WEBVTT

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All right, we're back on the record in case number

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90103. The agreements of the debtors, the appraisal

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we've been speaking about, and then the late

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-to -walk -ins letter, the Amazon letter we've

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been speaking about. Right, any objection to

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Exhibits 5 through 9? Your Honor, we do object

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to Exhibit 8, as you say. That's the appraisal.

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Your Honor, it's clearly a business record. It

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was commissioned by JLL and the Ordinary Course

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of Business on its base. It's also admissible

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for the impact on the reader, as the debtors

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indicated that the debtors used this in conducting

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their analyses and determining what to do in

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the bankruptcy and the dip financing. So both

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admissible are business records, and it's also

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admissible for a non -here state purpose. I'm

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not sure it's admissible as a business record

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to prove the truth of the matter. I think it

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might be admissible as a business record to prove

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that they received it or things like that. I

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think the testimony with respect to what the

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company did has come in. So I'm going to exclude

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the appraisal as hearsay. I will admit exhibits

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five through seven and exhibit number nine, obviously.

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But the testimony with respect to the exhibit

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came in. That still stays in the record. Thank

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you, Your Honor. Todd Warren will be playing

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Gallagher on behalf of the debtors. Does it make

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sense to get directly into the argument now on

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the debt fair? Yeah, but let me, there are other

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people. Mr. Sparacino had popped up. Is there

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anyone else who has any? Before we get into argument,

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anyone else? Has anything to say? Yes, Your Honor,

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this is John Sparsino. Can you hear me? Yes,

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I can hear you. Great. Thank you. I'd like to

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make just a brief statement regarding the dip,

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if I may. Sure. And again, for the record, John

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Sparsino, appearing for Westford Capital. My

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client holds a substantial face amount of the

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SGUS notes. We didn't file any papers in connection

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with today's hearing. Frankly, I was engaged

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about 30 minutes before they began. That said,

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I do want to identify several concerns that Wexford

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has with the ad hoc gift proposal. Wexford is

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not a part of the ad hoc club, and thus Wexford

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faces substantial harm vis -a -vis ad hoc holders,

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given that Wexford is outside of the favored

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treatment group. As several attorneys have noted,

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this is a very complex dip proposal, and so I

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want to be clear that the concerns I note now

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are by no means intended to be comprehensive

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or all -inclusive. That said, Wexford is concerned

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that the ad hoc dip and the roll -up are unnecessarily

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large and that the fees and the other bells and

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whistles that appear to be granted in favor of

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the ad hoc group will result in an outsized recovery

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to the ad hoc holders to the detriment of the

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holders that are not in the ad hoc group. This

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concern is true even with the participation right

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as described by debtors council. Over the next

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few weeks my client intends to aggressively dig

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into a number of these issues including the legality

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of the pre -petition doc under the pre -petition

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documents of the favored ad hoc structure. The

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need for an ad hoc dip at the level that's sought

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by the company. The appropriateness of the fees

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and the other bells and whistles and fables,

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the ad hoc group that are apparently not available

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to the other SQS note holders, even those that

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may ultimately participate in the dip as it's

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been described. And finally, whether this really

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is the best or only dip available. We've already

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heard testimony that... There has been at least

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one other actionable proposal, although we haven't

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heard any of the details on that dip and we intend

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to dig into that a little bit. So we look forward

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to pursuing and addressing these issues and potentially

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other matters at any final hearing that Your

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Honor sets for the dip motion. I have nothing

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else, Your Honor. Thank you. All right, go ahead,

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Mr. Gordon. Okay, thank you, Your Honor. I missed

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a little bit of just general argument and then

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I'll get into Amazon's objection and then Exxonix

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and to the extent there are others can take those

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as well. I think the testimony today very clearly

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established that the debtor in possession financing

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facilities offered today are valid exercises

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of the debtor's business judgment. It is hard

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to overstate the importance of the approval of

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both of these deficits. Sachs is an iconic friend

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in this. country, and absent this financing,

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it is likely to face the threat of an imminent

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liquidation. The debtors, as described by Mr.

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Vance's testimony, the debtors were unable to

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obtain credit other than the terms we've described

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today. There is no other executable financing

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on the table. The other proposals received by

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the debtors were not actionable for a number

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of reasons. Most importantly, because the primary

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other alternative would have required a contentious

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priming fight that the debtors were not certain

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they could have succeeded on in the face of an

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alternative proposal supported by over 70 % of

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the... One point is important in context to the

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objections I've heard Amazon make, which is that

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the global debtors that we firmly believe here,

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there is a unity of interest among all of the

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global debtors, including Old Code 2 and its

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subsidiaries. The testimony you heard today make

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clear what's would likely lead to no recovery

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based on Mr. Weinstein's testimony for hold code

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two. So there is a complete unity of interest,

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the idea that there needs to be separate independent

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fiduciary at every single entity. It's not the

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reality of bankruptcy. Amazon makes five arguments.

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I'll take them each in turn. I'll try to go briefly.

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I'll cover a couple of them together probably.

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But the first argument they make in their objection

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is one of corporate authority. And you heard

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a couple of questions on that today. This is

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wrong, as a matter of fact, and a matter of law.

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As a matter of fact, Amazon's alleged consent

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rights, it's at HBCGP LLC. That's near the very

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top of the capital structure. But as Mr. Weinstein's

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testimony, he covered that there is an intervening

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cold. levels above Hold Code 2, that is the entity

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that authorized Hold Code 2 to incur the DIP

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facility. So, SACS's consent right and any above

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that had nothing to do with what Hold Code 2

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and SFD holdings are entitled to do. Even if

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you found that that consent right applied, it

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doesn't make what happened here in Ultraviors

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Act. Moreover, we believe that. the value of

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hold code two's primary assets, the equity in

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the flagship. It is abundantly clear that the

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highest and best use of that asset is as an operating

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SACS entity, and the only way to do that is via

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the proposed financing, which allows SACS to

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continue to meet its obligations, make vendor

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payments, and importantly, fund the rent to 12

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East 49th Street, which is what funds the debt

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service on the CNBS. Amazon's argument is also

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premised on the flawed hold code 2 would be solvent

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X in the dip. As Mr. Weinstein made clear, this

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is very likely not the case and that if SACs

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were to cease operating, hold code 2 would, the

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value of the flagship would be very unlikely

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to exceed the value of the CMBS and other costs

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of liquidation to provide a recovery for any

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hold code 2 creditors. Ultimately, Your Honor,

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we don't think there's anything unusual here.

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It's a debtor pledging a debt arguments to the

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contrary. All the global debtors here, including

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HoldCo2, have an identity interest. Thank you,

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Your Honor. Can you hear me? We're doing our

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best with the technology. Yes, I can hear you

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fine. Thank you, Your Honor, and good evening.

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And I appreciate your patience and your indulgence.

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Caroline Reckler of Latham & Watkins on behalf

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of Amazon .com Services LLC and its affiliate.

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Your Honor, by way of background, Amazon invested

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$475 million of preferred equity just about a

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year ago, December 2024, in HBCGP LLC, the ultimate

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parent of facts. Since that equity investment,

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HBCGP LLC's governing documents have expressly

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provided with a consent right over the ability

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of the debtors to incur and guarantee new indebtedness,

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such as the financing today. As a condition of

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that equity investment, which is presumptively

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worthless, Amazon entered into a commercial agreement

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with Fax, under which Fax pays Amazon certain

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fees in exchange for selling Fax products from

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a variety of luxury brands on Amazon's website.

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A number of the debtors are obligors or guarantors

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on the commercial agreement, including, most

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notably, the debtor we've spoken most about today,

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Debtor Fax Fideship Holdco 2. Through various

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affiliates, Amazon is also party to another of

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other business contracts with debtors Sachs &

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Co, Sachs .com, Neiman Markets Group LLC, and

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Neiman Markets Group LLC to cover services, excuse

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me, such as cloud computing and storage services.

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As you're aware, Amazon filed an objection to

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the DIP, and to state the obvious, Amazon objects,

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and Amazon has a consent right. There are three

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DIP facilities. The ADL DIP facility, the ESCA

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SIP facility and the OPCO DIP facility. For now,

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we object only to the ESCA SIP facility because

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that is the DIP where only HOCO 2 is an obligor.

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Amazon objects to those ESCA SIP facility primarily

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with respect to debtor SACS flagship HOCO 2,

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which holds the equity in the entity that owns

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the debtor's Fifth Avenue flagship property,

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which is the debtor's admitted Crown Jewel asset.

