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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 10-13800 (SCC) - - - - - - - - - - - - - - - - - - - - -x In the Matter of:
Debtor.
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United States Bankruptcy Court One Bowling Green New York, New York
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Page 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Laurie Ann Sherby "Cash Management" Debtors' Motion for the Entry of an Order Authorizing the Continued Use of (I) Existing Cash Management System, as Modified Herein, (II) Existing Bank Accounts, (III) Existing Business Forms, and (IV) Certain Existing Investment Guidelines [Docket No. 14] "Cash Collateral" Debtors' Motion for the Entry of Interim and Final Orders (A) Authorizing the Debtors to (I) Use the Adequate Protection Parties' Cash Collateral and (II) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S.C. Sections 361, 362, and 363, (B) to the Extent Approved in the Final Order, Granting Senior Secured, Priming Liens on Certain Postpetition Intercompany Claims, (C) to the Extent Approved in the Final Order, Granting Administrative Priority Status to Certain Postpetition Intercompany Claims, and (D) Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001(b) [Docket No. 13]
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Page 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: BY: LORENZO MARINUZZI, ESQ. (TELEPHONICALLY) JORDAN A. WISHNEW, ESQ. (TELEPHONICALLY) MORRISON & FOERSTER LLP Attorneys for Official Committee of Unsecured Creditors 1290 Avenue of the Americas New York, NY 10104 BY: MARC J. CARMEL, ESQ. (TELEPHONICALLY) KIRKLAND & ELLIS LLP Attorneys for Debtor 300 North La Salle Chicago, IL 60654 BY: PAUL M. BASTA, ESQ. (TELEPHONICALLY) A P P E A R A N C E S : KIRKLAND & ELLIS LLP Attorneys for Debtor 601 Lexington Avenue New York, NY 10022
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Page 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 VERITEXT REPORTING COMPANY www.veritext.com BY: DAVID M. NEFF, ESQ. (TELEPHONICALLY) PERKINS COIE LLP Attorneys for Creditors C-III Asset Management, LLC and CWCapital Asset Management 131 South Dearborn Street Chicago, IL BY: JOHN D. PENN, ESQ. (TELEPHONICALLY) HAYNES AND BOONE, LLP Attorneys for Midland Loan Services 201 Main Street Fort Worth, TX 76102 BY: LAWRENCE P. GOTTESMAN, ESQ. (TELEPHONICALLY) BRYAN CAVE LLP Attorneys for LNR Partners, LLC 1290 Avenue of the Americas New York, NY 10104
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VERITEXT REPORTING COMPANY www.veritext.com
DUANE MORRIS LLP One Market Plaza, Spear Tower San Francisco, CA 94105
BY:
SIDLEY AUSTIN LLP Attorneys for Appaloosa Management 787 Seventh Avenue New York, NY 10019
BY:
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debtors' counsel have provided notice of this telephonic hearing to all parties-in-interest. Rather than take several dozen possible appearances I would simply like to confirm that the counsel for the debtors and the various objectors are online. So if I could ask you
one by one to identify yourselves, we are on the record. MR. CARMEL: Your Honor, this is Marc Carmel from
Kirkland for the debtors. THE COURT: MR. BASTA: Thank you, Mr. Carmel. This is Paul Basta here as well, Your
(Simultaneous speech) THE COURT: Why don't I do this, why don't I call the
roll so that you don't cut each other off. Is someone from Midland on the phone? MR. PENN: John Penn from Haynes and Boone on behalf
of Midland, Your Honor. THE COURT: All right. Thank you, Mr. Penn.
How about the unsecured committee? MR. MARINUZZI: Yes, Your Honor, Jordan Wishnew and
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Is Appaloosa on the line? MS. MINOFF: THE COURT: MS. MINOFF: THE COURT: MS. MINOFF: THE COURT:
Yes, Your Honor. Can you identify yourself, please? I'm Debra Minoff, Sidley Austin. I'm sorry, ma'am, could you speak up? Debra Minoff from Sidley Austin. All right. Thank you. And --
Is someone from Wells Fargo? MR. GOTTESMAN: Bryan Cave. THE COURT: MR. BASON: of Duane Morris. THE COURT: All right.
