Opinion
19-56885
08-13-2021
In re: MURRAY ENERGY HOLDINGS CO., et al., Debtors.
OPINION AND ORDER DENYING REQUEST OF GACP FINANCE CO., LLC FOR DEFAULT INTEREST
John E. Hoffman, Jr. Judge
I. Introduction
This dispute arises out of the Chapter 11 cases of Murray Energy Holdings Co. and its affiliated debtors and debtors in possession (collectively, the "Debtors"). GACP Finance Co., LLC, the first-in-last-out lender that rolled its $90 million of prepetition debt into the Debtors' debtor-in-possession financing facility (the "DIP Facility"), asks the Court to order the Debtors to pay more than a million dollars of default interest arising from a breach of the credit agreement governing the DIP Facility (the "DIP Credit Agreement"). GACP's request has drawn two objections, one filed by Drivetrain, LLC in its capacity as the plan administrator appointed by the Debtors' Chapter 11 plan (the "Plan Administrator") and the other by ACNR Holdings, Inc., the indirect owner of 100 percent of the equity interests of the entity that purchased substantially all of the Debtors' assets. The Plan Administrator and ACNR contend that GACP's right to default interest was waived by the lenders holding $350 million of new-money loans under the DIP Facility. The DIP Credit Agreement permits lenders representing more than 50% of the aggregate exposure of all lenders (the "Requisite Lenders") to waive default interest, and the Requisite Lenders have done so. GACP's request for default interest therefore is denied. But because it was reasonable for GACP to pursue default interest, GACP is entitled under the DIP Credit Agreement to be paid for the legal fees it incurred in pursuing default interest.
II. Jurisdiction and Constitutional Authority
The Court has jurisdiction to hear and determine this matter under 28 U.S.C. § 1334(b) and the general order of reference entered in this district in accordance with 28 U.S.C. § 157(a). This dispute is a core proceeding. See 28 U.S.C. § 157(b)(2)(A) & (O). And because the dispute "stems from the bankruptcy itself," the Court also has the constitutional authority to enter a final order adjudicating this matter. Stern v. Marshall, 564 U.S. 462, 499 (2011).
III. Procedural History
The Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on October 29, 2019 and that same day filed a motion for interim and final approval of the DIP Facility (Doc. 28). Shortly after the petition date, the Court entered an interim order approving the DIP Facility (Doc. 93), and several weeks later the Court entered an order approving the DIP Facility on a final basis (the "Final DIP Order") (Doc. 431). The Final DIP Order stated that "[u]pon entry of the Interim Order and the occurrence of the Closing Date, without any further action by the Debtors or any other party, all outstanding Prepetition FILO Debt was converted into DIP FILO Loans," Final DIP Order at 41, which was a reference to the roll-up of GACP's prepetition debt in the aggregate principal amount of $90 million into the DIP Facility (the "DIP FILO Loans"). See id. at 2. The Final DIP Order also approved new-money loans in the aggregate principal amount of $350 million of term loans from the lenders under those loans (the "DIP Term Lenders"). See id. at 2, 35.
This matter has a long history. As discussed in more detail below, a "Roll-Up Financial Covenant Event of Default"-a default of an obligation owing to GACP-occurred within the meaning of the DIP Credit Agreement in spring 2020. GACP therefore filed the Motion of GACP Finance Co., LLC to Enforce the Final DIP Order and Preserve the DIP FILO Collateral and Ability of DIP FILO Lender to Exercise Certain of Its Remedies (Doc. 1492) (the "Motion"). By the Motion, GACP argued that it had the right to block or limit withdrawals from the Debtors' bank accounts, and it asked for an order prohibiting the Debtors or any other party from interfering with its exercise of that purported right. Mot. at 20. The Motion was accompanied by a declaration of Paul Huygens, a principal of the financial advisor to GACP (Doc. 1493), as well as a declaration of Robert Louzan (Doc. 1494), the president of an affiliate of GACP, and was followed two days later by a supplemental memorandum of law (Doc. 1533) and a supplemental declaration of Huygens (Doc. 1535). Responses to the Motion were filed by: (a) both the administrative agent under the DIP Facility, GLAS USA LLC, and the DIP collateral agent, GLAS Americas LLC (Doc. 1548); (b) the ad hoc group of superpriority lenders (Doc. 1549); (c) the Debtors (Doc. 1552); and (d) The Huntington National Bank (Doc. 1553), where certain of the bank accounts were maintained. GACP then filed a reply in support of the Motion (Doc. 1572). It also filed three motions seeking leave to file documents under seal (Docs. 1495, 1537 & 1570), which the Court granted (Docs. 1504, 1550 & 1571).
