NewAge bid procedures draw objection from U.S. trustee, committee

By Sarah Lizee

Olympia, Wash., Sept. 19 – NewAge, Inc.’s motion seeking approval of proposed bid procedures for its assets drew objections from the U.S. trustee overseeing the case and the official committee of unsecured creditors, according to court documents filed with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, prepetition and debtor-in-possession financing lender DIP Financing, LLC has offered to credit bid the company’s secured debt under a stalking horse agreement.

Regions 3 and 9 U.S. trustee Andrew R. Vara said additional disclosures and a full understanding of the relationship between the lender and the debtors need to be provided before approval of the bid procedures can be given.

Vara said he believes the principal of the lender, John Wadsworth, is an insider of the debtors. As such, heightened scrutiny is required in considering the reasonableness of the terms of the proposed bid procedures and their implications on all other creditors, including unsecured creditors of the estates.

The U.S. trustee also said the proposed timeline is insufficient to allow the debtors to reach all potential purchasers, and for those potential purchasers to adequately perform due diligence.

“The net result will be little to no competition to the lender’s bid,” Vara said.

Under the proposed bid procedures, bids are due by 4 p.m. ET on Oct. 4, an auction, if needed, will be held on Oct. 5, and a sale hearing will be held on Oct. 7. NewAge is hoping to close the sale by Oct. 11.

The U.S. trustee also took issue with the $375,000 expense reimbursement and 2.5% breakup fee under the stalking horse agreement.

“As the holder of the prepetition debt and with a principal that has worked for the debtors since 1998 and appears to be an insider, lender needed minimal due diligence to make a bid, did not need an incentive to make a bid, and does not need to be compensated if it is not the winning bidder at the auction, because, regardless of the outcome of the auction, lender will benefit,” Vara said.

“Either lender will be the winning bidder, or, if it is outbid, the additional proceeds of the sale will be used to pay down lender’s secured claim.”

The committee shared similar concerns in its objection and added that it believes the credit bid is improper.

“The DIP lender should not be permitted to credit bid the $12 million of prepetition secured debt it acquired before the petition date,” the committee said.

“That debt is more than fully collateralized by over $13 million of cash on deposit in a non-debtor subsidiary bank account with East West Bank’s (the prior holder of the prepetition secured debt) sibling Chinese bank.

“The debtors have not offered an explanation or evidence as to why these funds cannot be used to retire the debt.”

The committee said the DIP lender shouldn’t be allowed to artificially inflate the baseline bid for the debtors’ assets by credit bidding debt while at the same time purchasing the equity in the subsidiary holding cash pledged as collateral for the debt.

The Midvale, Utah-based direct-to-consumer organic and healthy products company filed bankruptcy on Aug. 30 under Chapter 11 case number 22-10819.

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