reporter can get your name down. MR. BASON: Duane Morris. THE COURT: All right. Thank you. I'm sorry, Your Honor. Neil Bason of
C-III Asset Management? MR. NEFF: Perkins Coie. THE COURT: All right, thank you, Mr. Neff. Good afternoon, Judge. David Neff of
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ruling, are there any additional resolutions of the pending objections of which I need to be aware? MR. CARMEL: Kirkland & Ellis. Your Honor, this is Marc Carmel from There are no other changes to the order and I just wanted to
suggest that we originally filed a proposed final cash collateral order on August 20 -- oops, sorry, on August 25th. And then we filed a revision on August 31 and then there was a subsequent provision over this previous night that was distributed to all the parties that are on the phone except for, I believe, Debra Minoff. The reason for that is we served
it on all the parties who had objected to cash collateral and the cash management. All of the changes from last night to
tonight relate to removing references to the plan support agreement and I'm happy to go through them but certainly don't need to. We have not heard any objections from any parties
about any of the changes from last night. THE COURT: All right. I did -- I appreciate your --
you delivered some blackline copies and I've reviewed those. In particular I focused on the copy that was blacklined against the interim order. It did look like there was a change in the
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It's in paragraph --
limiting the adequate protection parties' liens on avoidance actions. I don't -- I'm not sure and I defer to the creditors'
committee as to whether this wholly resolves -THE COURT: Well, but the lead-in -- the lead-in says "The postpetition So the committee
still thinks that somewhere in here there's a superpriority claim? MR. WISHNEW: That's right, Your Honor. This is
superpriority -- a 507(b) section, we still believe that avoidance actions and the proceeds thereof should be carved out of the priority that they had given. The section just
mentioned deals with the liens but we're still concerned about the superpriority claims.
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tracking the definite motions back. All right. Well, with that, unless anyone has
anything else they wanted to add I'll just give you my ruling and we can deal with the order afterwards. All right. Before the Court are two first day motions
of the debtors; the cash collateral motion and the cash management motion, each of which has been approved on an interim basis and for which the debtors now seek entry of a final order. In support of the motions, the debtors have filed
two declarations of Nathan Cook, the chief financial officer of Innkeepers USA Trust. Mr. Cook has also given live testimony
at the hearing on the motions conducted on August 31st. Objections to the cash collateral and cash management motions were filed by 1) Midland Loan Services, Inc., 2) the Official Committee of Unsecured Creditors, 3) Appaloosa Investment LP I, 4) Wells Fargo Bank N.A. and U.S. Bank National Association as trustees for the property-level lenders, 5) C-III Asset Management LLC and 6) CWCapital Asset Management. In support of its amended objection which was amended from that which it filed on the first day of these cases, Midland has submitted two declarations of Ronald Greenspan, a senior managing director at FTI Consulting. Mr. Greenspan has
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debtors and request a protocol which would segregate cash on a tranche-by-tranche basis. Further, certain of the objectors
assert that there should be no intertranche borrowing or lending and seek additional restrictions on the payment of professional fees. At the interim hearing on these motions held on July 20th, 2010, Dennis Craven, the chief financial officer of Innkeepers USA Trust at that time, testified in support of the motions. I found that the cash collateral and cash management
motions should be approved on an interim basis as necessary and appropriate in order to permit the debtors to continue to fund their business operations. I now find that the debtors have thoughtfully and successfully crafted a final cash management system and cash collateral protocol that provides numerous layers and types of adequate protection as well as a reasonable level of transparency for their secured lenders. Specifically, the
debtors' final cash collateral protocol creates reporting requirements to the debtors' lenders comprised of 1) overhauling thirteen-week consolidated cash forecast updated on
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presented shows that in providing detailed real-time pertranche reporting to their lenders during a few months of the prepetition period, the debtors were, in fact, forced to estimate expenses prior to their receipt and move funds around using intertranche borrowing. Mr. Cook testified that
providing the secured lenders with this manner of tranche-bytranche reporting during the Chapter 11 cases in addition to posing an intertranche borrowing issue would also have a detrimental effect on the debtors' resources. On the issue of intertranche borrowing, the debtors have indicated that their primary goal is to avoid any such borrowing and that based upon their cash forecast, they do not anticipate that intercompany borrowing will be necessary over the next thirteen weeks. However, in order to create
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intercompany loans between any of the debtors, the amount of such loans will be capped at two million dollars and will be repaid with interest at the rate used for the debtors' DIP financing, seven percent. And the applicable secured lender
will have a lien, to the extent of such borrowings, on the master account, junior only to the lien of the DIP lenders. Notwithstanding these additional protections and the debtors' assertion that they anticipate that no intercompany borrowing will be necessary in the next thirteen weeks, Midland and LNR continue to object strenuously to the debtors' use of a consolidated cash management system and seek segregation by tranche. The focus in the testimony has been the question of
whether or not the floating pool, those properties owned by the debtors who are Lehman's borrowers, will be cash flow negative and therefore will be required to borrow from the fixed pool or other tranches. Mr. Greenspan for Midland and Mr. Cook for the debtors disagree on the numbers, at least insofar as the next six months are concerned. The kernel of their dispute is the
amount that will be payable for maintenance CAPEX and professional fees. These two line items alone account for a
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declaration.
