MSD Performance OK'd for interim cash collateral use; sale challenged

By Jim Witters

Wilmington, Del., Sept. 9 - MSD Performance, Inc. received approval for interim use of its lenders' cash collateral during a Sept. 9 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The cash collateral use is for 30 days, with a final hearing scheduled for 9:30 a.m. ET on Oct. 1.

Debtors' counsel Amy Edgy Ferber also said the companies have been negotiating through the summer with a potential stalking horse bidder for substantially all of the debtors' assets, but no purchase agreement has been signed.

She said previous efforts to sell the assets failed to draw a bid sufficient to cover the first-lien secured debt.

However, MSD does plan to present a motion for approval of bidding and sale procedures, Ferber said.

Opposition to sale

Ronald Barliant, representing the original par lenders, identified the potential stalking horse as an affiliate of Z Capital Partners LLC.

He said Z Capital Special Situations Fund II, LP and Z Capital MSD, LLC bought a substantial portion of MSD's debt earlier this year and are using their position to "force the debtors to sell to Z Capital."

"The par lenders will not consent to a sale," Barliant said.

Lee R. Bogdanoff, attorney for Z Capital Special Situations Fund II and Z Capital MSD, and Douglas Bacon, representing Z Capital Special Situations Fund II, pointed out to the court that the bidding and sale procedures motion has not been filed and was not up for consideration during the hearing.

Bogdanoff said his clients hold about 59% of the MSD debt.

Plan proposed

Barliant said his clients drafted a proposed Chapter 11 plan of reorganization and submitted it to the debtors.

If MSD elects to not pursue that plan or offer one of its own, the par lenders will seek authority to pursue their plan, he said.

Barliant's clients include CIFC Funding 2006-I, Ltd.; Golub Capital CP Funding LLC; Golub Capital Partners 2007-2 Ltd.; Golub Capital Partners V, LP; Golub Capital Partners VI, LP; Golub International Loan Ltd. I; Madison Capital Funding LLC and OFSI Fund III, Ltd.

The debtors' operations and EBIDTA are strong, so there is no need for a sale, Barliant told the court.

And the potential capital gains tax due at a sale closing could result in administrative insolvency for the debtors, he said.

The debtors used their net operating losses as part of a 2009 financial restructuring, leaving nothing to offset the tax liabilities due at closing, Ferber said.

The debtors are considering the par lenders' proposed plan and will accept other proposals as well, she said.

MSD Performance, an El Paso, Texas-based maker of performance auto products, filed for bankruptcy on Sept. 6. The Chapter 11 case number is 13-12286.

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