Open Range Communications' creditors committee objects to DIP loan

By Jim Witters

Wilmington, Del., Oct. 31 - Open Range Communications, Inc.'s official committee of unsecured creditors objects to the company's motion for final approval of a $6 million debtor-in-possession credit facility, according to documents filed Monday with the U.S. Bankruptcy Court for the District of Delaware.

Open Range received interim access to $4 million under the DIP. A hearing on final approval is scheduled for Dec. 7.

The DIP is through equity sponsor affiliate OEP Open Range Holdings, LLC at 4.6% interest. One Equity Partners III, L.P. is the debtor's majority shareholder.

The objection from the creditors' committee states that Open Range is "overreaching" in seeking a $6 million DIP while attempting to sell substantially all its assets for $2 million.

"Moreover, the debtor proposes to sell the rest of the farm by releasing its prepetition equity holder and proposed postpetition lender after an investigation that can only be conducted by the debtor, the primary beneficiary of an equity investment that was not fully funded," the motion states.

The debtor also is seeking release of its prepetition secured lender, the U.S. government, acting through the Rural Utility Service.

Costs exceed proceeds

The creditors' committee also states the debtor intends to pay its attorneys and other professionals $2.5 million and implement a key employee retention plan and severance package worth about $467,000.

"The cost of administering this chapter 11 case will undoubtedly exhaust any sale proceeds without paying off any of the OEP DIP facility, which post-petition loan should be nothing more than the remainder of the equity commitment that the was not funded prior to the petition date," the objection states.

"Instead, the debtor is allowing the prepetition equity holder to buy itself a release via the OEP DIP facility that benefits no one other than the prepetition equity holder and proposed post-petition lender, who are without question one in the same," the objection states.

The combination of those proposals places the creditors committee in an "untenable" position, according to the documents.

"Why are we wasting the debtor's assets through this Chapter 11 process that leaves unsecured creditors worse off - through a net loss of cash and the release of any claims worth pursuing that may provide value to the parties most aggrieved in this case?" the objection asks.

Further objections

The objection also states the final DIP order would:

• Prime existing undersecured prepetition liens on substantially all the debtor's assets, further pushing creditors out of the money, with no additional adequate protection for lien holders;

• Broadly release all claims against One Equity Partners, its affiliates and counsel, occurring within the six months prior to the petition date, subject only to a 60-day investigation window, with the investigation conducted by the debtor;

• Broadly release all claims against the Rural Utility Service; and

• Grant broad indemnification rights to One Equity Partners that would greatly decrease potential recovery for creditors.

"Given that the debtor is proposing a sale that provides no benefit whatsoever to the general unsecured creditors, the process should not also take away potential claims that may provide a source of recovery for unsecured creditors," the objection states.

'Level the playing field'

The creditors committee is asking the court to "level the playing field" by striking provisions of the DIP order "that inequitably handcuff general unsecured creditors."

"Otherwise, the DIP motion should simply be denied," the objection states. "The committee completely understands that a denial of the DIP motion may lead to the dire consequence of conversion to Chapter 7 - the committee is prepared to live with this consequence," the objection states.

Open Range Communications is a Greenwood Village, Colo.-based broadband company that filed for bankruptcy on Oct. 6. Its Chapter 11 case number is 11-13188

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