Hearing #4 was held in The Weinstein Co. bankruptcy and you won't believe what happened next
Actually, if you are in and of the corporate restructuring world, you will believe what happened next. Major objections were were resolved by the parties, and the court approved the sale of The Weinstein Co. to Lantern Capital.
Resolving objections without litigation is perceived positively in bankruptcy-land, not to mention in federal courts more generally. Some cash proceeds of the sale will be held back for the next phases of the case, and that is an important development. What, then, makes the situation seem less than satisfying, at least to this outside observer?
- At Hearing #3, TWC reported that around 60 parties were interested in buying the company. By Hearing #4, the number of qualified bids capable of outdoing the stalking horse had dwindled to zero; the auction was cancelled. That might be just the way things work out sometimes. But it is hard not to wonder whether various aspects of the process chilled serious bidders. For example, in addition to the breakup fee owed to Lantern, there are considerable uncertainties about exactly what Lantern has agreed to buy. TWC has many executory contract rights that it seeks to assume and then assign to Lantern. Many contract counterparties have filed objections relating to whether contracts were already terminated, whether TWC is even working with the correct version of the contract in the sale documents, the amounts counterparties are owed, etc. At Hearing #4, TWC announced that contract counterparties have agreed to postpone a hearing on those objections until after entry of the sale order. It wouldn't be shocking if other bidders, including the much-discussed Kagan, expected more certainty about what is being acquired before meeting the qualified bid standard.
- You may have read that the sale to Lantern will bring in $310 million in cash. At Hearing #4, though, a lawyer for the creditors' committee said the dollar figure likely will be closer to $260 million. And, upon sale consummation, a big chunk of that lesser pile of cash will go immediately out the door to pay a major prepetition loan, the DIP loan, and TWC's investment banker, although subject to disgorgement. Lantern rejected the creditors committee's request to allocate its bid among the dozens of entities comprising the TWC corporate family, but the estate will not have the luxury to do the same. Other creditors with security interests in assets of particular entities are not getting cashed out immediately but expect to be repaid from sale proceeds, along with an unknown number of other claimants (the deadline for filing proofs of claim is not yet set).
- Bankruptcy is often about shared pain, but it is already clear that general unsecured creditors are not going to be treated equally in this case. The sale order disclaims Lantern's responsibility for previous sexual harassment and assault. But Lantern is eager to remain liable for many of the unsecured debts arising from executory contracts. Counterparties on those contracts will be entitled to 100%. Essentially, claims of women arising from sexual harassment and assault are being subordinated to claims of those who were not harassed and assaulted.
- While the creditors' committee was working around the clock to accommodate the timeline demanded by the stalking horse bidder and DIP lender, TWC insisted on deposing one of the committee's senior lawyers, James Stang, whose prior experience includes representing tort claimant committees in Catholic diocese bankruptcies. The deposition topic apparently related to the committee's preference for buyers who would bring more to the table for those who allege sexual harassment and assault. Presumably TWC's lawyers will seek reimbursement in 100% dollars for the time they spent going down this discovery rabbit hole; that's even more money diverted away from women harmed by the company.
- TWC raises issues of extensive corporate wrongdoing, and very few people were fired and replaced prior to the bankruptcy. But no one sought to dismiss the chapter 11 for lack of good faith or to request appointment of a chapter 11 trustee.
In any event, by the time of Hearing #4, no one spoke on the record against entry of the sale order. Maybe all major differences truly had been reconciled. Or maybe the threat of losing the stalking horse bidder, which might trigger a default on its DIP loan, was sufficient to quell continued dissent.
Whatever one's reactions to what has happened so far, the next phases of the TWC bankruptcy are, of course, very important. Many potential causes of action could bring money into the estate, and also could affect how those funds are distributed. Also, in a twist on the so-called "gifting" doctrine in chapter 11, perhaps Hollywooders whose contracts will be honored by Lantern will donate some of their recoveries to sexual harassment and assault claimants, or to the Time's Up legal defense fund. Much in the case has yet to unfold.