Orchard Supply wins final DIP financing OK over committee objections

By Jim Witters

Wilmington, Del., July 15 - Orchard Supply Hardware Stores Corp. won final approval for $176 million in debtor-in-possession financing over the strenuous objections of the official committee of unsecured creditors during a July 15 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The committee objected to a $12 million term loan DIP facility from the pre-petition term loan lenders as unnecessary, excessive and contrary to the bankruptcy code.

In particular, the committee objected to the cross-collateralization provision, which grants asset-based lender Wells Fargo Bank and the term loan lenders liens on previously unencumbered real estate owned by one of the Orchard Supply debtors.

The including of the real estate as DIP collateral changed the expected recovery for general unsecured creditors to zero from a range of 16.1 cents to 33.5 cents, the creditors committee argued.

Judge Christopher S. Sontchi said he was approving the use of post-petition collateral to secure pre-petition debt only "in this unique set of circumstances."

He described the interlocking of the DIP, an intercreditor agreement, a sale support agreement and an asset purchase agreement with Lowe's Cos., Inc. as "the perfect storm" he needed to justify approval.

Lowe's has agreed to acquire the majority of the debtor's assets for $205 million in cash, plus the assumption of payables owed to nearly all of Orchard's supplier partners. The total deal is worth about $250 million, one attorney told the court.

"I think that everyone agrees that the Lowe's transaction is the way to go forward with this case as we sit here today," judge Sontchi said.

But Lowe's would only move forward if all lenders consented.

As part of the negotiations that produced the sale support agreement, the debtors agreed to take the $12 million DIP facility from the term lenders.

The term loan lenders agreed to forgo their credit bidding rights at the auction for substantially all of the company's assets.

And Lowe's raised the cash portion of its purchase price to $205 million from $190 million, according to testimony.

DIP terms

The DIP financing comprises a $164.33 million ABL facility and a $12 million term loan facility.

The ABL facility consists of a $140 million senior secured superpriority revolving credit facility, a $7.1 million senior secured superpriority first-in last-out term loan facility and a $17.2 million senior secured term loan facility from ABL term DIP lenders.

The ABL facility will mature on the earliest of one year from the effective date, 10 days after entry of a sale order, 14 days after confirmation of a plan of reorganization and the plan effective date. The term loan facility will mature on the earliest of 120 days from the bankruptcy filing date, 10 days after the sale order, 14 days after plan confirmation and the plan effective date.

The ABL revolving loans will bear interest at the Base Rate plus 75 basis points. Each protective advance owed to a revolving lender will bear interest at the Base rate plus 300 bps.

The FILO term loan will bear interest at the Base Rate plus 175 bps, and the supplemental term loan will bear interest at 925 bps plus the greater of the adjusted Libor rate or 0.75%.

The $12 million term loan will be used to pay down the Wells Fargo ABL to provide more borrowing capacity.

Orchard Supply, a San Jose, Calif.-based hardware retailer, filed for bankruptcy on June 17. Its Chapter 11 case number is 13-11565.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.