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That entity has guaranteed $475 million in claims

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to Amazon under our commercial agreement. Amazon

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has already filed a motion today to reject that

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agreement and that will be heard in the coming

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days. Amazon does not object to the rejection.

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So that will give rise to a $475 million claim

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against that entity, and at least a $900 million

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claim against the other debtors. This dip will

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severely impair Amazon's recovery, in particular

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on the HoldCo2 claim. Our objection, in some

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sense, is pretty straightforward. We do not believe

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HoldCo2 needs this dip at all, and HoldCo2's

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incurrence of the dip obligations shouldn't be

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approved at all. and certainly shouldn't be assuming

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the obligations of its affiliates on pre -petition

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debt. But for today's purposes, we really just

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want to preserve the status quo and protect our

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rights given that this is an emergency hearing

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for a debtor that crashed into bankruptcy. The

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debtors are asking the court to do things in

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the dip that are more extraordinary than the

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roll -ups and cross -collateralization that this

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court already considers extraordinary under the

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complex case rules, specifically rules C8B and

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C. There is no justification for these provisions

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at all, let alone on emergency basis. As I noted,

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the status quo should be preserved for the next

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14 to 21 days so that a creditors committee can

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be formed and any relief during the interim period

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should only be granted to the extent necessary

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to prevent immediate and irreparable harm. nothing

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more. We have little to no confidence that the

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debtors will emerge from bankruptcy as a going

00:22:03.180 --> 00:22:06.720
concern business. Amazon and the brands put their

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trust in fact and have since been harmed significantly

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by the debtors' general mismanagement and failure

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to pay and honor their obligations. Amazon values

00:22:17.599 --> 00:22:21.019
the brand community, who are not just participants

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in the industry, but its foundation and its leaders.

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Unfortunately for Amazon and the Grants, we have

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serious concerns that this case may not have

00:22:30.549 --> 00:22:33.509
a successful ending, and we think that requires

00:22:33.509 --> 00:22:36.950
extra scrutiny on what gets approved at a first

00:22:36.950 --> 00:22:40.529
-day hearing. This is not a nice prepack, or

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even a prearranged case with a restructuring

00:22:42.650 --> 00:22:46.230
support agreement. This case may end in a liquidation.

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And as I will discuss more, if a large interim

00:22:50.450 --> 00:22:54.099
dip with a roll -up is approved today, And then

00:22:54.099 --> 00:22:57.240
there is a liquidation that would have a devastating

00:22:57.240 --> 00:23:00.380
impact on the claims Amazon and the brands have

00:23:00.380 --> 00:23:03.960
at Code Code 2. It would all but eliminate a

00:23:03.960 --> 00:23:07.039
recovery for those Code Code 2 creditors. And

00:23:07.039 --> 00:23:09.900
even though they would likely be paid in full

00:23:09.900 --> 00:23:14.019
today without this dip. We're asking your honor

00:23:14.019 --> 00:23:17.059
to preserve that recovery at least until we have

00:23:17.059 --> 00:23:20.180
a fair and full day to litigate our rights before

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your honor. and to allow all other unsecured

00:23:22.789 --> 00:23:26.349
creditors to do the same. This case cannot be

00:23:26.349 --> 00:23:28.589
run for the sole benefit of the secured lenders,

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and this starts us down that dangerous path.

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And let me just start with a few critical facts.

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First, post -crediting essentially controls the

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flagship property and releases it to facts. That's

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all it does. Second, it doesn't need this dick.

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That was the testimony. It doesn't need any cats

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at all today. It doesn't need any cash at all

00:23:52.099 --> 00:23:57.000
in the next 21 days. The lease payments more

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than cover its expenses. Good news, they've been

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reduced. And to the extent it did need cash,

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that's a much smaller dip than the one proposed

00:24:07.640 --> 00:24:12.940
today. Third, just the interim dip would impose

00:24:12.940 --> 00:24:18.019
$1 .3 billion of new debt on Code 2 for a dip

00:24:18.019 --> 00:24:22.410
it does not need. And fourth, the full DIP would

00:24:22.410 --> 00:24:26.390
impose $2 .3 billion of new debt on hold code

00:24:26.390 --> 00:24:30.349
2 for a DIP again. It does not need. So with

00:24:30.349 --> 00:24:32.289
that, Your Honor, I'll turn to the legal argument.

00:24:32.609 --> 00:24:36.150
I have four main points. First, the debtor did

00:24:36.150 --> 00:24:39.289
not obtain Amazon's consent to the DIP despite

00:24:39.289 --> 00:24:41.529
the fact that it was expressly required by the

00:24:41.529 --> 00:24:48.039
governing documents of HBCGPLC. Specifically,

00:24:48.319 --> 00:24:52.019
Amazon has a consent rate under Section 4 .05B,

00:24:52.019 --> 00:24:55.720
Roman at 6, of the operating agreement, excuse

00:24:55.720 --> 00:24:58.019
me, of the LLC agreement, over the occurrence

00:24:58.019 --> 00:25:01.599
of additional indebtedness and guarantees. I've

00:25:01.599 --> 00:25:04.559
made it clear the debtors have disregarded that

00:25:04.559 --> 00:25:08.279
consent, and Amazon will not provide it with

00:25:08.279 --> 00:25:13.779
respect to this debt. Second is to get off collateralization

00:25:13.779 --> 00:25:16.930
and lack of benefit to Hold Code 2. And Your

00:25:16.930 --> 00:25:19.089
Honor, my colleagues and I have spent the better

00:25:19.089 --> 00:25:22.089
part of the day talking about semantics. And

00:25:22.089 --> 00:25:24.630
I think the titles and the semantics are important

00:25:24.630 --> 00:25:27.910
here. We talk a lot about what a roll -up is,

00:25:28.069 --> 00:25:31.190
and we talk a lot about what cross -collateralization

00:25:31.190 --> 00:25:33.650
is. And Your Honor, when I read the debtor's

00:25:33.650 --> 00:25:35.769
dip motion, I looked at the helpful chart at

00:25:35.769 --> 00:25:39.049
the front, and I was very surprised to see that

00:25:39.049 --> 00:25:41.269
they said they would know cross -collateralization.

00:25:41.490 --> 00:25:43.609
I don't know how you can make that statement.

00:25:46.670 --> 00:25:49.109
I want to be very clear that our objection is

00:25:49.109 --> 00:25:51.869
about the dip primarily at Whole Code 2. Whether

00:25:51.869 --> 00:25:54.230
it is appropriate for Whole Code 2 to take on

00:25:54.230 --> 00:25:56.650
the obligation and grant the liens contemplated

00:25:56.650 --> 00:25:59.950
by this dip must be evaluated from the perspective

00:25:59.950 --> 00:26:04.410
of that entity. There is no substantive consolidation

00:26:04.410 --> 00:26:07.349
here. The joint administration order that your

00:26:07.349 --> 00:26:10.849
honors signed earlier made that clear. There

00:26:10.849 --> 00:26:13.710
are separate debtors with separate assets and

00:26:13.710 --> 00:26:17.500
separate creditors. Each entity must be evaluated

00:26:17.500 --> 00:26:21.640
separately. The debtor's argument that this dip

00:26:21.640 --> 00:26:26.680
is all we got doesn't change that. The business

00:26:26.680 --> 00:26:29.240
judgment standard does not apply here given the

00:26:29.240 --> 00:26:31.740
absence of any decision maker who is looking

00:26:31.740 --> 00:26:35.019
out solely for hold code two and the clear conflict.

00:26:36.220 --> 00:26:39.480
The testimony was clear. There is nobody minding

00:26:39.480 --> 00:26:42.430
the house for hold code two. There are a lot

00:26:42.430 --> 00:26:46.049
of incredibly well -respected professionals involved

00:26:46.049 --> 00:26:49.890
and incredibly well -respected independent directors,

00:26:50.450 --> 00:26:54.509
but none of them wear one pack. But even if we

00:26:54.509 --> 00:26:57.390
assume that the sound business judgment standard

00:26:57.390 --> 00:27:00.049
applies, this doesn't get failed nonetheless.