are concerned that the CAPEX number is too low, I must defer to the debtors' business judgment that the expenditure of the 1.5 percent will be adequate to maintain the properties and, more importantly, that even if more must be spent if, for example, an unanticipated emergency occurs at one of the properties, they will do so to protect the value of the properties. other words, the tail must not wag the dog. In
intertranche borrowings must not result in impairment of the physical collateral. With respect to professional fees, while it is certainly the case that holdbacks are generally paid and released with some regularity, it is certainly not written in stone whether and when the full twenty percent holdback gets released. We have some control over that and given that such
fees are the largest item in the Greenspan vs. Cook controversy, I believe we can manage around that issue to ensure that professional fees in and of themselves do not precipitate intertranche borrowing if at all possible. Regarding the committee's objection to the granting of superpriority claims with respect to avoidance actions or the proceeds thereof, I agree with the committee's position and decline to grant the superpriority claims. Even though their
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sustained their burden to demonstrate that the consolidated cash management system and proposed adequate protection scheme are an appropriate exercise of their business judgment and that the lenders whose cash collateral is being used are adequately protected as contemplated by the Bankruptcy Code. Should Midland, LNR or any of the other objectors encounter a specific problem with reporting or any other aspect of the proposed adequate protection that cannot be resolved between the parties, such party has the right to come to this court and seek immediate relief -- someone's shuffling papers, so I hope you all heard that. All right. MR. CARMEL: THE COURT: Mr. Carmel? Yes, Your Honor? All right. That's all I have. I have
reviewed the order and other than the point with respect to the
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would you like us to proceed? THE COURT: Well, why don't you e-mail us a blackline
that reflects the change on the superpriority claim point and just give us a blackline against the new draft. In other
words, today's draft that'll just show that one change. MR. CARMEL: THE COURT: it to the parties. Thank you, Your Honor. All right. And then I guess re-circulate
kind of running on fumes down here but if you want it entered today, if you get it down to us, we'll try to enter it today. MR. CARMEL: Thank you, Your Honor. In the interest
of not changing language in any other provision, I would propose that the language we had in relation to the avoidance actions is just a new paragraph that just has "notwithstanding anything else in the order". THE COURT: that's great. We also, if it hasn't already hit the docket -wherein it should soon hit the docket, the LNR DIP approval order and the separate stipulation with respect to the Tranche B and Tranche C. And then I think we also just signed off on So I think we're just about caught That's elegant and it works for me. So
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your office after this. THE COURT: Okay. I'm being nodded at and told that I think that's it. I thank you all
for your endurance yesterday and wish you a good weekend and, as applicable, a Happy New Year. MR. PENN: Thank you, Your Honor. One moment. John
Penn on behalf of Midland. THE COURT: MR. PENN: Yes? Just so that the record is clear, Midland
did not consent to the carve-out. THE COURT: I think that -- I think we're clear on
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VERITEXT REPORTING COMPANY www.veritext.com
I N D E X
RULINGS Page Consolidated Cash Management System and Proposed Adequate Protection Scheme Approved 15 Line 10
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Page 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: September 3, 2010 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Laurie Ann Sherby, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N
Digitally signed by Laurie Ann Sherby DN: cn=Laurie Ann Sherby, c=US Reason: I am the author of this document Date: 2010.09.03 14:37:40 -04'00'
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