Tropicana creditors committee, noteholder group speak out against fee-heavy DIP loan

By Caroline Salls

Pittsburgh, May 27 - Tropicana Entertainment, LLC's official committee of unsecured creditors and an informal group of the company's senior subordinated noteholders filed objections to Tropicana's proposed debtor-in-possession facility, according to Tuesday filings with the U.S. Bankruptcy Court for the District of Delaware.

According to the unsecured creditors committee's objection, Tropicana has not demonstrated any need for financing to operate its businesses, and the company has received a proposal from Onex Corp. for alternative financing "that would be junior to the pre-petition liens, less expensive with respect to fees and rates, offers a more relaxed covenant package and longer maturity date."

The committee said the company has asked the court to approve "an expensive $67 million financing package with restrictive covenants that is primarily designed to permit the debtors to pay out over $54 million in artificially inflated, and at this time wholly unjustified, default interest and cash collateral fees."

In addition, the committee said that although the informal noteholders group demonstrated at the company's first-day hearings that Tropicana only needed the interim DIP financing to pay DIP facility fees, the court granted the company access to $20 million in financing, on which it has not borrowed.

The committee said the company cannot prove that it needs DIP financing for any purpose but to pay post-bankruptcy interest to its pre-bankruptcy lenders "under the guise of adequate protection."

According to the subordinated noteholders group's objection, the only reason Tropicana needs the DIP financing is to pay the pre-bankruptcy secured lenders adequate protection payments tied to a default rate of interest, a 25-basis points cash pay fee "and likely millions of dollars in professional fee reimbursements."

The noteholders said the adequate protection payments will exceed $100 million of the one-year term of the proposed DIP facility, and the cash pay fee will equal $3.2 million.

"To permit the debtors to pay more than $3 million in cash (as a fee) to the pre-petition secured lenders on day one of these cases, plus what likely will exceed $10 million per month in adequate protection payments, would eviscerate any benefit derived by the debtors' estates from the DIP," the noteholder group said in its objection.

Tropicana, a Fort Mitchell, Ky.-based gaming entertainment provider, filed for bankruptcy on May 5. The Chapter 11 case number is 08-10856.

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