Because the Court is concluding that default interest has been waived, it need not decide on which day the Roll-Up Financial Covenant Event of Default occurred.
The Debtors stipulated that a Roll-Up Financial Covenant Event of Default had occurred, and, based on that stipulation and others, they filed a motion for a protective order asking the Court to exclude the declarations and testimony of Huygens and Louzan and to prohibit GACP from taking certain depositions (Doc. 1556). That is, the Debtors sought to limit the scope of the hearing on the Motion to a consideration of the remedies GACP had under the Final DIP Order and the DIP Credit Agreement based on the Roll-Up Financial Covenant Event of Default. The ad hoc group of superpriority lenders joined the Debtors' request (Doc. 1568), and GACP opposed it (Doc. 1573). In its order scheduling an expedited hearing on the Debtors' request for a protective order, the Court ordered that a hearing on the Motion would be held that same day if the Debtors' request was granted, but that the hearing would be held the following week if the request was denied (Doc. 1562). The Court provisionally granted the Debtors' request to limit the scope of the hearing, subject to hearing argument on the merits and potentially determining that the Final DIP Order and the DIP Credit Agreement were ambiguous as they related to the remedies to which GACP was entitled and that it was therefore necessary to receive evidence on the issue of remedies. See Doc. 1619 (the "Transcript of Hearing on the Motion") at 43-45. The Court then held the hearing on the Motion and took the matter under advisement.
Some time after the hearing, counsel for the Debtors and GACP advised the Court that the parties were attempting to reach a consensual resolution of the matter and asked that the Court not issue its opinion and order on the Motion unless the matter remained unresolved as of a date certain. That date was extended multiple times (see Docs. 1616, 1623, 1696 & 1902) to provide the Debtors time to facilitate their restructuring and obtain confirmation of their Chapter 11 plan (the "Plan") (Doc. 2135, Ex. A). On August 31, 2020, the Court entered an order (Doc. 2135) confirming the Plan, which became effective on September 16, 2020. See Doc. 2172 (Notice of (I) Entry of Confirmation Order, (II) Occurrence of Effective Date, and (III) Related Bar Dates).
On September 4, 2020, a few weeks before the hearing on confirmation of the Plan, GACP moved for leave to file another supplemental memorandum in support of the Motion, requesting that the Court "order the immediate payment of all unpaid default interest due and owing and the payment, in the ordinary course, of all future default interest accruing until [GACP] is fully repaid under the Plan." Doc. 2146, Ex. A (the "Supplemental Memorandum") ¶ 5. The Court entered an order (Doc. 2161) granting GACP leave to file the Supplemental Memorandum and establishing a briefing schedule with respect to it. ACNR filed an objection to the Supplemental Memorandum (Doc. 2225) (the "ACNR Objection"), and the Plan Administrator also filed an objection (Doc. 2226) (the "Plan Administrator Objection"). GACP filed a supplemental reply (the "Supplemental Reply") (Doc. 2253).
On September 5, 2020, the DIP Term Lenders executed a waiver by which they agreed "to waive the operation of Sections 2.10(a) and 2.10(b) of the [DIP] Credit Agreement and the Borrower's obligation to pay Default Interest during the occurrence and continuation of any Event of Default[.]" ACNR Obj., Ex. B (the "Default Interest Waiver") § 1(a). On September 16, 2020, ACNR, GACP, and Citibank, N.A. (as escrow agent) entered into an escrow agreement whereby they agreed that ACNR would place the amount of default interest GACP asserts it is owed ($1,059,915.39) plus certain additional costs in escrow to be held until the Court rules on GACP's request for default interest. ACNR Obj., Ex. C at 1.
As of the Plan's September 16, 2020 effective date, GACP was paid all outstanding principal under the DIP FILO Loans ($90 million), unpaid prepetition interest ($849,891), unpaid postpetition interest at the non-default rate ($580,429.86), and fees for professional advisors to GACP ($872,425.67). ACNR Obj. at 1.
During the hearing on the Supplemental Memorandum, the ACNR Objection, the Plan Administrator Objection and the Supplemental Reply, the parties took the position that the relevant provisions of the DIP Credit Agreement regarding GACP's entitlement to default interest are unambiguous. Doc. 2733 (Transcript of Hearing on Supplemental Memorandum) at 45-46. Following the hearing, the Court took the matter under advisement.
IV. Background
There is no debate that the Debtors were in default of an obligation they owed to GACP under the DIP Credit Agreement-in fact, the Debtors so stipulated. The default related to Section 6.7(d) of the DIP Credit Agreement, which set forth a financial covenant whereby the Debtors agreed to keep their Current Assets above a certain minimum amount:
The DIP Credit Agreement is attached as Exhibit A to the ACNR Objection.
