Zais noteholder fund managers file competing plan of reorganization

By Caroline Salls

Pittsburgh, Oct. 3 - Zais Investment Grade Ltd. VII A-2 noteholders' fund managers Hildene Capital Management LLC and Hildene Opportunities Master Fund, Ltd. filed a competing plan of reorganization and disclosure statement in Zais' bankruptcy case Friday with the U.S. Bankruptcy Court for the District of New Jersey.

As previously reported, the fund managers objected to the plan proposed by Anchorage Capital Master Offshore, Ltd. and supported by plan proponents last month, arguing that the Anchorage plan is not sufficient because of the following:

• The plan cannot be crammed down over class A-2 noteholders because there is a likely prospect that they are substantially "in the money";

• The plan was not proposed in good faith; and

• The plan contains illegal third-party releases and impermissibly grants the debtor a discharge.

At that time, Hildene said it intended to file its own proposed plan that would pay class A-1 noteholders in full and would "permit each junior noteholder to the right to vote, giving all noteholders the voice that the indenture provides but Anchorage has sought to destroy."

Creditor treatment

Specific creditor treatment under the Hildene plan includes the following:

• Holders of administrative claims, tax claims, indenture priority claims and senior indenture administrative claims will be paid in full in cash;

• Holders of class A-1 note claims will retain all rights under the indenture and will be entitled to payment in accordance with the indenture, for an estimated 100% recovery.

If these creditors vote in favor of the Hildene plan, they will be entitled to specified releases;

• Holders of class A-2 note claims will retain their rights under the indenture and be entitled to payment in accordance with the agenda; provided however, that these creditors will be deemed to waive their right to post-bankruptcy interest and receive a share of new common equity if they vote to accept the plan;

• Holders of class A-3 note claims, class B-1 note claims and class B-2 note claims will receive a share of preferred equity interests; and

• Holders of subordinated claims, income note claims, general unsecured claims and old equity interests will receive no distribution.

A hearing on the Hildene disclosure statement is scheduled for Nov. 21.

Anchorage plan terms

Under the Anchorage plan filed in connection with Zais' involuntary Chapter 11 case, a new investment vehicle will be formed to hold, manage and eventually monetize substantially all of Zais' assets.

Under the proposed plan, treatment of creditors will include the following:

• Holders of administrative claims, tax claims, senior indenture administrative claims and indenture priority claims will be paid in full in cash;

• Holders of senior notes claims will receive their share of available cash for an estimated recovery of 71.84%; and

• Holders of junior note claims, subordinated claims, income note claims, general unsecured claims and old equity interests will receive no distribution.

The Anchorage plan proponents include GRF Master Fund, LP, Anchorage Illiquid Opportunities Offshore Master, LP and Anchorage Capital Master Offshore, Ltd., which hold a combined $145.36 million principal amount of Zais' senior notes and $10 million principal amount of junior notes and income notes.

Zais is a Cayman Islands-based investment company. The involuntary Chapter 11 case was filed on April 1. The case number is 11-20243.

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