00:27:01.049 --> 00:27:03.430
It does not satisfy the sound business judgment

00:27:03.430 --> 00:27:07.470
standard. Why? So let's look at the benefits

00:27:07.470 --> 00:27:10.710
and the burdens. As any uncomplicated city sharing

00:27:10.710 --> 00:27:13.029
for hold code 2 would do, and I'll start with

00:27:13.029 --> 00:27:16.630
the benefits. This dip is not so far to hold

00:27:16.630 --> 00:27:20.009
code 2 operations. Again, hold code 2 has little

00:27:20.009 --> 00:27:23.210
of any operations or expenses. That was the testimony.

00:27:23.710 --> 00:27:26.190
It's a holding company that owns the flagship

00:27:26.190 --> 00:27:30.269
entity and the 12 East 49th Street entity. And

00:27:30.269 --> 00:27:33.049
that flagship entity also has little of any operations

00:27:33.049 --> 00:27:37.400
or expenses other than What we approximate to

00:27:37.400 --> 00:27:40.619
be $4 .7 million in interest per month on account

00:27:40.619 --> 00:27:44.619
of a CMF loan. The interest is more than covered

00:27:44.619 --> 00:27:49.859
by the rent paid by its affiliate, 12 East. But

00:27:49.859 --> 00:27:52.500
even if that rent stopped being paid and flashed

00:27:52.500 --> 00:27:54.680
if a whole code two needed financing to pay that

00:27:54.680 --> 00:27:57.519
monthly interest, we're talking about a dip that

00:27:57.519 --> 00:28:00.839
is significantly smaller by orders of magnitude

00:28:00.839 --> 00:28:04.970
and not what's being proposed today. So the benefit

00:28:04.970 --> 00:28:07.890
to Hold Code 2 from this dip, if there is any

00:28:07.890 --> 00:28:12.829
at all, is de minimis, at best. And turning to

00:28:12.829 --> 00:28:15.430
the burdens, let's look at Hold Code 2's capital

00:28:15.430 --> 00:28:18.849
structure, pre -dip, and post. Mr. Harris walked

00:28:18.849 --> 00:28:22.849
through the chart with the first witness. Today,

00:28:23.509 --> 00:28:25.849
the only secured obligation that we're aware

00:28:25.849 --> 00:28:29.920
of at Hold Code 2 is a limited guarantee of certain

00:28:29.920 --> 00:28:32.539
notes held by the DIP lenders and others in the

00:28:32.539 --> 00:28:36.160
amount of $200 million. But that's it. It's $200

00:28:36.160 --> 00:28:40.180
million. The DIP, however, would impose a billion

00:28:40.180 --> 00:28:43.099
dollars of new money DIP claims and liens at

00:28:43.099 --> 00:28:48.420
HoldCode2, and $1 .56 billion of purported Wolrock

00:28:48.420 --> 00:28:52.180
loans, even though, to be very clear, HoldCode2

00:28:52.180 --> 00:28:55.900
only owes $200 million of those notes right now.

00:28:56.559 --> 00:28:59.839
Other than we risk back to the $200 million of

00:28:59.839 --> 00:29:02.799
the roll -up, this isn't a roll -up at all and

00:29:02.799 --> 00:29:06.019
the terminology is important. Roll -ups take

00:29:06.019 --> 00:29:08.740
an entity's pre -petition debt and convert it

00:29:08.740 --> 00:29:11.500
to post -petition debt. That's not what they're

00:29:11.500 --> 00:29:14.220
doing. They're taking over a billion dollars

00:29:14.220 --> 00:29:18.420
of pre -petition debt of other legal entities

00:29:18.420 --> 00:29:22.420
on which Hold Code 2 is not even obligated and

00:29:22.420 --> 00:29:26.200
making Hold Code 2 a guarantee on a secure basis.

00:29:26.919 --> 00:29:29.299
It's not what clear what the statutory basis

00:29:29.299 --> 00:29:31.920
for that relief would be. The debtors appear

00:29:31.920 --> 00:29:35.940
to generically rely on sections 363 and 364.

00:29:36.480 --> 00:29:39.660
But section 364 applies to extensions of credit

00:29:39.660 --> 00:29:43.660
to a debtor. Nowhere does section 364 authorize

00:29:43.660 --> 00:29:46.839
a debtor to grant liens to secure debt at another

00:29:46.839 --> 00:29:50.660
debtor. And section 363 requires a showing of

00:29:50.660 --> 00:29:54.559
business justification. There's no business justification

00:29:54.559 --> 00:29:58.430
for Holco 2 to do this. we try to think about

00:29:58.430 --> 00:30:01.309
how to fit this into a traditional role framework.

00:30:01.710 --> 00:30:04.769
And the best we could come up with is that other

00:30:04.769 --> 00:30:07.730
SACS entities are forcing Hold Code 2, which

00:30:07.730 --> 00:30:09.950
may not need a DIP at all, to incur billions

00:30:09.950 --> 00:30:12.430
of dollars of obligations, of DIP obligations,

00:30:13.130 --> 00:30:16.990
to effectively pay off pre -petition funded debt

00:30:16.990 --> 00:30:21.750
obligations of those other SACS entities. Why

00:30:21.750 --> 00:30:23.890
would they do that? It makes no sense from Hold

00:30:23.890 --> 00:30:27.329
Code 2's perspective. But it makes a lot of sense,

00:30:27.509 --> 00:30:29.690
Your Honor, from the perspective of the other

00:30:29.690 --> 00:30:33.789
debtors. The reality is that the other debtors,

00:30:33.910 --> 00:30:36.930
which do have operations, they have employees,

00:30:37.309 --> 00:30:39.910
they pay utilities, rents, all the other things

00:30:39.910 --> 00:30:42.650
you've heard about, and which are liable on the

00:30:42.650 --> 00:30:44.950
full amount of the pre -petition notes. They

00:30:44.950 --> 00:30:47.650
want to use the value at the flagship and HOCO

00:30:47.650 --> 00:30:50.869
2 to hope to salvage their operation and fund

00:30:50.869 --> 00:30:53.329
their cases for the benefit of their creditors.

00:30:53.680 --> 00:30:57.299
That's all at the expense of hold code 2 creditors

00:30:57.299 --> 00:30:59.819
like Amazon and the trade creditors. You heard

00:30:59.819 --> 00:31:04.119
the testimony $180 million of trade credit at

00:31:04.119 --> 00:31:07.160
hold code 2 whose claims are guaranteed by hold

00:31:07.160 --> 00:31:10.700
code 2 and who without the dip could possibly

00:31:10.700 --> 00:31:14.799
recover in full. There was no analysis about

00:31:14.799 --> 00:31:17.920
the recovery. There were some conclusory statements.

00:31:18.099 --> 00:31:22.660
That's it. That's not enough your honor. This

00:31:22.660 --> 00:31:25.279
will probably be a very complicated case and

00:31:25.279 --> 00:31:27.460
the debtors certainly have a complicated organizational

00:31:27.460 --> 00:31:30.519
structure. But this is actually quite simple.

00:31:31.259 --> 00:31:33.339
The DIP lenders are using the financing needs

00:31:33.339 --> 00:31:37.039
of affiliates of Whole Code 2 to transform $200

00:31:37.039 --> 00:31:39.680
million of pre -petition claims at Whole Code

00:31:39.680 --> 00:31:42.380
2 into billions of dollars of post -petition

00:31:42.380 --> 00:31:45.039
claims with recourse to potentially significant

00:31:45.039 --> 00:31:48.859
value in Whole Code 2. So I can understand why

00:31:48.859 --> 00:31:51.920
facts as an enterprise might be willing to agree

00:31:51.920 --> 00:31:55.319
to these terms. But why would hold code 2? I

00:31:55.319 --> 00:31:58.319
can't think of a good answer. The debtor's best

00:31:58.319 --> 00:32:02.599
argument was, it's all we got. You know what?

00:32:03.099 --> 00:32:05.460
That's just not good enough on a legal entity

00:32:05.460 --> 00:32:09.740
-by -entity analysis. And that takes me to my

00:32:09.740 --> 00:32:13.700
third point, Your Honor. Governance and management.

00:32:14.279 --> 00:32:16.839
Hold code 2 does not have an independent fiduciary

00:32:16.839 --> 00:32:19.660
looking out for its estates and creditors. despite

00:32:19.660 --> 00:32:22.079
the fact that Hold Code 2's interests are in

00:32:22.079 --> 00:32:25.759
many ways not aligned with those of the debtors

00:32:25.759 --> 00:32:29.180
as this bit makes clear. None of the professionals

00:32:29.180 --> 00:32:32.740
were looking out only for Hold Code 2. None of

00:32:32.740 --> 00:32:35.599
the management team and not a single director.

