Judge Kevin Carey approved all of the Appvion debtors’ requested first day relief, including DIP financing for $65 million on an interim basis from certain prepetition first lien lenders, at today’s first day hearing in Delaware. During today’s proceedings, counsel for majority prepetition first lien lender and DIP lender Franklin Resources and counsel for the ad hoc group of second lien lenders presented differing perspectives on the Appvion restructuring. Counsel for Franklin, on the one hand, said that the fund’s involvement as a critical, supportive stakeholder of the debtors over several years made it a “logical source” of DIP financing. The second lien ad hoc group’s lawyer, on the other hand, said that his clients had developed a competing DIP proposal and were “very disappointed” that it was not selected. The second lien lenders are convinced that they are the fulcrum security and that they will be the reorganized debtors’ eventual owners, he said.
At the outset of the hearing, Richard Chesley of DLA Piper, speaking for the debtors, provided a history of Appvion, which traces back more than 100 years to the Appleton Paper Co. in Wisconsin. Today, Chesley continued, the company is a leading manufacturer of specialty coated paper products, noting a substantial area of growth in Amazon shipping labels. Chesley then presented the various first day motions other than the DIP financing motion, all of which were approved on an uncontested basis.
The court then turned to Appvion’s request for approval of interim DIP financing. Stuart Brown of DLA Piper presented the DIP financing motion, stressing that the company is aiming for a reorganization, not a sale. In that context, Brown said, the DIP loan provides an “adequate runway” of nine months to confirm a plan and go effective. He clarified that under the proposed interim order, the majority prepetition first lien lender and DIP lender, Franklin Resources, would roll up its prepetition first lien holdings to the extent it provides new-money commitments under the DIP financing.
Daniel Shamah of O’Melveny & Myers, counsel for Franklin, noted that Franklin currently holds approximately 80% in principal amount of the first lien term loan and about 60% of the debtors’ entire first lien debt. Shamah said Franklin is backstopping the entire new-money commitment but that the ability to participate in the new-money loan is open to all first lien lenders on a pro rata basis. Calling Franklin an “incredibly supportive stakeholder” of the debtors that had amended the credit agreement multiple times in their favor, he defended the rollup provisions under the DIP. Shamah said Franklin provided many of the “gives” the debtors requested with respect to a longer maturity and lower interest rate, and in exchange, the concept of a rollup was an “absolute condition” to Franklin providing DIP loans. He commented, “We will not allow our substantially oversecured position to be crammed down in the debtors’ restructuring.”
Jayme Goldstein of Stroock & Stroock & Lavan appeared for the ad hoc group of second lien lenders, noting that the group holds at least 90% of the outstanding second lien notes. Goldstein said that the second lien noteholders are “very disappointed” not to be chosen as DIP lenders after working “around the clock” on a DIP proposal the previous two weeks. The ad hoc group also “got far very along” on preparing the framework for a restructuring term sheet and RSA, he said, adding that the second lien lenders’ proposed restructuring would have taken out the first lien in full and provided the debtors with operating capital throughout the pendency of the bankruptcy.
Continuing, Goldstein said the ad hoc second lien group has no choice but to refocus and continue working with the debtors on a comprehensive restructuring. However, he urged the court not to approve the terms of the DIP financing on an interim or a final basis. He added that the second lien lenders "believe they're the fulcrum [security] and they'll own the company at the end of this process.” In response, Judge Carey remarked that “an interim order is an interim order” and that the second lien lenders could raise their concerns with the debtors and DIP lenders in between now and the final DIP hearing. The court ultimately approved the interim DIP financing.
Chesley, for Appvion, advised that the debtors are targeting Oct. 11 for a formation meeting for an official creditors committee. The second day hearing is scheduled for Oct. 30 at 2 p.m. ET.