its bridge loan, Brookfield agreed to extend further funds only as DIP financing.

At last week’s hearing, Hilty noted that if the DIP is fully funded, the DIP lenders would have a $285 million DIP claim, including $53 million on account of the MOIC, representing a $122 million return on the loan. In postpetition DIP marketing efforts, Houlihan reached out to almost 20 parties, he said. Of those 20 parties, 13 passed on the opportunity to fund replacement DIP, and five are looking at the debtors as an asset purchase opportunity, according to Hilty.

Another complication is the fact that the debtors’ main assets – solar projects located in Poland – require up to $390 million to complete, according to testimony last week from Donath.

Donath also testified that the original DIP terms called for a 2x MOIC, but the independent directors were able to reduce the MOIC to 1.75x in prepetition negotiations with Brookfield.