00:32:36.619 --> 00:32:39.480
Hold Code 2 is member managed. There are no decision

00:32:39.480 --> 00:32:42.480
makers there whatsoever. Decision making authority

00:32:42.480 --> 00:32:48.579
sits at the ultimate parent, HBCGPLLC. So the

00:32:48.579 --> 00:32:52.640
individuals making decisions for HOCO 2 are the

00:32:52.640 --> 00:32:55.059
same individuals making decisions on behalf of

00:32:55.059 --> 00:32:58.000
all of the other debtors. Try as they might,

00:32:58.380 --> 00:33:00.779
these individuals can't serve all those masters.

00:33:02.160 --> 00:33:04.980
The other debtors have every reason to use value

00:33:04.980 --> 00:33:07.680
in HOCO 2 to raise financing they need for other

00:33:07.680 --> 00:33:11.259
entities. Again, it's all they got. HOCO 2's

00:33:11.259 --> 00:33:14.130
incentives are the polar opposite. They have

00:33:14.130 --> 00:33:16.990
no reason to use that value as currency to obtain

00:33:16.990 --> 00:33:19.630
financing that only benefits other entities.

00:33:20.609 --> 00:33:22.690
And it's not just in the context of this dip

00:33:22.690 --> 00:33:25.549
that those interests may conflict. It will be

00:33:25.549 --> 00:33:28.670
persuasive throughout these cases. As another

00:33:28.670 --> 00:33:31.410
example, it's very possible, if not likely, that

00:33:31.410 --> 00:33:34.349
a liquidation of HOCO 2 and the flagship property

00:33:34.349 --> 00:33:36.809
may actually be in the best interest of those

00:33:36.809 --> 00:33:39.529
creditors. The other debtors, however, would

00:33:39.529 --> 00:33:41.869
do everything in their power to avoid that outcome.

00:33:42.240 --> 00:33:44.779
and we want to continue taking hold coaches'

00:33:45.119 --> 00:33:48.259
values to subsidize a chance of recovery in their

00:33:48.259 --> 00:33:51.900
own estates. And in addition to the flawed governance,

00:33:52.400 --> 00:33:54.539
Amazon has serious concerns with and questions

00:33:54.539 --> 00:33:57.039
about the debtors' management and operations.

00:33:58.279 --> 00:34:00.480
They have blown budget after budget and blew

00:34:00.480 --> 00:34:02.460
through hundreds of millions of dollars in just

00:34:02.460 --> 00:34:06.160
a few months since the August liability management

00:34:06.160 --> 00:34:09.750
financing. which has led to crashing into bankruptcy

00:34:09.750 --> 00:34:13.070
with no game plan and no exit in sight. And you

00:34:13.070 --> 00:34:16.369
know what, Your Honor, the $500 million of purported

00:34:16.369 --> 00:34:20.769
exit financing is illusory. It's an option. It's

00:34:20.769 --> 00:34:23.269
completely conditional on an acceptable business

00:34:23.269 --> 00:34:28.210
plan, among other things. There are director

00:34:28.210 --> 00:34:30.389
and officer issues that need to be investigated,

00:34:30.409 --> 00:34:32.570
and I'm speaking... Our system will end this

00:34:32.570 --> 00:34:35.590
conference in five minutes. To extend this call

00:34:35.590 --> 00:34:38.750
for one hour, please enter the moderator pin

00:34:38.750 --> 00:34:44.349
now. Your conference has been extended for 60

00:34:44.349 --> 00:34:46.949
minutes. And whether that would be Chapter 5

00:34:46.949 --> 00:34:49.050
calls of action, breach of duty, cheery duty

00:34:49.050 --> 00:34:51.250
claims, or otherwise. And the same for the proceeds

00:34:51.250 --> 00:34:54.730
of any D &O policy. And that takes me to my final

00:34:54.730 --> 00:34:57.530
and most important point. Preserving the status

00:34:57.530 --> 00:35:00.739
quo for creditors. for the creditors committee

00:35:00.739 --> 00:35:02.639
and other unsecured creditors like the brands

00:35:02.639 --> 00:35:04.719
to have an opportunity to be heard and to have

00:35:04.719 --> 00:35:07.139
a full and fair day before your honor to protect

00:35:07.139 --> 00:35:09.500
their interests, before their recoveries take

00:35:09.500 --> 00:35:11.360
it from them by the secured lenders. And I want

00:35:11.360 --> 00:35:14.340
to point to something in the DIP Order, and I'm

00:35:14.340 --> 00:35:19.019
speaking to paragraph seven, it's page 16. And

00:35:19.019 --> 00:35:21.039
I'm going to quote from the DIP Order itself.

00:35:21.960 --> 00:35:24.480
The consummation of the pre -petition off -goal

00:35:24.480 --> 00:35:27.699
second out notes participants. shall be final

00:35:27.699 --> 00:35:30.420
and irrevocable as to the debtors upon entry

00:35:30.420 --> 00:35:35.480
of this interim order. That's $721 million. It's

00:35:35.480 --> 00:35:38.539
not subject to challenge. It's not subject to

00:35:38.539 --> 00:35:41.280
reconsideration. Nothing. That is value that

00:35:41.280 --> 00:35:43.760
goes out the door tonight if it is approved.

00:35:45.199 --> 00:35:47.679
The debtors filed these cases last night at 11th

00:35:47.679 --> 00:35:50.440
Central and the dip motion was filed this morning

00:35:50.440 --> 00:35:52.860
around 1030, just five and a half hours before

00:35:52.860 --> 00:35:55.480
the hearing. And now the debtors want to jam

00:35:55.480 --> 00:35:57.780
through a dip financing package that would put

00:35:57.780 --> 00:36:02.019
$2 .6 billion of claims at HoldCo2 for the benefit

00:36:02.019 --> 00:36:04.780
of the dip lenders, even though HoldCo2 does

00:36:04.780 --> 00:36:07.579
not need financing and is only liable for $200

00:36:07.579 --> 00:36:11.219
million as pre -petition notes. Your Honor, we're

00:36:11.219 --> 00:36:14.760
talking about cross -debtor, cross -collateralization.

00:36:14.940 --> 00:36:18.400
We are not talking about a routine... Roll up,

00:36:18.619 --> 00:36:21.400
we are not talking about a more simplified capital

00:36:21.400 --> 00:36:25.099
structure where the pre -petition lender is properly

00:36:25.099 --> 00:36:27.440
perfected on all of the debtors pre -filing.

00:36:27.619 --> 00:36:29.960
I get it, I've been there, and I've asked Your

00:36:29.960 --> 00:36:34.579
Honor to do the same. This is not that. The debtors

00:36:34.579 --> 00:36:36.820
have not shown that there would be an immediate

00:36:36.820 --> 00:36:39.880
and irreparable harm if the DIP is not approved

00:36:39.880 --> 00:36:43.579
at Polco 2. And again, we do not care if the

00:36:43.579 --> 00:36:46.130
DIP is not approved at the other debtors. Have

00:36:46.130 --> 00:36:48.989
at it. Approve all of it. Just leave Hold Code

00:36:48.989 --> 00:36:52.849
2 out of it. There is no emergency that requires

00:36:52.849 --> 00:36:56.130
Hold Code 2 to incur these dip obligations. Hold

00:36:56.130 --> 00:36:58.230
Code 2 does not need any cash in the next 21

00:36:58.230 --> 00:37:02.369
days, and Hold Code 2 would not suffer any injury

00:37:02.369 --> 00:37:05.710
in the next 21 days. That is the standard, Your

00:37:05.710 --> 00:37:11.429
Honor. And it's certainly no emergency great

00:37:11.429 --> 00:37:13.710
enough to deprive Amazon and other unsecured

00:37:13.710 --> 00:37:17.219
creditors of their due process rights. And on

00:37:17.219 --> 00:37:19.179
the flip side, if this interim dip is approved

00:37:19.179 --> 00:37:21.780
tonight, it will be immediately devastating to

00:37:21.780 --> 00:37:24.619
Hold Code 2 and its creditors. It will impose

00:37:24.619 --> 00:37:27.719
significant new debt on Hold Code 2's secured

00:37:27.719 --> 00:37:30.639
and senior to all of the pre -existing creditors.