(d) Current Assets Test. The Borrower shall not permit Current Assets to be less than $175,000,000 as of the close of business on Friday of any week, in each case tested as of the required date of the delivery of the Current Asset Report, commencing with the first such delivery occurring after the Closing Date; provided that, for any three (3) non-consecutive weeks at the Borrower's election, there shall not be any Default or Event of Default resulting from this Section 6.7(d) to the extent the Roll-Up has occurred and the Current Assets reported in the Current Asset Report for such week are equal to or greater than $160,000,000.DIP Credit Agreement § 6.7(d), at 116. Only GACP has the right to declare a default under this section (a "Roll-Up Financial Covenant Event of Default"). See id. § 8.1(c), at 130 ("[A] Default or Event of Default by any Credit Party under Section 6.7(d) (a 'Roll-Up Financial Covenant Event of Default') shall not constitute a Default or an Event of Default . . . unless and until the Requisite Roll-Up Lenders [i.e. GACP shall have declared all amounts outstanding under the Roll-Up Facility to be due and payable[.]").
The term "Roll-Up Lenders" is defined in the DIP Credit Agreement to include both an "Initial Roll-Up Lender"-which is further defined as GACP-along with "any other Person that becomes a party hereto and received Roll-Up Loans pursuant to an Assignment Agreement." DIP Credit Agreement § 1.1, at 33, 47. The term "Requisite Roll-Up Lenders" is defined, in pertinent part, as "one or more Roll-Up Lenders having or holding Roll-Up Loan Exposure and representing more than 50% of the aggregate Roll-Up Loan Exposure of all Roll-Up Lenders[.]" Id. at 45-46. It is undisputed that, at all times relevant to this matter, GACP held more than 50% of the Roll-Up Loan exposure, and therefore constituted the Requisite Roll-Up Lenders with authority to declare a Roll-Up Financial Covenant Event of Default under Section 8.1(c) based on a violation of Section 6.7(d) of the DIP Credit Agreement.
GACP's right to declare a Roll-Up Financial Covenant Event of Default cannot be altered or waived without its consent. Id. § 10.5(c)(i)(C), at 159 ("No amendment . . . or waiver of any provision of the Credit Documents shall . . . change or waive the Events of Default described in: Section . . . 8.1(c) relating to Section[]. . . 6.7(d) . . . to the extent adverse to the interests of the Roll-Up Lenders"). Upon the occurrence of a Roll-Up Financial Covenant Event of Default, GACP may accelerate the DIP FILO Loans and demand payment of default interest. Id. § 8.1, at 136; id. § 2.10(b), at 59. This is precisely what GACP did. It declared a Roll-Up Financial Covenant Event of Default based upon a breach of Section 6.7(d) by issuing a notice of default to the Debtors on May 13, 2020. Louzan Decl., Ex. 7. The notice of default accelerated all DIP FILO Loans, declaring them "due and immediately payable," and it demanded the payment of default interest under Section 2.10(b) of the DIP Credit Agreement. Id. At 2. The Debtors ultimately conceded that they breached Section 6.7(d) by permitting the Current Assets to fall below the required threshold amounts, stipulating that there had been a Roll-Up Financial Covenant Event of Default under the DIP Credit Agreement. See Doc. 1556, Ex. A (Proposed Order Granting Motion to Enter a Stipulation of Facts) at 2.
It is undisputed that GACP would be entitled to default interest absent a valid waiver. On September 5, 2020, however, the DIP Term Lenders executed a waiver by which they agreed "to waive the operation of Sections 2.10(a) and 2.10(b) of the [DIP] Credit Agreement and the Borrower's obligation to pay Default Interest during the occurrence and continuation of any Event of Default[.]" ACNR Obj., Ex. B (the "Default Interest Waiver") § 1(a)).
Section 2.10(a) relates to default interest owing to the DIP Term Lenders while Section 2.10(b) relates to default interest owing to GACP. In sum, the Default Interest Waiver waives any right to default interest accruing under Section 2.10(a) of the DIP Credit Agreement in favor of the DIP Term Lenders due to the occurrence of an event of default of an obligation owing to them and waives any right to default interest accruing under Section 2.10(b) of the DIP Credit Agreement in favor of GACP due to the occurrence of a Roll-Up Financial Covenant Event of Default. The Default Interest Waiver states that it "shall continue and shall be effective retroactively from the earliest date of occurrence of an Event of Default prior to the date hereof until the revocation, withdrawal or termination of this Agreement by the Requisite Lenders [.]" Id. § 1(c). "'Requisite Lenders' means one or more Lenders having or holding Exposure and representing more than 50% of the aggregate Exposure of all Lenders," DIP Credit Agreement § 1.1, at 45, and it is undisputed that the lenders that executed the Default Interest Waiver met the definition of Requisite Lenders.
