Beruflich Dokumente
Kultur Dokumente
11:00 a.m.
In re: Chapter 11
Debtor.
secured lenders (“Agent”), respectfully files this reply to the objection (“Objection”) of the
Official Unsecured Creditors’ Committee (“Committee”), filed June 19, 2008, to the sale of
to establish a process for the marketing and sale of its assets to a buyer who could fund the
business going forward. The Court heard from all of the major constituencies in this case on this
issue, including the Committee, recording artists and others. The Court approved the Bid
Procedures Motion, authorized post-petition financing to fund the sale process, and established a
sale timeline and benchmarks. An investment banker was chosen by the Debtor with the
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Capitalized but undefined terms used herein shall have the meaning ascribed to them in the
Order Approving Bid Procedures for the Debtor’s Assets, dated May 1, 2008.
approval of the Committee and Agent. In accordance with the various orders, the Debtor and its
continuation of the auction at the request of the Debtor after two potential bidders asked for more
time. When no one asked for further extensions, the Debtor held an auction amongst three
2. The Committee objects that Agent should be denied “credit bid” rights to which it
is entitled under section 363(k) of the Bankruptcy Code. The Committee contends it has
“determined that there are viable claims” against Agent’s pre-petition secured liens, and follows
with several pages of scurrilous attacks on the Debtor and Agent. Committee Objection, paras.
11-18. Unfortunately for the Committee, it previously raised exactly these same arguments to
the Court. Both the Committee and Agent submitted briefs on the issue of credit bid rights in
conjunction with the DIP Order. The Court considered arguments, ordered that Agent has the
right to credit bid up to $6.725 million in principal (plus interest and fees) owing under the pre-
petition credit agreement. Final DIP Order, para. 15 and post-petition financing agreement,
section 4.18. No new facts or evidence has been presented by the Committee to justify
3. In short, the Committee has already asserted these same objections, and the Court
has already determined these issues. While a number of the constituencies orked productively
towards a sale that preserved going concern value, the Committee has spent three months and
incurred hundreds of thousands of dollars in fees investigating and making incendiary remarks.
Even if the Committee had filed a complaint, the Court has already ruled the credit bid may
proceed.
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4. The Committee argues the assets here “have not been tested by the market” and
that the sale price is “grossly inadequate.” Committee Objection, para. 16. The Committee
offers no basis for this conclusory statement. Two months into a sale process involving rounds
of marketing to prospective purchasers and an auction amongst three bidders, the present efforts
meet the very definition of “exposing” assets to the “market.” This process was spear-headed by
the Debtor’s investment bankers and financial advisors (Getzler Henrich & Associates LLC) and
bankruptcy counsel (Stevens & Lee, P.C.), in consultation with representatives of the
Committee, Agent and others. Agent is informed Getzler will testify that the marketing was full,
detailed and sufficient. The simple fact is that the market has spoken and the Committee does
not like the result. In this respect, it is worth noting the result was not what the Committee had
loudly predicted – a winning credit bid by Agent. In order to facilitate bidding, and at the
request of the Debtor and Committee, Agent actually apportioned its bid at the auction between
record assets, which other bidders wanted, and the equity interest in TVT Music, Inc., which no
other bidder sought. At the end of the auction, the Committee’s specter proved untrue – Agent
did not win the contest. This further buttresses the integrity of the process. The Committee also
asserts that the Debtor did not adequately market the Debtor’s equity interest in TVT Music, Inc.
To the contrary, the Court’s sale procedures explicitly state that bidders could submit bids “for
the assets as a whole or for portions of Assets.” Bid Procedures, para. 2, attached to the Bid
Procedures Order.
5. In accordance with those procedures, the Debtor provided parties with the
opportunity to submit bids for these equity interests, either on a stand-alone basis or together
with all other assets. The Confidential Information Memorandum (the marketing “book”
provided to bidders) includes detailed information on the equity interest and the subsidiary. The
Debtor also encouraged bidders to contact Agent with any questions regarding its equity position
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or put rights with respect to non-debtors. Full information was provided and the Committee
received weekly briefing from Getzler. At no time – until after the auction – did the Committee
object. Further, at the auction held on Thursday June 19, 2008, bidders were provided with an
additional opportunity to submit bids on the subsidiary equity interests alone. No bidders
expressed any interest in doing so. Having fully participated in the marketing process the
Committee simply rejects the market value placed by open and fair auction. There is no basis for
this complaint.2
6. The Committee again re-visits the arguments made in conjunction with the Final
DIP Order, this time its provisions that, in the event the Committee files an objection to Agent’s
claims or liens, then proceeds not otherwise paid to Agent by Court order “will be escrowed until
such objection is resolved.” DIP Credit Agreement, para. 5.13 (approved by Final DIP Order).
The Committee argues sale proceeds should be escrowed in the absence of any objection --
presumably on the basis that it intends to finalize and file a complaint following the closing of
the sale. Committee Objection, para. 19. In the interest of avoiding unnecessary litigation and
the incurrence of further fees in this case, Agent does not object to the escrowing of excess sale
proceeds, after repayment of the DIP Loan, pending further Court order. The Agent specifically
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At the auction, Sony Music BMG – one of the most sophisticated participants in the industry –
complained it “didn’t know” it could bid on less than all assets. The Court’s order is clear. See
Bid Procedures, para. 2 of the Bid Procedures Order (“Debtor…will entertain bids for the Assets
as a whole or for portions of the Assets”). The marketing book is clear “Bidders may offer to
buy TVT as a going concern, or alternatively, may bid on certain assets. The following is a
listing of the categories of assets…” and TVT’s equity interest in TVT Music Enterprises is
listed. Indeed, Sony clearly understood this as it submitted a bid for less than all assets. This bid
was confirmed by the Debtor as a qualified bid with no objection. For Sony to say it didn’t know
it could do precisely what it did do is the height of cupidity by a losing bidder.
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reserves the right to revisit this issue and request release of the excess sale proceeds in the event
the Agent believes discussions with the Committee are no longer productive or the Committee