00:37:31.099 --> 00:37:33.380
It will likely mean that those creditors will

00:37:33.380 --> 00:37:36.860
go from getting a significant recovery to no

00:37:36.860 --> 00:37:39.800
recovery. That is just from the interim dip.

00:37:40.489 --> 00:37:43.150
And on the substance, there are serious concerns

00:37:43.150 --> 00:37:46.409
with the terms of a dip, especially but not limited

00:37:46.409 --> 00:37:49.949
to the cross -collateralization that it contemplates.

00:37:50.269 --> 00:37:51.849
There are serious concerns with the debtor's

00:37:51.849 --> 00:37:54.170
management. There are serious concerns with the

00:37:54.170 --> 00:37:57.429
debtor's governance. The bondholders must also

00:37:57.429 --> 00:38:00.030
agree, which is why presumably most of the debtor's

00:38:00.030 --> 00:38:01.949
pre -positioned executives have been terminated

00:38:01.949 --> 00:38:05.329
and they're requiring their own independent director.

00:38:06.320 --> 00:38:08.599
There are serious concerns that Amazon and other

00:38:08.599 --> 00:38:10.679
insecure creditors, including the brands, may

00:38:10.679 --> 00:38:13.039
have been induced to provide services to the

00:38:13.039 --> 00:38:16.139
debtors under false pretenses. Time will tell

00:38:16.139 --> 00:38:18.920
if that's indeed true. And all of that impacts

00:38:18.920 --> 00:38:21.880
the GIF, and parties should be given the proper

00:38:21.880 --> 00:38:25.239
time under rules 6003 and 400 so that we can

00:38:25.239 --> 00:38:27.760
do discovery and depositions and analyze whether

00:38:27.760 --> 00:38:30.059
a liquidation may actually be better for the

00:38:30.059 --> 00:38:32.920
whole Code 2 estate. Or perhaps there'll be a

00:38:32.920 --> 00:38:35.159
negotiated resolution between now and the final

00:38:35.159 --> 00:38:38.079
hearing. But until then we need to preserve the

00:38:38.079 --> 00:38:40.679
status quo and I personally know that in this

00:38:40.679 --> 00:38:43.039
court all constituents are given due process.

00:38:43.619 --> 00:38:47.119
Whether Amazon wins or not that has yet to be

00:38:47.119 --> 00:38:49.119
decided but I know that in this court your honor

00:38:49.119 --> 00:38:51.119
will give me the chance to put on my best case

00:38:51.119 --> 00:38:53.719
after discovery and afford my client the due

00:38:53.719 --> 00:38:56.840
process to which it is entitled. Only once your

00:38:56.840 --> 00:38:59.380
honor has all the facts before him is it appropriate

00:38:59.380 --> 00:39:01.739
for you to call balls and strikes when the outcome

00:39:01.739 --> 00:39:04.559
could be so consequential to those like Amazon

00:39:04.559 --> 00:39:07.500
and the brands. We cannot change the rights of

00:39:07.500 --> 00:39:10.159
creditors at Whole Pro 2 and effectively eliminate

00:39:10.159 --> 00:39:12.519
any chance of their recovery in this manner on

00:39:12.519 --> 00:39:15.139
such short notice. There is too much uncertainty

00:39:15.139 --> 00:39:17.860
in this case to make significant, drastic rulings

00:39:17.860 --> 00:39:20.480
that would effectively eliminate creditor recoveries

00:39:20.480 --> 00:39:24.039
on the first day of a case. To be clear, we think

00:39:24.039 --> 00:39:25.900
the release should be denied at a final hearing

00:39:25.900 --> 00:39:29.079
too, but at the very least, it needs to be adjourned

00:39:29.079 --> 00:39:32.340
until then for due process. If the debtors need

00:39:32.340 --> 00:39:35.139
financing to survive for 21 days, then they can

00:39:35.139 --> 00:39:37.860
incur it at the other debtors. At the minimum

00:39:37.860 --> 00:39:40.219
level, they need it, where the debtors actually

00:39:40.219 --> 00:39:43.000
have operations and an actual need for financing.

00:39:43.699 --> 00:39:46.280
But no disclaims should be opposed at HOCO 2

00:39:46.280 --> 00:39:49.599
today with respect, with all rights reserved

00:39:49.599 --> 00:39:53.000
for all parties, a creditors committee in particular,

00:39:53.260 --> 00:39:57.219
until a final hearing. And Your Honor, unless

00:39:57.219 --> 00:39:59.559
you have any questions, I'll leave it today,

00:39:59.719 --> 00:40:02.340
given that the hour is so late. All right. Thank

00:40:02.340 --> 00:40:07.170
you very much. Your honor, may I be heard? Yes,

00:40:08.050 --> 00:40:11.409
sir. Your honor, I'm going to be very brief,

00:40:11.469 --> 00:40:13.190
but I'm going to start with a statement that

00:40:13.190 --> 00:40:16.369
Better's counsel made and the theory that he

00:40:16.369 --> 00:40:19.389
put. He said, I understand why people are objecting

00:40:19.389 --> 00:40:22.630
this financing could have been done outside bankruptcy.

00:40:22.809 --> 00:40:25.449
So why can't it be done inside of bankruptcy?

00:40:25.590 --> 00:40:28.369
And I think that's exactly the point. This could

00:40:28.369 --> 00:40:30.630
not be done outside of bankruptcy. It would be

00:40:30.630 --> 00:40:33.619
a classic fraudulent conveyance. What you are

00:40:33.619 --> 00:40:35.980
actually asking for, whether this company is

00:40:35.980 --> 00:40:39.699
solvent or insolvent, is to put on a separate

00:40:39.699 --> 00:40:45.400
subsidiary over $1 .5 billion of debt, and what

00:40:45.400 --> 00:40:48.179
is it getting in exchange? It doesn't need the

00:40:48.179 --> 00:40:51.500
cash. It doesn't need money. It's not getting

00:40:51.500 --> 00:40:54.239
reasonably equivalent value. That's what they're

00:40:54.239 --> 00:40:57.519
asking you to do, and they're asking for you

00:40:57.519 --> 00:41:02.400
to approve that. So in this instance, While my

00:41:02.400 --> 00:41:05.820
clients, both vendors, agree that they do believe

00:41:05.820 --> 00:41:09.519
a dip is necessary, they do think if money is

00:41:09.519 --> 00:41:12.519
necessary for hold code 2, a dip would be appropriate.

00:41:12.880 --> 00:41:16.440
The question is, what's the proper balance which

00:41:16.440 --> 00:41:20.480
your court should strike here? In this instance,

00:41:20.960 --> 00:41:23.739
some dip may be necessary, but they should only

00:41:23.739 --> 00:41:27.000
have to give away the assets necessary to make

00:41:27.000 --> 00:41:30.360
sure that that dip that they need is to be repaid.

00:41:30.510 --> 00:41:33.650
So our objection really is they haven't carried

00:41:33.650 --> 00:41:36.070
their burden to show immediate and irreparable

00:41:36.070 --> 00:41:40.289
harm, and that the benefits of this debt to this

00:41:40.289 --> 00:41:42.969
entity, which is for the benefit of other affiliates,

00:41:43.030 --> 00:41:45.369
you kept hearing it's a unified company, it's

00:41:45.369 --> 00:41:47.690
a unified company, we won't do it without that,

00:41:48.070 --> 00:41:50.349
that this company is not getting the benefit

00:41:50.349 --> 00:41:55.530
for which it's giving up $1 .5 billion in secure

00:41:55.530 --> 00:41:57.630
debt. You couldn't do that outside of bankruptcy.

00:41:57.949 --> 00:41:59.670
You shouldn't be able to do it in bankruptcy.

00:41:59.900 --> 00:42:03.019
certainly not in an interim hearing. So for that

00:42:03.019 --> 00:42:05.519
reason, we would ask your honor to simply tailor

00:42:05.519 --> 00:42:08.320
the relief, let people come back on the final

00:42:08.320 --> 00:42:11.219
hearing and actually weigh the benefits and burdens

00:42:11.219 --> 00:42:15.679
of the dip to this company and the benefits versus

00:42:15.679 --> 00:42:17.599
the burdens. So your honor, we would ask that

00:42:17.599 --> 00:42:21.239
it be modified and given an opportunity to reconsider

00:42:21.239 --> 00:42:24.639
this and at a full evidentiary hearing at the

00:42:24.639 --> 00:42:28.219
final dip. All right. Thank you. Who else wishes

00:42:28.219 --> 00:42:33.860
to be heard? Your Honor, I'm going to board you.

