Earlier in November, the bankrupt Great Atlantic & Pacific Tea Company ("GAP") announced a deal that would enable the company to exit from bankruptcy. Financed by prominent stakeholder (equity and debt) Yucaipa, well-regarded event driven fund Mount Kellett, as well as funds managed by Goldman Sachs Asset Management, GAP was to receive $490 million split between new second and third lien notes as well as new equity to facilitate the company exiting from bankruptcy.
- ALJ Capital Management LLC
- AQR Capital Management, LLC
- Artio Global Management LLC
- Barclays Capital
- Capital Ventures International
- CNH Partners LLC
- Davidson Kempner Capital Management LLC
- Guggenheim Partners, LLC
- Royal Capital Management LLC
- Visium Asset Management, LP
- Whitebox Advisors, LLC
The “cramdown option” in the SPAs is designed solely to exert leverage over the Secured Noteholders in resolving the amount of their claims. Specifically, the Secured Note Parties have asserted, as part of their claim, amounts due under their indenture (the “Secured Notes Indenture”), other than principal and accrued interest, upon redemption of the Secured Notes prior to their initial maturity date – colloquially referred to as the “make-whole” claim. Upon information and belief, the Debtors and/or the Investors dispute the “make-whole” claim. If this is indeed the case, the Secured Note Parties submit that, in the interests of transparency for the Court and all constituents, the Debtors should disclose and take steps to resolve that dispute, rather than proceeding with an amorphous, half-baked “cramdown option” that may call into question whether the deal the Debtors are asking this Court to approve is indeed the deal that will ultimately go forward – or in reality is less than half of the deal.
Significantly, the amount of principal and accrued interest owing to the Secured Noteholders is in excess of $300 million, even before including other amounts to which the Secured Noteholders are entitled under the Secured Notes Indenture (Those other amounts include, inter alia, default interest and interest on overdue interest pursuant to Section 4.01 of the Secured Notes Indenture, a “make whole” premium owing upon redemption of the Secured Notes prior to August 1, 2014 pursuant to Section 3.07, and reimbursement of the Secured Notes Trustee’s expenses (including professional fees and expenses) pursuant to Sections 4.22(e) and 7.07.)
Prior to August 1, 2012, the Company may redeem the Notes at its option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice electronically delivered or mailed by first-class mail to each Holder’s registered address, at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).
“Applicable Premium” means with respect to any Note on any redemption date the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess (if any) of (a) the present value at such redemption date of (1) the redemption price of such Note at August 1, 2012 as set forth under Section 3.07(c) plus (2) all required interest payments due on such Note through August 1, 2012 (excluding accrued but unpaid interest), computed using a discount rate equal to the Treasury Rate on such redemption date plus 50 basis points over (b) the principal amount of such Note.
The “make-whole” claim is based on Section 3.07 of the Secured Notes Indenture, which provides for the payment of a premium, based on a formula, to the Secured Noteholders in the event that the Debtors redeem the Secured Notes prior to August 1, 2014. “When a loan is redeemed before maturity or (sometimes) upon default, a make-whole provision requires a borrower to pay a premium to compensate the lender for the loss of anticipated interest that might result.” In re Chemtura Corp., 439 B.R. 561, 596 (Bankr. S.D.N.Y. 2010). Pursuant to Section 506(b) of the Bankruptcy Code, an oversecured creditor is entitled, as part of its secured claim, to “interest on such claim, and any reasonable fees, costs or charges provided for under the agreement or State statute under which such claim arose.” 11 U.S.C. § 506(b). “In general, a prepayment premium is recognized as encompassed in the term ‘charge.’” In re Premier Entm’t Biloxi LLC, 445 B.R. 582, 618 (Bankr. S.D. Miss. 2010); see also In re Imperial Coronado Partners, Ltd., 96 B.R. 997, 1000 (9th Cir. BAP 1989) (a “prepayment premium is clearly a ‘charge provided for under the agreement’” under which such claim arose)). The Secured Note Parties reserve all rights with respect to the assertion of the “make-whole” claim.