An ad hoc group of Taj noteholders represented by Andrews Kurth and Kepley Broscious & Briggs has presented a competing fully committed Taj DIP financing proposal to the Toys “R” Us debtors that would provide a lower interest rate, 9.5%, than the 11% interest rate on the existing $375 million Taj DIP financing, according to sources. The proposed competing DIP facility also would eliminate the 4-point original issue discount included in the existing DIP facility. The group, which today filed notice of depositions for certain members of the existing Taj DIP lender group as well as for the debtors’ financial advisor David Kurtz of Lazard, anticipates filing an objection to the existing Taj DIP financing by the Oct. 17 objection deadline, sources add.

The ad hoc group comprises a series of funds, including Owl Creek and River Birch, both of which objected to the Taj DIP financing at the first day hearing. The second day hearing is scheduled for Oct. 24. At the first day hearing, counsel to River Birch indicated that his client owned between 5% and 6% of the prepetition Taj notes, while counsel for Owl Creek noted that her client owned more than 12%.

While the competing DIP would provide better economic terms for the debtors than the existing Taj DIP, which was amended this week to make certain concessions to the debtors and B-4 lenders, the existing DIP had, as of the first day hearing, the support of more than two-thirds of prepetition Taj noteholders. The existing Taj DIP lender group, which is represented by Paul Weiss and GLC Advisors, has not yet filed a 2019 statement reporting its holdings.

A competing Taj DIP proposal could face a priming fight in court, however, to the extent that less than two-thirds of the prepetition Taj notes have not provided consents to be primed, sources note.

The existing Taj DIP facility lenders, as holders of a majority of prepetition Taj notes, put in place a forbearance and waiver with non-debtor foreign entities that are guarantors of the Taj notes. Sources have argued that the ability to maintain the forbearance and waiver is a key component of any DIP financing. David Kurtz of Lazard for the debtors said in his first day declaration that, although the waiver is a conceptually separate transaction from the DIP Financings, “the Taj Noteholders conditioned this waiver on the Debtors selecting them as the DIP provider. Because the Taj Noteholder proposal offered comparable economic terms to other proposals and significantly reduced the risk of a priming fight and of value erosion through foreign affiliate insolvency proceedings, the Debtors determined that the Taj Noteholder proposal was best available form of international DIP financing.”

While the debtors suggested to the ad hoc group presenting a competing DIP that the existing DIP facility must remain in place in order to avoid losing the forbearance and waiver protection from the non-debtor foreign entities, the ad hoc group believes that the forbearance and waiver agreement is irrevocable, according to sources.

Certain concessions were made this week by existing Taj DIP lenders in an amendment to the Taj DIP indenture in order to avoid facing a competing Taj DIP proposal and objection from B-4 lenders represented by Wachtell Lipton and Houlihan Lokey, sources said. Concessions made in the amendment to the indenture included extending the deadline for Toys to move to assume the IP contracts to Dec. 15 and extending the deadline for approval of that motion to Feb. 1, 2018.

The amendment also loosened restrictions on the debtors’ access to $35 million from the Taj DIP facility escrow account, which must be repaid to the escrow by year-end, for use in connection with ordinary course working capital needs of the company and its restricted subsidiaries during the 2017 holiday season. The Taj indenture amendment allows the debtors to receive access to that $35 million on the date the court grants a final order approving the Taj DIP, whereas prior to that amendment, the debtors did not have access to those funds until a series of conditions were met, including receiving approval of IP contracts from the bankruptcy court.

The competing DIP proposal also provides flexibility to the debtors with regard to those escrowed funds, sources note.

The Taj DIP budget set out in the Taj DIP motion filed Sept. 19 is below.