V. Legal Analysis
A. The Requisite Lenders Had the Right to Waive GACP's Default Interest.
The question is whether the Requisite Lenders-which did not include GACP-had the right under the DIP Credit Agreement to waive GACP's entitlement to default interest. The answer is found in Section 10.5 of the DIP Credit Agreement, which reads in relevant part as follows:
(a) Requisite Lenders' Consent. Subject to the additional requirements of Sections 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of Requisite Lenders and Borrower . . . .
(b) Affected Lenders' Consent. Without the written consent of each Lender (other than a Defaulting Lender) that would be directly adversely affected thereby (but, for the avoidance of doubt, without the consent of the Requisite Lenders) no amendment, modification, termination, or consent shall be effective if the effect thereof would:
(iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10 and provided that no waiver of any Default or Event of Default shall constitute a reduction in the rate of interest) or any fee or any premium payable hereunder to such Lender.
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall [make certain changes to the DIP Credit Agreement without certain consents].Id. § 10.5, at 158 (emphasis added). The Court will refer to the language italicized above as the "Parenthetical."
Although the parties agree that the DIP Credit Agreement is unambiguous regarding the waiver of default interest, they disagree on what the Parenthetical means. Tr. of Hr'g on Supp. Mem. at 45-46. The dueling interpretations of the Parenthetical distill to the following: The Plan Administrator and ACNR contend that the Parenthetical permits execution of a waiver-without the need for GACP's consent-of all default interest arising under the DIP Credit Agreement (both retroactively and prospectively). For its part, GACP posits that the Parenthetical cannot be read to permit the waiver of default interest without its consent, but even if it could, it authorizes only the waiver of prospective default interest that has not already accrued.
The Plan Administrator and ACNR have the better argument. Under Section 10.5(a), waivers of most terms of the DIP Credit Agreement are effective if they are executed by the Requisite Lenders and the Borrower. Provisions set forth in Section 10.5(b) can be waived only with the consent of each lender affected by the waiver. It is undisputed that one of the provisions listed in Section 10.5(b) is implicated here: The effect of the Default Interest Waiver would be to "reduce the rate of interest on any Loan" under Section 10.5(b)(iv). If Section 10.5(b)(iv) stopped right there, then GACP-as an adversely affected lender-would have needed to provide its consent for the Default Interest Waiver to be effective. But there is an exception in Section 10.5(b)(iv): affected lender consent is required to "reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10 . . . "). DIP Credit Agreement § 10.5(b)(iv), at 158 (emphasis added). And Section 2.10 is the section governing default interest. In other words, affected lender consent is required to reduce the rate of interest on any loan other than any waiver of default interest. Section 10.5(a) states that it is "[s]ubject to the additional requirements of Sections 10.5(b) and 10.5(c)," and there is nothing in Section 10.5(c) that would make it applicable to waivers of default interest. So the effect of the Parenthetical is to take waivers of the right to default interest out of Section 10.5(b)(iv) and place them back within the purview of Section 10.5(a), which requires only the consent of the Requisite Lenders. Thus, the terms of the DIP Credit Agreement permitted the Requisite Lenders to waive GACP's entitlement to default interest without GACP's consent.
This result is consistent with the law governing the DIP Credit Agreement, which is the law of New York. Under New York law, contracts are to be "construed in accord with the parties' intent." Greenfield v. Philles Records, 780 N.E.2d 166, 170 (N.Y. 2002). And "[t]he best evidence of what parties to a written agreement intend is what they say in their writing." Id. (quoting Slamow v. Del Col, 594 N.E.2d 918, 919 (N.Y. 1992)). The rule that contractual language must be enforced in accordance with the plain meaning of its terms applies "with even greater force in commercial contracts negotiated at arm's length by sophisticated, counseled businesspeople." Ashwood Capital, Inc. v. OTG Mgt., Inc., 948 N.Y.S.2d 292, 297 (N.Y.App.Div. 2012); Curacao Oil N.V. v. Trafigura Pte. Ltd., 2020 WL 3494685, at *6 (N.Y. Sup. Ct. Feb. 3, 2020) ("As a bedrock principle, it is the Court's task to enforce a clear and complete written agreement according to the plain meaning of its terms, especially when that contract is the negotiated product of sophisticated parties who . . . entered into a complex multimillion dollar business transaction.") (citations and internal quotation marks omitted), aff'd, 132 N.Y.S.3d 774 (N.Y.App.Div. 2020), leave to appeal dismissed, 2021 N.Y. Slip Op. 66665 (N.Y. 2021).