00:42:33.860 --> 00:42:36.099
I'm Sidley Austin on behalf of Axonic. Thank

00:42:36.099 --> 00:42:40.380
you, Your Honor. I just want to organize my closing

00:42:40.380 --> 00:42:43.940
in three main questions. Who are we? What's our

00:42:43.940 --> 00:42:46.599
issue? And what are we asking for? And I think

00:42:46.599 --> 00:42:49.440
the answer is simple. And I thank Mr. Goran for

00:42:49.440 --> 00:42:52.760
confirming two points, which makes our presentation

00:42:52.760 --> 00:42:55.119
even simpler. Thank you for confirming that.

00:42:55.230 --> 00:43:00.150
our equity at SFH, at HoldCo2 is not itself subject

00:43:00.150 --> 00:43:03.110
to, and the senior in all respects, to the dip

00:43:03.110 --> 00:43:06.489
loan and to the part of. So who are we? Exonic

00:43:06.489 --> 00:43:10.409
is a holder of some of the CNBS bonds down at

00:43:10.409 --> 00:43:13.210
the HBSJVs. These were the ones that you heard

00:43:13.210 --> 00:43:15.769
earlier on in the presentation that Ms. Sinclair

00:43:15.769 --> 00:43:19.309
noted are not debtors in the bankruptcy. In addition

00:43:19.309 --> 00:43:23.030
and most relevant here, Exonic is a secured creditor.

00:43:23.260 --> 00:43:26.639
with respect to debtor hold code two. Hold code

00:43:26.639 --> 00:43:29.880
two granted a lien and its equity interests in

00:43:29.880 --> 00:43:33.619
12 East 49th Street. And then just an additional

00:43:33.619 --> 00:43:38.659
point of context, who are we? We have been a

00:43:38.659 --> 00:43:40.920
constructive partner to SACS for several years

00:43:40.920 --> 00:43:43.780
and especially for the past several months. We've

00:43:43.780 --> 00:43:45.679
been working with them to try to restructure

00:43:45.679 --> 00:43:48.760
their obligations. And unfortunately, conversations

00:43:48.760 --> 00:43:51.639
completely and communication completely has broken

00:43:51.639 --> 00:43:55.539
down. We had no notice of these filings. We had

00:43:55.539 --> 00:43:59.860
no notice of what they were planning to do. And

00:43:59.860 --> 00:44:02.780
we join in Amazon's objection that we just need

00:44:02.780 --> 00:44:04.960
some more time to be able to adequately make

00:44:04.960 --> 00:44:08.900
our case. So what is our issue? Our issue is

00:44:08.900 --> 00:44:11.980
that Exonic, as a secured creditor, has a cognizable

00:44:11.980 --> 00:44:14.360
interest in property of the debtors, and its

00:44:14.360 --> 00:44:16.519
rights are being trampled on pursuant to this

00:44:16.519 --> 00:44:19.780
dip. First of all, we do think that the actions

00:44:19.780 --> 00:44:22.760
that were taken were ultra -viris. I know Mr.

00:44:23.000 --> 00:44:26.340
Gorin said that that's maybe an issue for another

00:44:26.340 --> 00:44:29.349
day. It's not. It's an issue for today. And if

00:44:29.349 --> 00:44:31.630
your honor can't rule on it today, which we don't

00:44:31.630 --> 00:44:34.610
think you can, you can't rule on it to the other

00:44:34.610 --> 00:44:37.210
direction either, and you should delay ruling

00:44:37.210 --> 00:44:39.429
on it until you have all the facts in front of

00:44:39.429 --> 00:44:44.250
you. But just to give you a preview, as Mr. Weinstein

00:44:44.250 --> 00:44:47.289
testified, apparently in the dead of night, perhaps

00:44:47.289 --> 00:44:49.949
even in the hours before the bankruptcy, the

00:44:49.949 --> 00:44:52.969
debtors purport to have amended the LLCA for

00:44:52.969 --> 00:44:56.409
12 East 49th Street to allow the actions that

00:44:56.409 --> 00:44:59.159
precipitated this objection, i .e. to allow it

00:44:59.159 --> 00:45:01.679
to file for bankruptcy and to take on the debt

00:45:01.679 --> 00:45:03.920
of its affiliates. It had not been permitted

00:45:03.920 --> 00:45:06.400
to do that for 10 years, and frankly, it was

00:45:06.400 --> 00:45:08.440
not permitted to do that at the time that it

00:45:08.440 --> 00:45:14.420
did that. The entity Sachs & Co. as well as 12th

00:45:14.420 --> 00:45:17.800
and East 49th Street also purported to adjust

00:45:17.800 --> 00:45:20.420
the terms of the operating lease without the

00:45:20.420 --> 00:45:22.880
requisite consent that they needed. So again,

00:45:23.619 --> 00:45:26.539
these actions were not allowed at the time. We

00:45:26.539 --> 00:45:28.300
don't think that's just a breach of contract

00:45:28.300 --> 00:45:30.820
claim, and we think that that is one of the main

00:45:30.820 --> 00:45:33.019
reasons it's not appropriate for the dip to be

00:45:33.019 --> 00:45:37.300
entered with respect to this entity today. Separately,

00:45:37.539 --> 00:45:40.320
the debtors have not shown that the factors of

00:45:40.320 --> 00:45:44.579
Section 361 have been met for 12 East 49th Street.

00:45:45.099 --> 00:45:48.099
Amazon has made this point quite strongly over

00:45:48.099 --> 00:45:52.070
the past several hours. 12 East 49th Street has

00:45:52.070 --> 00:45:55.210
no employees, no vendors, no need for operating

00:45:55.210 --> 00:45:58.489
liquidity, but its value is being used to support

00:45:58.489 --> 00:46:01.610
other debtors' operations. Mr. Weinstein said

00:46:01.610 --> 00:46:04.170
over and over, there are indirect benefits to

00:46:04.170 --> 00:46:06.829
the entity, there is overall value to the entity,

00:46:07.269 --> 00:46:10.750
but there has not been the required analysis

00:46:10.750 --> 00:46:15.010
for a prime and mean on a per debtor basis. And

00:46:15.010 --> 00:46:18.170
I just want to highlight that, you know, the...

00:46:18.110 --> 00:46:20.730
The conversation has been over and over by the

00:46:20.730 --> 00:46:23.909
declarants. There's an overall benefit, and everybody

00:46:23.909 --> 00:46:27.170
is gaining value from this. Well, then why wasn't

00:46:27.170 --> 00:46:30.909
the sister entity to 12 East 49th Street, the

00:46:30.909 --> 00:46:33.510
flagship entity itself, put into bankruptcy?

00:46:33.670 --> 00:46:36.809
There's some selective choice going on here that

00:46:36.809 --> 00:46:40.809
we need to have a chance to look into. And respectfully

00:46:40.809 --> 00:46:45.429
to Mr. Boren, he's wrong that there's not a recognizable

00:46:45.429 --> 00:46:48.630
interest in that uh... axonic is not entitled

00:46:48.630 --> 00:46:53.070
to be protected uh... axonic is being primed

00:46:53.070 --> 00:46:57.769
and the debtors have the burden to show axonic

00:46:57.769 --> 00:47:01.170
is adequately protected they have not done so

00:47:01.170 --> 00:47:04.010
uh... we probably a couple of key cases in paragraph

00:47:04.010 --> 00:47:06.469
twenty eight of our objection to direct your

00:47:06.469 --> 00:47:09.909
honor to but essentially that the punchline is

00:47:09.909 --> 00:47:13.730
courts and congress say that the value of equity

00:47:13.730 --> 00:47:16.900
what is being protected by the bankruptcy code

00:47:16.900 --> 00:47:19.440
for a secured creditor is the value of their

00:47:19.440 --> 00:47:23.619
collateral. For a secured claim where the collateral

00:47:23.619 --> 00:47:26.739
is equity interests, the value of the subsidiary

00:47:26.739 --> 00:47:29.679
is what is being protected. A debtor cannot come

00:47:29.679 --> 00:47:32.280
in and destroy the value of a subsidiary, which

00:47:32.280 --> 00:47:34.719
destroys the value of the equity, and say that

00:47:34.719 --> 00:47:38.780
secured creditor is just fine. That's not what

00:47:38.780 --> 00:47:44.440
the law says. That's not fair. And that is not

00:47:44.440 --> 00:47:48.679
an issue for another day. So with that all said,

00:47:48.699 --> 00:47:51.199
what are we asking for? We think it's simple

00:47:51.199 --> 00:47:54.119
and easily grantable. Delay approval of the dip

00:47:54.119 --> 00:47:56.739
borrowing from 12 East 49th Street until the

00:47:56.739 --> 00:47:59.539
final hearing. They haven't shown a cash need

00:47:59.539 --> 00:48:02.000
for that entity in the interim period. There

00:48:02.000 --> 00:48:04.500
are serious questions to be answered and we need

00:48:04.500 --> 00:48:08.639
time to review and hopefully discuss. This is

00:48:08.639 --> 00:48:11.639
not an unprecedented ask. courts often grant

00:48:11.639 --> 00:48:14.480
almost all of what a dip lender wants but delays

00:48:14.480 --> 00:48:17.159
some part of it to the final hearing. The debtors

00:48:17.159 --> 00:48:19.320
always say the dip lenders won't fund and the

00:48:19.320 --> 00:48:22.300
dip lenders do. I'm not sitting here saying deny

00:48:22.300 --> 00:48:25.139
the whole dip and don't pay employees tomorrow.

