IdleAire U.S. Trustee calls for appointment of examiner to investigate DIP loan, bid procedures

By Caroline Salls

Pittsburgh, May 23 - The U.S. Trustee for IdleAire Technologies Corp.'s Chapter 11 bankruptcy case has asked the U.S. Bankruptcy Court for the District of Delaware to appoint an examiner to investigate the company's proposed debtor-in-possession financing, asset sale procedures and asset value, according to a Friday court filing.

According to the motion, an examiner should be appointed to investigate the details of the DIP loan and whether the proposed asset sale is in the best interests of creditors because the proposed purchase price is less than 10% of the book value of the company's assets disclosed in its most recent financial statements for the fiscal year ended Dec. 31.

Acting U.S. Trustee Roberta A. DeAngelis said no going concern valuation has been obtained for IdleAire's assets; the company made "no active conscious effort" to sell its assets as a going concern before it negotiated various loan transactions and the proposed sale with its majority secured bondholders.

"In fact, the pleadings indicate that the debtor agreed not to shop its assets prior to approval of the bidding procedures motion," DeAngelis said in the motion.

"The court observed that the proposed bidding procedures are not designed to encourage bidding, but rather, are designed to encourage no bidding."

In addition, the trustee said the investors want to credit bid all or a portion of their bond debt, although they have not proven that they have any legal right to do so.

DeAngelis said the court initially denied interim approval of IdleAire's DIP loan because the facility included numerous inappropriate provisions, including a first day "roll-up" of the company's pre-bankruptcy financing and a requirement that the company pay a $1.25 million lender fee on the front end of the facility and an additional $1.25 million fee if the proposed purchase agreement is not approved within 60 days.

The DIP loan also requires the bidding procedures for the proposed asset sale to be approved within three days of the company's bankruptcy filing, the motion said.

DeAngelis said other improper DIP loan provisions included granting a lien on Chapter 5 claims and proceeds; a 30-day period for investigation of security interests; a carve-out of only $25,000 for professionals; first-day releases of the lenders; approval of the lenders' professional fees without allowing any party in interest to review the fees; and first-day waivers of various rights provided to other creditors under the bankruptcy code.

The trustee said the court did not approve the interim DIP loan on the terms proposed by IdleAire and the lenders, and it also declined to approve the bidding procedures before an official committee of unsecured creditors was appointed.

In addition, the trustee said the court agreed with her observation that it was impossible to determine the amount of an initial overbid under the proposed bidding procedures.

Specifically, DeAngelis said the proposed purchase price of $10 million is less than the amount of the DIP financing, but since the DIP terms require payment in full of the DIP obligations through the sale process, the purchase price is actually the price of the DIP obligations, which includes the $2.5 million in fees to the DIP lenders and a $1 million expense reimbursement, plus the overbid increment of $500,000.

When compared to the company's assertion that the liquidation value of the assets is $8.1 million, DeAngelis said the proposed purchase price "leaves the bondholder debt entirely unsecured."

A hearing is scheduled for June 9.

Based in Knoxville, Tenn., IdleAire is a privately held research and development company that provides products and services for the long-haul trucking freight industry. The company filed for bankruptcy on May 12. Its Chapter 11 case number is 08-10960.

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