See DIP Credit Agreement § 10.15, at 168.
To that end, the Court will not "by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing." 2138747 Ontario, Inc. v. Samsung C & T Corp., 103 N.E.3d 774, 780 (N.Y. 2018) (citations omitted); Vermont Teddy Bear Co. v. 538 Madison Realty Co., 807 N.E.2d 876, 879 (N.Y. 2004) ("'[C]ourts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.'" (quoting Rowe v. Great Atl. & Pac. Tea Co., 385 N.E.2d 566, 572 (N.Y. 1978)). But adding something to the DIP Credit Agreement is just what GACP would have the Court do. GACP in essence asks the Court to alter Section 10.5(b)(iv) so that the Parenthetical reads: "other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10(a)." Adding "(a)" to Section 2.10 would have the effect of limiting the Default Interest Waiver's reach to the default interest accruing solely to the DIP Term Lenders under Section 2.10(a), leaving GACP's default interest accruing under Section 2.10(b) subject to the requirement that affected lender consent be obtained to waive that interest. That is not, however, what the DIP Credit Agreement says. Rather, it excepts from Section 10.5(b)(iv) any waivers of default interest under both subsections of Section 2.10. The Requisite Lenders therefore had the right under Section 10.5(a) of the DIP Credit Agreement to waive GACP's entitlement to default interest.
B. GACP's Arguments Are Unavailing.
GACP raises five arguments in support of its contention that the Default Interest Waiver was ineffective as to its default interest. While the first is facially plausible, none of the arguments is ultimately persuasive.
1. The Waiver of Rights Belonging to Others
GACP contends that the Default Interest Waiver is ineffective against it because lenders are only entitled to waive default interest for Events of Default that the lenders can declare under the DIP Credit Agreement. See Supp. Reply ¶ 21. In other words, according to GACP, because only GACP can declare a Roll-Up Financial Covenant Event of Default based upon a breach of the Current Assets test under Section 6.7(d), only it may waive the default interest arising from that particular Event of Default. See id. This argument has facial appeal because, to be sure, it seems unusual for one party to have the authority to waive a right belonging to another. But "[t]hat, however, is what the parties contracted for and the applicable New York law provides, and the Court will not change that post hoc." Morse/Diesel, Inc. v. Trinity Indus., Inc., No. 84 CIV. 5791, 1994 WL 191943, at *2 (S.D.N.Y. May 13, 1994).
Although there is case law holding that one party cannot waive a right belonging to another, none of those cases involved parties that contracted for a waiver such as we have here. See, e.g., United States v. Wells Fargo Bank, N.A., 132 F.Supp.3d 558, 566-67 (S.D.N.Y. 2015) (holding that an employee was precluded from asserting an advice-of-counsel defense where doing so would require the employer's waiver of the attorney-client privilege, noting that "the privilege at issue here does not belong to [the employee]-it belongs to [the employer], and only [the employer] can elect to waive it"); In re Wood, 97 N.Y.S. 871, 872 (N.Y.App.Div. 1906) (holding that the highway commissioner could not waive a notice requirement with respect to proposed highway alterations because "[a] person cannot waive a right which belongs to some other person" and "[a] public officer cannot waive that which may benefit or affect the public"); Kenney v. New York Cent. & H.R.R. Co., 7 N.Y.S. 255, 256 (N.Y. Gen. Term 1889), aff'd, 26 N.E. 626 (N.Y. 1891) (holding that a company could not waive a negligence cause of action of its employee, stating that the "company could not waive a right which did not belong to it, nor release a liability which accrued to another"). The Court has been unable to find any case holding that it is impermissible for one contractual party to waive a right belonging to another contractual party when that is what the parties' agreement allows. As already explained, Section 10.5(b)(iv) carves any waiver of default interest out of that section, meaning that all waivers of default interest are governed by Section 10.5(a), under which only consent of the Requisite Lenders is required. It bears noting that, in stark contrast to the lack of a consent right with respect to default interest, GACP negotiated for specific consent rights in other parts of the DIP Credit Agreement. See DIP Credit Agreement §§ 3.1(r), at 81 (providing that the effectiveness of the DIP Credit Agreement was subject to the condition that the interim debtor in possession financing order shall not have been vacated, reversed, modified, amended or stayed without the prior written consent of the Requisite Roll-Up Lenders (GACP) and the Requisite Term Lenders); 5.15, at 102-03 (providing that the Borrower "may at any time with the consent of the Requisite Term Lenders and Requisite Roll-Up Lenders, designate (a) any Restricted Subsidiary as an Unrestricted Subsidiary or (b) any Unrestricted Subsidiary as a Restricted Subsidiary . . . ."); & 10.5(c), at 159 (providing that "[n]o amendment, modification, termination or waiver of any provision of the Credit Documents" shall effectuate certain specified changes to the DIP Credit Agreement without the consent of the Requisite Roll-Up Lenders). GACP failed to bargain for the right to consent to a waiver of default interest, and the Court cannot read such a right into the DIP Credit Agreement.