00:48:25.260 --> 00:48:26.940
Of course I'm not saying that. What I'm saying

00:48:26.940 --> 00:48:30.619
is preserve the status quo with respect to one

00:48:30.619 --> 00:48:34.239
purported debtor until a properly perfected secured

00:48:34.239 --> 00:48:38.590
creditor can properly make its case. I submit

00:48:38.590 --> 00:48:40.730
that we have a light switch here. If the debtors

00:48:40.730 --> 00:48:43.150
don't get the lien on this entity, they will

00:48:43.150 --> 00:48:46.170
be fine. If they do get the lien on this entity,

00:48:46.289 --> 00:48:50.449
we will be irrevocably harmed. In the absence

00:48:50.449 --> 00:48:53.070
of that, we join with Amazon on their at a minimum

00:48:53.070 --> 00:48:56.190
remedies is what I'm calling it, including limitation

00:48:56.190 --> 00:48:58.730
of the liens on those entities to be what is

00:48:58.730 --> 00:49:00.909
strictly necessary to operate those entities

00:49:00.909 --> 00:49:03.190
in the interim period, which is probably zero.

00:49:04.579 --> 00:49:07.300
marshaling of the liens away from that collateral,

00:49:07.360 --> 00:49:10.059
at least during the interim period, and the ability

00:49:10.059 --> 00:49:13.260
to fully unwind the transaction, including the

00:49:13.260 --> 00:49:16.019
granting of the dip liens and the filing of the

00:49:16.019 --> 00:49:20.280
entity at the final hearing. I just have one

00:49:20.280 --> 00:49:23.480
closing statement. We just don't really understand

00:49:23.480 --> 00:49:25.920
why they're picking this fight with us. Exonic

00:49:25.920 --> 00:49:28.280
has been a partner to SACS for years and has

00:49:28.280 --> 00:49:30.300
been working collaboratively for months to avoid

00:49:30.300 --> 00:49:33.239
this situation. Instead of focusing on the vendors,

00:49:33.440 --> 00:49:37.340
on their business, SACS is trying to take something

00:49:37.340 --> 00:49:40.139
from Exonic that shouldn't be taken. We hope

00:49:40.139 --> 00:49:42.059
that we can return to the consensual conversations

00:49:42.059 --> 00:49:43.960
we've been having and at least put this issue

00:49:43.960 --> 00:49:46.039
to bed for the debtors. Thank you, Your Honor.

00:49:46.280 --> 00:49:51.800
Thank you. All right. Mr. Hawkins. Yes, briefly,

00:49:51.840 --> 00:49:54.960
Your Honor. For Dolce & Gabbana, we're one of

00:49:54.960 --> 00:49:59.639
the vendors who has seen HostCo 2 become a co

00:49:59.639 --> 00:50:04.300
-op. That was presented to us as a way to make

00:50:04.300 --> 00:50:06.780
sure we had a solvent entity who could support

00:50:06.780 --> 00:50:12.199
the amount owed to us. And that is rapidly going

00:50:12.199 --> 00:50:15.059
to become untrue, it would seem, if this financing

00:50:15.059 --> 00:50:18.420
is allowed to burden this particular debtor.

00:50:18.619 --> 00:50:21.659
I don't have much more to say than the points

00:50:21.659 --> 00:50:24.519
that already have been made. Therefore, I'll

00:50:24.519 --> 00:50:27.920
join with the points made by Amazon, Mr. Velarde.

00:50:28.269 --> 00:50:32.449
and exotic to say that it just doesn't seem to

00:50:32.449 --> 00:50:37.150
be necessary, and we would suggest and ask that

00:50:37.150 --> 00:50:39.650
this at a minimum be adjourned until the final

00:50:39.650 --> 00:50:43.309
hearing so we can find out if there's a reason

00:50:43.309 --> 00:50:46.530
to justify putting this much debt on this entity

00:50:46.530 --> 00:50:49.909
that frankly not only doesn't seem to need this

00:50:49.909 --> 00:50:53.329
debt applied to it for its own needs, but may

00:50:53.329 --> 00:50:55.949
not even be justifiable as a bankruptcy debtor.

00:50:56.650 --> 00:51:00.170
So for all those reasons, it affected the other

00:51:00.170 --> 00:51:04.429
three. Thank you, Your Honor. All right. Thank

00:51:04.429 --> 00:51:06.449
you, Your Honor. Bob Britton, Paul Weiss, on

00:51:06.449 --> 00:51:09.750
behalf of the IHAC group of volunteers and defenders.

00:51:10.369 --> 00:51:13.449
Let me have Mr. Lehane and Ms. Heimann, and then

00:51:13.449 --> 00:51:16.309
I'll come back to you. Thank you, Your Honor.

00:51:19.070 --> 00:51:22.289
Thank you, Your Honor. Robert Lee Hain, Kelly

00:51:22.289 --> 00:51:24.510
Jordan, Warren again on behalf of numerous landlords,

00:51:24.949 --> 00:51:26.849
including Brookfield office, bank quarters, landlord,

00:51:27.030 --> 00:51:29.650
Brookfield retail, landlord at 18 locations.

00:51:30.250 --> 00:51:32.170
Your honor, we believe the debtors absolutely

00:51:32.170 --> 00:51:34.469
need this dip, but we also have problems that

00:51:34.469 --> 00:51:37.409
it is not truly an interim dip as it's styled.

00:51:37.530 --> 00:51:39.389
Specifically with respect to the very narrow

00:51:39.389 --> 00:51:43.610
issue of the waivers suggested in paragraph 19

00:51:43.610 --> 00:51:47.250
of the 506C waivers, the 552B, and the marshaling

00:51:47.250 --> 00:51:51.159
in paragraph 20. A very simple fix here. Make

00:51:51.159 --> 00:51:53.780
that those waivers being subject to the entry

00:51:53.780 --> 00:51:56.480
of the final order apply also to the dip lenders.

00:51:56.599 --> 00:51:58.840
Move it from the middle of the paragraph up to

00:51:58.840 --> 00:52:02.119
the beginning of Section A and Section B. Your

00:52:02.119 --> 00:52:04.860
Honor, this is the typical maintenance of the

00:52:04.860 --> 00:52:08.840
status quo as argued at length by Amazon and

00:52:08.840 --> 00:52:10.940
others. So what we would expect in an interim

00:52:10.940 --> 00:52:13.480
order is that nothing is final and certainly

00:52:13.480 --> 00:52:16.579
a 506C waiver isn't granted until the creditors

00:52:16.579 --> 00:52:19.079
committee has an opportunity to weigh in and

00:52:19.079 --> 00:52:22.739
be formed and look at these issues. 506C specifically

00:52:22.739 --> 00:52:26.039
was designed and intended to prevent a windfall

00:52:26.039 --> 00:52:28.659
to the secured creditors and forcing the unsecured

00:52:28.659 --> 00:52:30.400
creditors to have to pay for the expenses of

00:52:30.400 --> 00:52:32.599
liquidating a collateral. So it's not market

00:52:32.599 --> 00:52:35.400
and it's not interim for the dip lenders to get

00:52:35.400 --> 00:52:38.179
a final waiver of the 506C on entry of the interim

00:52:38.179 --> 00:52:40.860
order. That's the main issue. That's still open.

