Opinion
Case No. 02 B49672, (Jointly Administered), Docket under 02 B49672
September 17, 2003
Upon the motion, dated May 29, 2003 (the "Motion"), of Capital Research and Management Company, Commonwealth Advisors, Inc., Prudential Investment Management, Inc., Morgan Asset Management, Jefferson Pilot Financial Insurance Company and Millennium Partners, LLC (the "Creditor Group"), for allowance and payment of administrative expense from the estate of the Finance Company Debtors pursuant to Section 503(b)(3)(D) of the Bankruptcy Code, due and proper notice of the Motion having been given, and after due deliberation and consideration and sufficient cause appearing for the granting of the Motion, THE COURT HEREBY FINDS AND CONCLUDES THAT:
A. In December 2002, the CFC Debtors filed their voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. In February 2003, the remaining Finance Company Debtors filed their voluntary petitions.
B. Contemporaneous with their bankruptcy filing, the Finance Company Debtors signed an Asset Purchase Agreement with CFN Investment Holdings LLC ("CFN"), which included debtor-in-possession financing (the "DIP Financing") provided by CFN, required to preserve the estates' ability to go forward to an ultimate sale of their assets. On January 14, 2003, the Court approved the DIP Financing.
C. The CFC Committee set out to find alternative funding for a reorganization process or an alternative § 363 sale transaction or process. It did so to allow the Finance Company Debtors an alternative to maximize value for the creditors, Goldman Sachs Mortgage Company ("Goldman Sachs") presented alternative DIP Financing. Goldman Sachs, however, would not agree to commit to the Replacement DIP without a prior payment agreement from members of the CFC Committee, As a result, between February 6 and 12, 2003, the Creditor Group entered into letter agreements with Goldman Sachs agreeing to pay up to $35,000,000.00 in fees and expenses to induce Goldman Sachs to provide a commitment for the Replacement DIP (the "GS Letter Agreements"). Fees and expenses at this level are usual, customary, and reasonable for financing of this type, given the scope and breadth of the proposed Replacement DTP and the accelerated time frame under which the parties were asked to work to assess the credit risk represented by, and negotiate and document, such financing.
D. On February 26, 2003 the Court entered an Order authorizing the Finance Company Debtors to enter into the commitment letter and pay Goldman Sachs the $5,000,000.00 expense reimbursement and $3,750,000.00 interim commitment fee.
E. On March 4 and 5, 2003, the Finance Company Debtors conducted an auction of substantially all of their assets. The ultimate by-product of the Creditor Group's efforts to obtain the availability of the Replacement DIP was a far more competitive, and tremendously successful, auction. Because, as a result of the availability of the Replacement DIP, the CFC Debtors were not forced to consummate a sale at the conclusion of the auction, interested bidders were encouraged (and for all intents and purposes, required) to set forth their highest and best bid.
F. The original Asset Purchase Agreement from CFN provided certain value to the Finance Company Debtors. Actual sale value to the estates pursuant to a purchase agreement approved by the Court on March 14, 2003, will be substantially greater than the original sale value, due in large measure to the existence of the Replacement DIP, which would not have come to fruition but for the efforts of the Creditor Group, and which substantially greater value far exceeds the administrative expense payment requested by the Creditor Group.
G. The Creditor Group's motion for allowance of an administrative expense constitutes a core matter over which the Court has jurisdiction to enter a final order. 28 U.S.C. § 157(b)(2)(A) and (O) and § 1334; see also In re SBS Studio, Inc., 556 B.R. 580, 581 (Bankr. N.D. Tex. 2000).
H. Section 503(b)(3)(D) of the Bankruptcy Code provides that a creditor shall be allowed as an administrative expense, any actual and necessary expenses undertaken in making a "substantial contribution" to the estate in a case under Chapter 11 of the Code. 11 U.S.C. § 503(b)(3)(D).
I. If the Creditor Group meets the requirements of Section 503(b)(3)(D), it "shall" be entitled to recover the administrative expenses associated with obtaining the availability of the Replacement DIP for the estates. In re Celotex Corp., 227 F.3d 1336, 1338 (11th Cir. 2000). J. The Creditor Group's efforts regarding the Replacement DIP constitute a "substantial contribution" if those efforts "foster[ed] and enhance[d], rather than retard[ed] or interrupte[d] the progress of reorganization." In Re DP Fanners Ltd., 106 F.3d 667, 672 (5th Cir. 1997) (citations omitted). The contribution to the Finance Company Debtors' estates is "substantial" if the availability of the Replacement DIP is determined to be "considerable in amount, value, or worth." Id. at 673; see also In re Condere Corp., 251 B.R. 693, 695 (Bankr. S.D. Miss. 2000) (same).
K. Accordingly, the inquiry for the Court is whether the Creditor Group's participation in the plan process through funding (and being the driving force behind), the availability of the Replacement DIP, led to a benefit to the estates that was "considerable in amount, value, or worth." DP Partners, 106 F.3d at 673. If so, allowance of the "substantial contribution" administrative claim is appropriate. Id. ("participation in the confirmation fight resulted in at least a $3,000,000 benefit to all creditors of the estate"); Condere, 251 B.R. at 695 (substantial contribution claim granted where dividend to unsecured creditors increased from 25 cents to 65 cents on the dollar); In re Celotex, 227 F.3d at 1340 (substantial contribution finding appropriate where "plan may not have been achieved" but for § 503 movant's efforts).