2. The Proviso
GACP also relies on a proviso following the Parenthetical. Recall the wording of Section 10.5(b)(iv), in which the proviso is italicized below:
(b) Affected Lenders' Consent. Without the written consent of each Lender (other than a Defaulting Lender) that would be directly adversely affected thereby (but, for the avoidance of doubt, without the consent of the Requisite Lenders) no amendment, modification, termination, or consent shall be effective if the effect thereof would
(iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10 and provided that no waiver of any Default or Event of Default shall constitute a reduction in the rate of interest) or any fee or any premium payable hereunder to such Lender.
DIP Credit Agreement § 10.5(b)(iv), at 158 (emphasis added). See Supp. Reply ¶ 21. According to GACP, the proviso "clarifies that the waiver of an Event of Default does not waive the associated default interest." Supp. Reply ¶ 21. That much is true. But it continues: "Thus where, as here, the Requisite Lenders cannot waive the Event of Default of Section 6.7(d) (and [GACP] has not waived it), it is impossible to waive the default interest for that Event of Default applying thereto." Id. GACP reads the proviso backwards. Under GACP's reading, the proviso means that a lender cannot waive default interest unless it can also waive the underlying default giving rise to the default interest. All the proviso says, however, is that a lender can waive a Default or Event of Default without waiving its right to default interest. The proviso therefore does not preclude the Default Interest Waiver's execution.
3. Purported Inequity of Waiver
According to GACP, it would be inequitable to enforce the Default Interest Waiver. Supp. Reply ¶¶ 25-26. Specifically, GACP notes that (a) it worked with the Debtors to help facilitate confirmation of the Plan with the understanding that it would be paid default interest; (b) the Debtors stipulated they had worked with counsel to the DIP Term Lenders to fashion a reading of the Current Assets Test in Section 6.7(d) in an attempt to avoid failing that test; and (c) the Debtors waited until the Plan was approved to execute the Default Interest Waiver. Id. Denying its request for default interest, GACP asserts, would "prohibit the last possible remedy for the Roll-Up Financial Covenant Event of Default." Id. ¶ 24. Regardless of whether that is true, it does not change the operative text to which GACP agreed.
GACP also notes that, during a hearing on the Motion, the Debtors' counsel made the following statement:
[GACP is] not without remedies. And we specifically heard [counsel for GACP] note them, that they have the ability to accelerate and they have even noted that they've accelerated the loan. They have the ability to seek default interest and they've given us that notice as
well. So they are pursuing those. There are some remedies that are available to them, independent of the Requisite Lender limitation.Doc. 1619 (Tr. of Hr'g on Mot.) at 38-39.
While the statement made by counsel during the hearing on the Motion suggested that default interest would be available to GACP, the statement was made in the context of addressing GACP's attempt to exercise the more extreme remedy of blocking or limiting withdrawals from the Debtors' bank accounts over the objection of the DIP Term Lenders. And, in fact, the statement was true. GACP was entitled to default interest, because the Default Interest Waiver had not yet been executed. GACP points to nothing suggesting that when that statement was made, the Debtors and the DIP Term Lenders had any intention of executing the waiver that is before the Court today.
What's more, there are valid reasons why the DIP Term Lenders hold contractual rights that are superior to those held by GACP. The DIP Term Lenders agreed to provide $350 million in new-money loans to facilitate a restructuring that ultimately reached Plan confirmation, while GACP provided no new money but instead agreed to roll up $90 million of prepetition debt into the DIP Facility. Thus, it is no surprise that the DIP Term Lenders hold contractual rights that enable them to protect their substantial investment in the go-forward mining entity. During the hearing on the Supplemental Memorandum, counsel for ACNR noted that the Default Interest Waiver was executed to assist ACNR with (a) meeting the liquidity requirements imposed by an exit financing facility with an additional lender, and (b) preventing additional debt from rolling onto ACNR's balance sheet. Tr. of Hr'g on Supp. Mem. at 14-15. Under these circumstances, there is nothing inequitable about enforcing the terms of the DIP Credit Agreement. Indeed, the Court's ruling today fosters predictability and upholds freedom of contract by enforcing the contractual language to which the parties agreed. Deutsche Bank Nat'l Tr. Co. v. Morgan Stanley Mortg. Capital Holdings LLC (In re Part 60 Put-Back Litig.), 165 N.E.3d 180, 188 (N.Y. 2020) ("Freedom of contract prevails in an arm's length transaction between sophisticated parties such as these, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain." (quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 421 (N.Y. 1995)); 159 MP Corp. v. Redbridge Bedford, LLC, 128 N.E.3d 128, 133 (N.Y. 2019) ("By disfavoring judicial upending of the balance struck at the conclusion of the parties' negotiations, our public policy in favor of freedom of contract both promotes certainty and predictability and respects the autonomy of commercial parties in ordering their own business arrangements."), reargument denied, 132 N.E.3d 1097 (N.Y. 2019).
