The unsecured creditors committee in the Sports Authority’s bankruptcy case has filed a strong objection to the retailer’s proposed DIP financing package. The committee, representing largely vendors and landlords, called it a “lopsided deal” that favors lenders and argue the mandate that the company be sold by the end of April will wind up shortchanging the estate.
Among the reasons for objecting to the proposed DIP financing was that Sport’s Authority’s projected cash flows should be sufficient for the retailer to operate on cash collateral use without the financing package. Sports Authority is conducting GOB sales at 142 stores that are closing and that’s expected to support a “rapid influx of cash into the debtors’ coffers. “
According to the DIP motion, Sports Authority is also expected to be cash flow positive in each of the first nine weeks of the case and cash flow positive by over $66 million as of the end of that period, April 30, when the milestone-mandated sale of substantially all of the company is schedule to be closed and the DIP loans repaid.
The committee further argued that any surplus funds should not be used to “pay enormous fees and principal repayments” under the proposed revolving credit facility but be used to cover an estimated $94 million of incurred administrative expenses, plus any additional unpaid trade debt resulting from postpetition credit, which is not covered in the budget.
The committee also claims that Sports Authority does not gain any new financing as part of the deal. The committee writes, “Rather, the financing constitutes simply a rolling up of the entirety of the prepetition balance on the ABL Loan ($370 million) and FILO Loan ($95 million).” Yet the DIP lenders will earn $22.3 million in fees.
DIP lenders and all of the prepetition secured creditors wouid also gain liens on “tens of millions of dollars of unencumbered assets,” prior to the filing, including the assets of entities that are not even borrowers or guarantors under the prepetition debt facilities and avoidance actions.
The filing states, “The proposed adequate protection provisions, separately and as a package, are vastly overgenerous to secured creditors who are not providing any real financing, just rolling up their existing debt and awaiting repayment in a matter of weeks.”
Regarding the mandated sale, the committee notes that the financing and the use of cash collateral are conditioned on Sports Authoritys success in obtaining bids by April 21, obtaining an order approving a sale by April 27, and closing on such a sale by April 28.
The committee said the fast-track sale would be particularly challenging without a stalking horse bidder in place and the overall the dates and deadlines that track the sale milestones tied to the DIP Facility “will chill bidding and impair the realized value of the estates’ assets by precluding potential buyers from having an adequate opportunity to perform sufficient due diligence with respect to the debtors’ assets.”
The final hearing on the DIP Financing Motion is set for April 5, 2016 at 2:00 p.m. The hearing on the Bidding Procedures Motion is also set for April 5, 2016 at 2:00 p.m.
