This filing is only the latest wrinkle in a multi-fronted legal battle sparked by two distinct liability management exercises (LMEs) that Robertshaw and its sponsor One Rock conducted prior to its bankruptcy filing last month. Those deals were challenged in New York State Court before Robertshaw filed for Chapter 11, but the bankruptcy brought the legal disputes to Judge Christopher Lopez in Texas.

Invesco’s objection hinges on the idea that Robertshaw can last without DIP financing until the week of 19 April — and that by agreeing to the group’s DIP financing, the court would “effectively decide the litigation in the ad hoc group’s and One Rock’s favor without any adjudication on the merits of Invesco’s claims.”

Specifically, Invesco called out language in the proposed DIP order that would designate the ad hoc group as “required lenders,” and that described the super-priority first lien debt issued in the second LME as “a legal, valid, binding, and nonavoidable obligation of the debtors.”

In addition to requesting that the court approve its DIP proposal, Invesco also asked the court to either:

• Defer approving any post-petition financing “until it is actually needed”, or
• Modify the submitted orders so that they are “litigation neutral,” "reject the ad hoc group’s request for adequate protection and DIP liens on the proceeds of avoidance actions,” and “reflect a fair price no higher than the price reflected in Invesco’s proposal”

Standoff

A central issue in Invesco’s objection (as well as the adversary proceedings more broadly) is determining precisely which parties count as “required lenders” under a super-priority credit agreement that was amended as part of the pre-petition LMEs that took place last year.

The first of those two LMEs took place in May 2023, and put Invesco, Bain Capital, Canyon and Eaton Vance ahead of other lenders. The lenders that were primed in this deal opted to sue in New York State Court, with Guardian Life Insurance leading the charge.

After that priming transaction, Invesco used its role as a “required lender” to push for amendments to the super-priority credit agreement — amendments that would ultimately pave the way for a bankruptcy filing. Those moves prompted the Bain/Canyon/Eaton Vance group to work with One Rock to counter Invesco’s moves.

The group ultimately created an entity that made a “purported equity contribution” — funded by a loan from the ad hoc group of lenders and One Rock to Robertshaw — to the borrower under the super-priority credit agreement, according to court papers filed by Invesco as part of its initial complaint.

Robertshaw used the ensuing proceeds to pay down its existing super-priority debt, and then repaid the equity contribution by raising new super-priority debt. This transaction pushed Invesco out of its “required lender” position and placed the ad hoc group into the driving seat. Through this deal, One Rock also ended up holding some of the new super-priority debt.

Invesco has two parts to its argument attempting to delegitimize what it describes as an equity contribution that allowed One Rock and minority lenders to perform the second LME.

The first part asserts the contribution should be considered a “sham transaction” because it raised no actual cash, and it merely served to circumvent the terms of the credit agreement and raise new debt that allowed it to pay down Invesco’s holdings. Alternatively, according to Invesco’s argument, if the court looks at the equity contribution as a true equity contribution, then it was a fraudulent conveyance because the Robertshaw entity was insolvent and distributed cash for no value.

Counsel for the ad hoc group of lenders and One Rock did not respond to a request to comment for this article.

In a statement emailed to 9fin, Robertshaw said:

“We commenced our Chapter 11 cases with a clear path to exit within an achievable timeline and a stronger financial foundation. In support of that goal, we are pursuing a global resolution among our creditors that is in the best interests of all stakeholders. We remain steadfast in continuing to deliver best-in-class service and products to our customers while we constructively engage with our creditors in order to emerge from our financial restructuring.”

Proposed funding

Invesco claims the DIP facility it proposed on 29 February is “litigation neutral” and “offers materially better economic terms” than the one the ad hoc group (AHG) proposed.

