Adequate Protection is always as an interesting issue when it comes to investing in distressed bonds and bank debt secured by various assets. Because a creditor's interest is secured by those same assets, it is assumed that the debtor will set up a mechanism to preserve the value of that collateral. Generally speaking, adequate protection comes from periodic post-petition cash payments (i.e. post-petition interest) or granting of additional liens.
"...provide the Secured Noteholders with the same types of adequate protection that are provided to the DIP Lenders and the Pre-Petition Secured Lenders, including: (1) payment of reasonable expenses, including professional fees and expenses, of the Secured Noteholder Consortium; (2) the current payment of the semi-annual coupon amount as provided for in the Secured Notes Indenture as an adequate protection payment provided for in Bankruptcy Code Section 361(1) and (3) access to information on the same terms as provided to the DIP Lenders, including, without limitation, notice of any offer to purchase any material assets of the Debtors, including any offer to purchase the Debtors as a going concern, or any retail banner owned by the Debtors as of the Petition Date, and notice of any intention to reject any material unexpired leases or executory contracts."
"Moreover, it has been reported that Yucaipa Cos. (“Yucaipa”), which the Debtors indicate hold a majority of their preferred stock (and control 2 board seats as a result), have recently acquired certain debt of the Debtors, including Secured Notes. Yucaipa has a history with the Debtors’ operations, having sold the Pathmark chain to the Debtors in December 2007 for $1.4 billion. Counsel to the Secured Noteholder Consortium has made a request of Yucaipa’s counsel (Latham & Watkins LLP) to disclose the amount of Yucaipa’s holdings of other Debtor debt issuances, including any Secured Notes, but as of the date hereof Yucaipa has not provided such information. The Secured Noteholder Consortium submits that Yucaipa should disclose the amount of its debt holdings (including holdings of Secured Notes) forthwith."