Dan River creditors committee objects to 'illusory' DIP facility

By Caroline Salls

Pittsburgh, May 15 - Dan River Holdings LLC's official committee of unsecured creditors objected to approval of the company's proposed debtor-in-possession financing, calling the DIP facility an "illusory $30 million financing arrangement," according to a Thursday filing with the U.S. Bankruptcy Court for the District of Delaware.

"Although structured as a new debtor-in-possession financing, the DIP facility is, in reality, nothing more than use of cash collateral under the pre-bankruptcy facilities to liquidate the collateral of the pre-petition lenders," the committee said in the objection.

According to the objection, no new funds will be advanced under the proposed DIP budget. Instead, the committee said all sales of pre-bankruptcy inventory and collections of pre-bankruptcy receivables will be used to satisfy the DIP lenders, who were also the company's pre-bankruptcy lenders.

The committee said the DIP financing proposal will allow the lenders to encumber all of Dan River's assets and liquidate their collateral at the expense of the estate and the unsecured creditors.

As previously reported, GMAC Commercial Finance LLC is the administrative agent on the DIP facility.

Dan River, a Danville, Va.-based textile company, filed for bankruptcy on April 20. Its Chapter 11 case number is 08-10726.

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