9fin largely agrees, though the claimed litigation neutrality adds complexity. Key differences between the two proposals are set out below:

• Lenders: Invesco and others acceptable to Invesco in its sole discretion (versus certain prepetition super-priority first lien lenders per the AHG proposal)
• Amount: Depending on an updated DIP budget, Invesco will consider upsizing the DIP facility from the $56m under the AHG proposal
• Interest rate: SOFR+750bps, all PIK (versus 9.5% PIK plus SOFR+110bps cash, including a 10bps credit spread adjustment)
• Fees: (i) 3% PIK upfront fee (versus 5% PIK), (ii) no backstop fee (versus 1.5% PIK), and (iii) 2.5% exit fee, cash or PIK not specified (versus 5% PIK)
• Financial covenants: The Invesco proposal does away with the minimum liquidity requirement under the AHG proposal, and introduces a requirement that debtors hold no more than a TBD amount of cash at non-domestic subsidiaries; also DIP budget testing is proposed to be on a cumulative basis (versus on a rolling four-week actual disbursements basis) and the permitted variance is TBD (versus 115%)
• Litigation neutrality:
• Milestones:
• Final DIP/cash collateral and bid procedures orders — with no litigation findings — by 5 April (versus 16 March, per the AHG proposal, after and assuming the court has determined that the AHG constitutes “required lenders” under the prepetition super-priority credit agreement)
• The following, assuming the adversary proceedings trial occurs the week of 13 May; if the trial is held the week of 27 May, these deadlines will be delayed by two weeks
• Sale bid deadline by 17 May (versus 16 March, per the AHG proposal, after and assuming the AHG has been determined to be “required lenders” under the prepetition super-priority credit agreement)
• Auction by 28 May (versus 19 April per the AHG proposal)
• If a ruling on the fifth amendment to the super-priority credit agreement — which allowed the AHG and One Rock to provide incremental super-priority loans by increasing borrowing capacity under the credit agreement after Invesco had allegedly lost “required lender” status — hasn’t been made by 28 May, the auction shall be postponed to 5 business days after the ruling is madeSale order by 4 June (versus 30 April per the AHG proposal)May be postponed depending on when a ruling on the fifth amendment to the super-priority credit agreement is made
• Sale closes by 19 June (versus 15 May per the AHG proposal)
• May be postponed depending on when a ruling on the fifth amendment to the super-priority credit agreement is made
• Bidding:
• Under the Invesco proposal:
• Invesco seeks permission to submit a credit bid assuming the fifth amendment to the super-priority credit agreement was not made. The Invesco proposal also allows the AHG to submit a competing credit bid, assuming the fifth amendment is in effect, if the court has not ruled on the adversary proceedings by the bid deadline
• No party will be entitled to drag along any DIP facility lenders into a credit bid by virtue of their participation in the DIP facility; if a party does not agree to the credit bid, the DIP facility — we aren’t sure if this means the entire facility or just the non-consenting party’s share — will be repaid in cash
• After a ruling on the adversary proceedings has been issued, either Invesco or the AHG can submit a cash bid prior to the auction
• The stalking horse bidder will not be provided any expense reimbursement or bid protections
• The AHG proposal (i) has solely the AHG (and presumably also One Rock) credit bidding their DIP claims and $217m of super-priority first lien first out loan claims, and (ii) up to $2.5m of expense reimbursement for stalking horse bidders, and an overbid requirement of expense reimbursement amounts plus $5m as bid protection
• Invesco has separately claimed that the bid procedures, stalking horse bid and asset purchase agreement proposed by the AHG are not litigation neutral and are in violation of bankruptcy laws and the super-priority credit agreement
• Adequate protection for the super-priority term loans: TBD (versus comprehensive adequate protection for the super-priority first out term loans under the AHG proposal)
• Conditions precedent to closing: Unlike the AHG proposal, the Invesco proposal does not require (i) that any “required lenders” determination be made under the prepetition super-priority credit agreement, or (ii) that no material adverse ruling be made in the adversary proceedings against the DIP lenders
• Events of default: The Invesco proposal does away with certain events of default under the AHG proposal, including (i) a material adverse ruling in the adversary proceedings, and (ii) cross-defaults of the RSA provisions
• Information rights: All parties to the mediation of the dispute regarding the May 2023 and December 2023 transactions will be entitled to information rights provided to DIP lenders
• Other: Per the Invesco proposal, participation in the DIP facility will not be admissible as evidence of “required lenders” status under the prepetition super-priority credit agreement