Following an all-day contested hearing, Judge Christopher Lopez declined to grant final approval of OPI’s proposed DIP financing “in its current form.” However, after finding that the debtors had established the need for financing, he identified his specific issues with the proposed DIP and directed the parties to confer, and to let him know if they wanted to upload a revised DIP order for his consideration.

Likely alluding to the looming RSA-prescribed milestone requiring entry of a final DIP order by the following day, he stated, “I know tomorrow's an important day, but ... I believe everyone will be accommodating to make this work… and I'm willing to stay late, and if we need to argue more… I'll be around.”

Judge Lopez’s issues of concern

Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas recognized how important it was to the debtors that they have the option to equitize the DIP, but he declined to approve the proposed DIP order that provides an option to equitize at a 37% discount rate. He stated that he had no evidence to support the discount rate, and maintained that the DIP order could provide the option to equitize, “subject to being approved by the plan parties.”

Referencing another milestone in the RSA requiring that the court resolve certain litigation by a specific date, Judge Lopez stated “there can't be an event of default because I can't resolve your litigation by a certain date.”

Judge Lopez also expressed concern about multiple events of default under the RSA that were tied to the DIP, many of which are at the “sole discretion” of the 2029 ad hoc group and “a party that's not even in front of me,” referencing the debtors’ management company, RMR, thereby allowing these third parties to exert control over the debtors. “I don't like it when plans include treatment for another class and say, ‘subject to my approval, you will get this,’” he said. “You propose the plan, folks can vote on it.”

Addressing a provision that effectively precludes the debtors from settling certain litigation, Judge Lopez stated “the debtor has got to have the right to settle litigation if that’s what it wants to do.” He added that a DIP financing should be no reason for a debtor to tie itself to litigation. He continued, “I think if the debtor wants to settle this claim… it cannot be at someone else's discretion.”

Judge Lopez also balked at the debtors not being able to prepay the DIP, saying “there has to be some prepayment mechanism for unused portions” of the DIP. He stated that there should be a prepayment option for unused DIP proceeds even if such prepayment is subject to a small premium, suggesting a premium of 1% or 2%.

The Chapter 11 docket can be found on the 9fin platform.