The Ad Hoc Group of Excluded Lenders which, according to the 2019 motion, includes Cerberus, Blue Owl, Ellington, Livello, Palmer Square and Steele Creek, and is represented by Proskauer, filed an objection to confirmation stating that the debtors’ plan violates the equal treatment requirement of the Bankruptcy Code by treating the majority lenders and the excluded lenders, both of whom are in class 3 differently.

Standard first lien claims are set to receive between 20% and 27.4%, according to plan recovery estimates, and while the estimated recovery for the participating majority lender group has been redacted, the excluded lender objection calls it a “staggering… enhancement over the recovery to the Excluded Lenders electing the equity option under the Proposed Plan.”

The debtors’ plan — which impairs the first and second lien claims classes — was accepted by 88% of first lien holders (class 3), and 100% of second lien holders (class 4), according to the declaration filed by Epiq. The participating first lien group comprises fund of Sound Point, Kennedy Lewis Management, Monarch, PGIM and MJX.

The difference in treatment stems from the $245 million of new capital the debtors are raising through an equity rights offering. The debtors have structured the rights offering so that $159m is available to all Class 3 claim holders, and $86m is reserved exclusively for the majority lenders as consideration for their commitment to backstop 35%. The excluded lenders claim this structure sets up the “Majority Lenders to receive reorganized equity with an assumed value of $169.6 million in exchange for $85.75 million of new money,” and there is no real basis for the disparity in treatment, especially since the excluded lenders offered a self proclaimed “superior plan.”

The debtors responded with a plethora of case law where courts overruled disparate treatment objections within the same class where certain creditors within the class provided new money, even when the opportunity to provide that new money was not available to the entire class. The debtors also claimed that the excluded lenders’ alternative plan proposal offered basically the exact same deal but awarded the excluded lenders the better dynamic instead of the majority lenders.

Given the overwhelming support of the debtors plan, the highlights of which, according to the debtors, include (1) a significant reduction in debt, (2) an infusion of cash to run the business and service debt and (3) vendors, suppliers, employees, and contract counterparty claims remain unimpaired, they should not face any real obstacle at tomorrow’s hearing. Instead, the hearing will likely include a run through of witnesses checking the boxes to show the plan and solicitation process were done in accordance with the bankruptcy code as stated in the confirmation brief and declarations in support.