4. Section 10.5(b)(v) of the DIP Credit Agreement and Provisions of Other Documents
Moving beyond Section 10.5(b)(iv) of the DIP Credit Agreement, GACP relies on Section 10.5(b)(v), which requires the consent of all directly adversely affected lenders to "extend the time for payment of any such interest, fees or premium." Id. at 158. According to GACP, because Section 2.10(b) provides that default interest is "payable upon demand," Section 10.5(b)(v) required the Debtors to seek GACP's consent to pay default interest at a time beyond the date on which the demand for payment was made. Supp. Reply ¶ 19 n.7. The failure to obtain such consent, GACP contends, precludes the Debtors and the DIP Term Lenders from retroactively waiving the default interest payments that were due and owing. But Section 10.5(b)(v) only requires consent for an extension of time "for payment of any such interest, fees or premium." DIP Credit Agreement § 10.5(b)(v), at 158 (emphasis added). The phrase "any such interest" refers back to the Parenthetical in Section 10.5(b)(iv). And because the Parenthetical carves default interest out of Section 10.5(b)(iv), the reference to "any such interest" in Section 10.5(b)(v) refers only to any extension of time for payment of regular, non-default interest. Properly interpreted, Section 10.5(b)(v) does not prohibit retroactive application of the Default Interest Waiver here.
As the language in the DIP Credit Agreement offers no support for its interpretation, GACP also relies on language in the Final DIP Order providing that, upon the occurrence of an Event of Default, default interest "shall accrue and be paid as set forth in the DIP Credit Agreement," Supp. Reply ¶ 18 (quoting Final DIP Order ¶ 25(b)). GACP relies as well on a supplement to the Debtors' approved disclosure statement providing that the Debtors would have "sufficient funding necessary to consummate the Plan (including the repayment of the DIP FILO Claims (including default interest, fees, and expenses accruing as required by the DIP Documents and the Final DIP Order) in cash)[.]" Supp. Reply at 6 n.6. But there is nothing inconsistent between those provisions and the execution of the Default Interest Waiver. As previously explained, in light of the Parenthetical, upon execution of a properly effectuated waiver by the Requisite Lenders, default interest is no longer required to be paid.
In the end, GACP's position is not based on the operative text of the Parenthetical, but rather on other provisions of the DIP Credit Agreement and the Final DIP Order. Relying on these other texts, GACP makes no effort to reconcile its proposed interpretation with the text of the Parenthetical, which squarely addresses the propriety of the Default Interest Waiver. But this is not a proper approach to contractual interpretation. See, e.g., Louisville Gas & Elec. Co. v. Fed. Energy Regulatory Comm'n, 988 F.3d 841, 850 (6th Cir. 2021) (holding that the Federal Energy Regulatory Commission's failure to analyze the operative text of a contract to determine the text's meaning-opting instead to analyze ancillary provisions and a separate introductory sentence-was arbitrary and capricious and subject to remand); McCluskey v. Cromwell, 11 N.Y. 593, 601 (N.Y. 1854) ("Statutes and contracts should be read and understood according to the natural and most obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending their operation.").
5. Retroactive Waiver
GACP maintains that, even if it were permissible for the contracting parties to waive default interest prospectively, the Default Interest Waiver cannot be applied retroactively. See Supp. Reply at ¶¶ 17-20. In support of this position, GACP notes that Section 2.10(b) of the DIP Credit Agreement provides that default interest is "payable on demand." See id. ¶ 18. And because default interest was payable on demand, GACP asserts that its right to default interest became immutable upon its demanding payment through the notice of default. See id. But making a sum payable on demand does not eliminate the possibility of waiving the right to receive it. And GACP offers no authority supporting its contention that a payable-on-demand obligation cannot be waived once its performance has been demanded.
