QVC, UCC, Supporting Lenders Fire Back at Preferred Shareholders’ ‘Extraordinary’ Motion to Terminate Debtors’ Chapter 11 Exclusivity, Say Alternative ‘Plan’ Would Lead to a ‘Litigation Frenzy’

Relevant Documents:
Debtors Opposition
UCC Objection

The QVC debtors say in a May 25 opposition that the QVCG preferred shareholders’ exclusivity termination motion is “extraordinary” and should be denied. The preferred shareholders’ alternative “plan” would mire debtor QVCG in chapter 11, lead to a “litigation freny” and ultimately hurt all stakeholders, the debtors warn. The official committee of unsecured creditors makes a similar argument in its own May 25 brief. The QVC noteholder group and RCF lenders, who each support QVC’s proposed prepackaged plan, joined the debtors’ opposition.

The exclusivity termination motion is scheduled for hearing on June 4, the same date as the debtors’ confirmation hearing. The contested motion requests that Judge Allfredo R. Perez terminate the debtors’ statutory right to exclusively file and solicit a chapter 11 plan during the first 180 days of their chapter 11 case. If granted, the QVCG preferred shareholders would be able to file and solicit their own alternative plan.

Although the alternative plan has not been filed, the shareholders said at a May 13 status conference that their alternative plan would ditch a proposed intercompany settlement, between operating company debtor QVC and holding company debtor QVCG. According to the shareholders, the intercompany deal would siphon QVCG’s free cash to QVC stakeholders in exchange for a release.

The debtors argue in their opposition that the preferred shareholders formulated their alternative “plan” with “no understanding of the facts whatsoever.” For example, the debtors say that the shareholders’ assertion that debtor QVCG can be severed from the debtors’ proposed joint plan is “fantastical.”

The debtors’ emphasize that their plan is “a holistic plan and settlement” that would affect claims at four distinct “corporate boxes.” Creditor recoveries are “intricately entwined as part of a comprehensive package deal,” they continue, adding that abandoning the plan would “strand” QVCG in chapter 11 “indefinitely.”

In contrast, the alternative plan would leave debtor QVCG exposed to “consolidated tax liability considerations (with respect to both the IRS and QVC)” and see QVCG “rapidly deplete” its own cash, according to the debtors. The debtors also underscore that moving away from the prepackaged plan and QVCG-QVC settlement would expose the preferred shareholders to “clawback risk on the receipt of historical dividends.”

The debtors’ brief notes that the standards for terminating exclusivity are high, quoting the seminal Southern District of New York Adelphia bankruptcy case for the premise that “creditor constituency unhappiness, without more, constitutes cause to undermine the debtor’s chances of winning final confirmation of its plan during the exclusivity period has been judicially rejected.’”

The UCC argues that the debtors’ plan is “confirmable and supported by all voting classes.” The committee adds that although the preferred shareholders may be “dissatisfied with the terms of the Plan,” that “does not provide a basis for termination of exclusivity under applicable law.”

As mentioned, the hearing on the termination motion is scheduled for June 4 at 2 p.m. ET. The preferred shareholders have not yet filed their formal objection to the debtors’ plan.