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Loans and Liens: The Weinstein Company Chapter 11 Hearing #3

posted by Melissa Jacoby

CollateralThe third hearing in the The Weinstein Company chapter 11 took place on April 19, 2018 (prior 2 hearings here and here). The hearing focused on final court approval of a $25 million loan to fund the debtor during its chapter 11 (or, really, until a standalone 363 sale) ("DIP loan"). Apparently a competing offer for the DIP loan discussed at Hearing #1 never fully materialized. Prior to the chapter 11 petition, TWC had no single lender/syndicate claiming a so-called blanket lien on substantially all assets (the lender leading the now-approved DIP loan had a prepetition security interest in movie distribution rights held by TWC Domestic, and lenders with prepetition security interests in other assets also are participating in the DIP loan). As indicated in the visual accompanying this post, the DIP financing order states that TWC seeks to grant its DIP lenders a security interest in nearly all property. There are some important exclusions from the collateral package, however, including "claims arising out of or related to sexual misconduct or harassment or employment practices." 

Page 42 of the DIP financing order gives the unsecured creditors committee only until April 27 to investigate validity, perfection, and enforceability of various prepetition liens, although that date can be extended "for cause." As is typical in such agreements these days, TWC stipulated that it will not challenge prepetition loans made by the postpetition lenders. The order and agreement also require immediate payout of the DIP loan from sale proceeds (pp 55 & 138 of docket #267). If I'm reading the DIP lending agreement correctly, it also gives certain prepetition lenders the right to be paid immediately out of sale proceeds (p138 of docket #267). For reasons Credit Slips readers have heard many times before, I don't understand why paying prepetition debts at that juncture is in the best interest of the bankruptcy estate.

Meanwhile, Peg Brickley and Jonathan Randles of The Wall Street Journal have reported three TWC executives "took home more than $12 million in pay, loans, reimbursements" in the year before the bankruptcy, including after sexual misconduct allegations became public. This reporting comes from the schedules and statements of financial affairs filed just a few days ago.

Other updates:

  • The 341 meeting of creditors, held April 24, was quickly continued to May 2 because the aformentioned schedules and statement of financial affairs had just been filed. Unlike in consumer bankruptcies, large corporate cases routinely obtain extensions to file these documents - even, it seems, when debtors/lenders/stalking horse bidders are simultaneously pushing for quick sales.
  • The New York Attorney General has made an official legal appearance in the TWC bankruptcy. TWC is among the named defendants in a February 2018 lawsuit alleging violations of civil rights and human rights laws.
  • The office of New York City's Mayor has asked the bankruptcy judge to take into consideration whether proposed successors will maintain operations in NYC, emphasizing the city's commitment to gender equity and fighting sexual harassment.
  • If it goes forward, the May 4 auction of the company will be in New York rather than Delaware as originally announced.
  • A bankruptcy court hearing on May 8 will consider Harvey Weinstein's request to access emails for his defense in various criminal investigations.

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