GACP argued during the hearing that the absence of the word "retroactive" within the Parenthetical-i.e., it does not say "other than any retroactive waiver of any increase in the [default] interest rate"-means that retroactive waivers of default interest are not covered by the Parenthetical and that retroactive waivers therefore require affected lender consent. Tr. of Hr'g on Supp. Mem. at 33-34. But this argument does not hold water. The Parenthetical broadly refers to any waiver, and there is nothing indicating that it covers only prospective waivers.
Further, let us assume that GACP is right and that the absence of the word "retroactive" within the Parenthetical means that any waiver of default interest without affected lender consent may only waive prospective default interest not already due and owing. If that is the case, then the same analysis would apply to regular, non-default interest. Regarding regular interest, Section 10.5(b) provides that "no amendment, modification, termination, or consent shall be effective if the effect thereof would . . . reduce the rate of interest on any loan." DIP Credit Agreement § 10.5(b)(iv), at 158. Accepting GACP's reasoning raises a question: Does the absence of the word "retroactive" from the portion of Section 10.5(b)(iv) addressing waivers of regular interest mean that it only applies to prospective interest? If so, then the consent of all adversely affected lenders is only required under Section 10.5(b)(iv) for prospective waivers of regular interest. Taken to its logical conclusion, such a reading would mean that retroactive waivers of regular interest would not fall within Section 10.5(b)(iv) at all; instead, retroactive waivers of regular interest would fall within Section 10.5(a) and thus could be effectuated solely with the consent of the Debtors and the Requisite Lenders under Section 10.5(a). Such a result would be at odds with the structure of Section 10.5(b)(iv), which protects directly adversely affected lenders by requiring their consent to a decrease in any regular interest owed.
Plus, other sections of the DIP Credit Agreement show that the parties provided for retroactive and prospective effect of provisions when that is what they intended. See DIP Credit Agreement § 2.22, at 73 (providing that "no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of Borrower while that Lender was a Defaulting Lender") (emphasis added); id. § 1.1, at 17 (defining "Defaulting Lender" to be a lender that, among other things"has failed . . . to confirm in writing to Administrative Agent and Borrower that it will comply with its prospective funding obligations hereunder") (emphasis added). The Parenthetical's reference to "any waiver" is not qualified by the term "retroactive," and the Court cannot read such a qualification into the contract where it was not expressly so provided. See 2138747 Ontario, Inc., 103 N.E.3d at 780 (holding that courts should not "by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing"). For these reasons, there is no merit to GACP's argument that the Default Interest Waiver cannot be applied retroactively due to the absence of the word "retroactive" within the Parenthetical.
C. GACP's Legal Fees Incurred in Connection with Pursuing Its Request for Default Interest Are Reasonable.
Finally, there is the matter of GACP's legal fees, an issue ACNR raised in its response to the Supplemental Memorandum. The fees are in dispute because "the Plan, the DIP Credit Agreement, and the [Final] DIP Order each provides for payment of GACP's documented legal fees, but only to the extent they are 'reasonable.'" ACNR Obj. at 6 (citing Plan Art. II, ¶ B; DIP Credit Agr. § 10.2(h) & Final DIP Order ¶ 9(b)(ii)). ACNR argues that the Court should enter an order ruling that the legal fees GACP incurred in connection with prosecuting the Supplemental Memorandum are unreasonable in light of the Default Interest Waiver. Id. GACP opposes such an order on two grounds: (1) the Default Interest Waiver was ineffective as to GACP's default interest; and (2) even if the waiver was effective, GACP "demonstrated a good faith basis for litigating its right to the default interest." Supp. Reply at 14.
The fees GACP incurred in filing the Supplemental Memorandum were certainly reasonable. The Default Interest Waiver had not been executed at that point, and GACP had been led to believe that it would be paid default interest. As already discussed, counsel for the Debtors stated during the hearing on the Motion that GACP has "the ability to seek default interest," Tr. of Hr'g on Mot. at 38, and a supplement to the Debtors' disclosure statement provided that the Debtors would have "sufficient funding necessary to consummate the Plan (including the repayment of the DIP FILO Claims (including default interest, fees, and expenses accruing as required by the DIP Documents and the Final DIP Order) in cash)[.]" Supp. Reply at 6 n.6. The Court finds that the fees GACP incurred after the Default Interest Waiver was executed also were reasonable. Although the Court ultimately is rejecting GACP's position regarding the Default Interest Waiver, it was reasonable for GACP to attempt to propose a plausible alternative reading of the waiver. GACP had a number of arguments, and at least one of them-that one party should not have the authority to waive a right belonging to another-was facially plausible.
VI. Conclusion
GACP's request for default interest is DENIED, and the default interest currently held in escrow shall be released to ACNR or its designee. GACP shall be reimbursed for its attorneys' fees incurred in pursuing default interest.
IT IS SO ORDERED.