L. When making its substantial contribution determination, the Court should be mindful that the purpose and intent of Section 503(b)(3)(D) is to foster "meaningful creditor participation" in the reorganization process. In re Diamonds Plus, 233 B.R. 829, 833 (Bankr. E.D. Ark. 1999);see also In re 9085 E. Mineral Office Building, Ltd., 119 B.R. 246, 250 (Bankr. D.Col. 1990) (recognizing § 503's goal of "stimulating, encouraging, and promoting meaningful creditor participation"). Conversely, the Court should guard against chilling creditor participation in reorganization cases where the creditor may be willing to pursue alternatives resulting in benefits to the estate. In re 9085 E. Mineral Office Building, Ltd., 119 B.R. at 253 (recognizing a "chilling effect" to § 503's goals by applying "too strict of a standard" to a substantial contribution claim).
M. From a review of record, the Court concludes that the Creditor Group's efforts "fostered and enhanced" the reorganization process and provided the estates with a contribution "considerable in amount, value, [and] worth." Therefore, granting the Creditor Group's request for payment of an administrative expense is appropriate. See In re Kidron, Inc., 278 B.R. 626, 633 (Bankr. N.D. Fla. 2002) (granting creditor's § 503(b)(3)(D) substantial contribution administrative claim where movant's activities contributed to "a fair and open auction resulting in demonstrable benefit to the Estate"); DP Partners, 106 F.3d 667, 673 (granting creditor's § 503(b)(3)(D) substantial contribution administrative claim where creditor's efforts assisted in confirmation of successful plan); In re Condere Corp., 251 B.R. 693, 694 (Bankr. F.D.Miss. 2000) (granting substantial contribution administrative claim where movant's efforts resulted in "creditors receiv[ing] substantially more than they would have received" in the absence of such efforts); In re Rail Pass Express, Inc., 227 B.R. 136, 138 (Bankr. F.D. Ohio 1998) (granting substantial contribution administrative claim where creditor's efforts incentivize "debtor to come up with a better plan"); In re Speeds Billiards Games, Inc., 149 B.R. 434, 437 (Bankr. F.D. Tex. 1993) (granting creditor's § 503(b)(3)(D) substantial contribution administrative claim where "extensive beneficial creditor participation" in plan process exists); In re Milo Butterfingers', Inc., 218 B.R. 856, 859 (Bankr. N.D. Tex. 1997) (granting creditor's § 503(b)(3)(D) substantial contribution administrative claim where creditor's "actions caused or resulted in a considerable improvement in the estate in amount, value, or worth"); In re Service Merchandise Company, ., 256 B.R. 738, 743 (Bankr. M.D. Tenn. 1999) (granting substantial contribution administrative claim where movant's efforts provided "synergy" to plan confirmation process);In re Diamonds Plus. Inc.. 233 B.R. 829, 833 (Bankr. E.D. Ark. 1999) (granting creditor's § 503(b)(3)(D) substantial contribution administrative claim where creditor's efforts resulted in more competitive bidding process for Estate's assets); In re SGS Studio, Inc., 256 B.R. 580, 584 (Bankr. N.D. Tex. 2000) (granting substantial contribution administrative claim where as a result of movant's efforts "competition increases the value that creditors realize" in reorganization plan).
N. Pursuant to the terms of the GS Letter Agreements, each member of the Creditor Group obligated itself to pay Goldman Sachs its pro rata share of up to $35,000,000,00 in fees and expenses, and the financial obligation equaled that amount. That obligation is reduced on a dollar-for-dollar basis as a result of the Court's February 26, 2003 approval of the $8,750,000.00 payment to Goldman Sachs. Accordingly, under the terms of the GS Letter Agreements, each member of the Creditor's Group is required to pay to Goldman Sachs their pro rata share of $26,250,000.00 as a fee required (and to be funded by them) to obtain the availability of the Replacement DIP. Their respective pro rata share of such fee is as follows: Capital Research and Management Company $11,812,500,00; Commonwealth Advisors $1,312,500,00; Prudential Investment Management, Inc. $3,675,000.00; Morgan Asset Management $2,887,500.00; Jefferson Pilot Financial Insurance Company $1,837,500.00; and Millennium Partners, LLC $4,725,000.00, which amounts are both reasonable in terms of the added value brought to the estate as a result of the availability of the Replacement DIP and in terms of the commercial reasonableness of the fee in light of the complexities and risks involved in committing to provide the Replacement DIP.
NOW, THEREFORE, IT HEREBY IS ORDERED, THAT:
1. The creditors' Capital Research and Management Company, Commonwealth Advisors, Inc., Prudential Investment Management, Inc., Morgan Asset Management, Jefferson Pilot Financial Insurance, and Millennium Partners, LLC, motion for allowance and payment of administrative expense from the estate of the Finance Company Debtors pursuant to Section 503(b)(3)(D) of the Bankruptcy Code in the specific amounts set forth above in Paragraph N and their request for reasonable attorneys' fees and expenses associated with bringing their motion (collectively the "Administrative Expense"), is granted; and
2. The Administrative Expense shall constitute an administrative expense under Sections 503(b) and 507(a)(1) of the Bankruptcy Code, provided, however, that payment of the Administrative Expense shall be from the Residual Balance as provided for in the Finance Company Debtors' Sixth Amended Joint Liquidating Plan of Reorganization.
3. The logistics and method of payment of the Administrative Expense shall be determined by stipulation between the Plan Administrator and the Certain Creditors or by further Order of Court.
4. The amount of the reasonable attorneys' fees and expenses awarded shall be determined by stipulation between the Plan Administrator and the Certain Creditors or by further Order of Court.