00:52:41.079 --> 00:52:43.820
We certainly appreciate that we made certain

00:52:43.820 --> 00:52:46.300
requests early today as soon as we could, and

00:52:46.300 --> 00:52:48.880
we made some headway, but that open issue is

00:52:48.880 --> 00:52:51.780
still there. We'd also ask that any material

00:52:51.780 --> 00:52:55.440
amendment of the DIP documents, that the discussions

00:52:55.440 --> 00:52:57.619
about those and notice of those be made available

00:52:57.619 --> 00:53:00.119
to parties seeking request of those, not just

00:53:00.119 --> 00:53:02.340
to the creditors' committee or the DIP lenders.

00:53:02.639 --> 00:53:05.719
And if there's a material event of default or

00:53:05.719 --> 00:53:08.900
a discussion about that, that also significant

00:53:08.900 --> 00:53:12.750
parties will request notice of that be able to

00:53:12.750 --> 00:53:16.010
participate. So, Your Honor, with that, we think

00:53:16.010 --> 00:53:18.670
this is a typical, simple maintenance of the

00:53:18.670 --> 00:53:21.449
status quo. There's no good reason why that 506C

00:53:21.449 --> 00:53:23.769
waiver can't wait until the final order so the

00:53:23.769 --> 00:53:25.610
parties have an opportunity and the creditors

00:53:25.610 --> 00:53:27.789
committee can be formed and weigh in and look

00:53:27.789 --> 00:53:33.670
at these issues. All right. Thank you, Ms. Heinlein.

00:53:35.050 --> 00:53:37.269
Good evening, Your Honor. Leslie Heinlein, Ballard

00:53:37.269 --> 00:53:39.869
Spar on behalf of a number of the debtors, landlords.

00:53:40.639 --> 00:53:44.400
I join in all of the statements that Mr. Laheen

00:53:44.400 --> 00:53:49.360
conveyed. Your Honor, we do believe the DIP lender's

00:53:49.360 --> 00:53:52.340
request for a first -day marshaling 506C and

00:53:52.340 --> 00:53:56.280
552 waivers are not customary DIP terms that

00:53:56.280 --> 00:54:00.360
we usually see on a first day. And it is extraordinary

00:54:00.360 --> 00:54:03.880
relief. It is not market, as Mr. Laheen indicated.

00:54:07.170 --> 00:54:09.969
and duly prejudices the rights of the creditors,

00:54:10.170 --> 00:54:13.449
many of whom we don't even know that they are

00:54:13.449 --> 00:54:15.389
creditors yet, and they're the ones that are

00:54:15.389 --> 00:54:17.750
going to be ultimately harmed if this case ends

00:54:17.750 --> 00:54:20.610
in a liquidation. I will conclude that these

00:54:20.610 --> 00:54:23.289
waivers are typical components of dip financing.

00:54:23.840 --> 00:54:26.599
but usually they are not granted until approval

00:54:26.599 --> 00:54:30.199
of a final order. On a first day, on an expedited

00:54:30.199 --> 00:54:32.980
interim basis, the standard is to maintain the

00:54:32.980 --> 00:54:35.539
status quo. We've heard that a lot today. It's

00:54:35.539 --> 00:54:38.000
to preserve the rights and interests of all parties

00:54:38.000 --> 00:54:41.659
to the maximum extent possible and avoid irreparable

00:54:41.659 --> 00:54:45.179
harm until the parties have actual notice, representation,

00:54:45.679 --> 00:54:48.059
and an opportunity to review and evaluate the

00:54:48.059 --> 00:54:51.099
financing documents, the budget, and what expenses

00:54:51.099 --> 00:54:53.400
are actually captured or not captured in the

00:54:53.400 --> 00:54:57.039
budget. Important, as Your Honor heard from the

00:54:57.039 --> 00:55:00.679
testimony by Mr. Weinstein today, and through

00:55:00.679 --> 00:55:02.699
our discussions with the getters in advance of

00:55:02.699 --> 00:55:05.699
this hearing, we did learn that the unpaid sub

00:55:05.699 --> 00:55:09.300
rents estimated to be approximately $16 to $19

00:55:09.300 --> 00:55:13.539
million are not in the 13 -week budget, and instead

00:55:13.539 --> 00:55:16.059
are to be paid out at the end of the cases with

00:55:16.059 --> 00:55:19.320
other administrative claims. We do not know how

00:55:19.320 --> 00:55:21.760
many locations are impacted by the non -payment

00:55:21.760 --> 00:55:25.300
of those rents. The sub rent is certainly a cost

00:55:25.300 --> 00:55:27.639
of these estates that is being incurred before

00:55:27.639 --> 00:55:31.340
the entry of the final order and is an administrative

00:55:31.340 --> 00:55:34.539
expense that likely will not be recoverable by

00:55:34.539 --> 00:55:36.980
way of a surcharge if these waivers are granted

00:55:36.980 --> 00:55:42.380
today. But yet the debtors find themselves administratively

00:55:42.380 --> 00:55:44.789
insolvent before the end of the case. which is

00:55:44.789 --> 00:55:47.949
a not uncommon path we have seen in many, many

00:55:47.949 --> 00:55:52.289
retail cases in recent years. So while this may

00:55:52.289 --> 00:55:55.389
be a standard relief on full notice at a final

00:55:55.389 --> 00:55:57.969
hearing, it's simply that too early in these

00:55:57.969 --> 00:56:00.570
cases to make this decision today, and there

00:56:00.570 --> 00:56:03.389
has been no justification for such extraordinary

00:56:03.389 --> 00:56:06.530
relief being asked on the first day. The landlords

00:56:06.530 --> 00:56:08.730
do not have access to the credit agreements.

00:56:08.989 --> 00:56:11.130
They have not had an opportunity to evaluate

00:56:11.130 --> 00:56:13.809
and conduct the diligence on the budget in the

00:56:13.809 --> 00:56:16.869
order which has been filed in a summarily fashion,

00:56:17.429 --> 00:56:19.730
or to assess that it includes sufficient amounts

00:56:19.730 --> 00:56:23.250
for all post -petition payments, including that

00:56:23.250 --> 00:56:26.769
the debtors will have sufficient liquidity upon

00:56:26.769 --> 00:56:29.170
exit of these cases to pay the still breath.

00:56:30.070 --> 00:56:34.969
Well, Your Honor, as we sit here today, the evidence...

00:56:35.679 --> 00:56:38.280
There is no evidence that our rights are adequately

00:56:38.280 --> 00:56:42.360
protected as required by 363E with respect to

00:56:42.360 --> 00:56:44.480
the use of their premises from the petition date

00:56:44.480 --> 00:56:48.280
to the end of January or with respect to the

00:56:48.280 --> 00:56:51.880
subsequent post -petition rent. We do think it's

00:56:51.880 --> 00:56:54.659
very curious from the debtors, the funders insistence

00:56:54.659 --> 00:56:56.980
on this waiver on the first day because they're

00:56:56.980 --> 00:57:00.840
the ones who know better what the sufficiency

00:57:00.840 --> 00:57:05.059
or insufficiency of the budget is to cover expenses.

00:57:05.280 --> 00:57:07.840
Are they so concerned that there will be a default

00:57:07.840 --> 00:57:10.880
before we can get to a final order, triggering

00:57:10.880 --> 00:57:13.900
a potential surcharge of their collateral? That

00:57:13.900 --> 00:57:16.960
frankly increases our concerns here. If there

00:57:16.960 --> 00:57:19.280
is a risk of surcharging the interim period,

00:57:19.599 --> 00:57:21.619
that is all the more reason not to grant those

00:57:21.619 --> 00:57:25.179
waivers today. And as presently drafted, if something

00:57:25.179 --> 00:57:28.699
unexpected happens, which if history is to prove

00:57:28.699 --> 00:57:32.159
us right, We don't get to a final dip order,

00:57:32.460 --> 00:57:34.619
but the lenders will have had the benefit of

00:57:34.619 --> 00:57:38.099
the 506C immediately, and there will be no ability

00:57:38.099 --> 00:57:40.960
to surcharge or pay the administrative freight

00:57:40.960 --> 00:57:44.559
of these cases. Your Honor, it's not locked on

00:57:44.559 --> 00:57:47.760
anybody. This is a retail business. And substantially,

00:57:47.920 --> 00:57:50.380
all of the collateral is sold in the land -wide

00:57:50.380 --> 00:57:53.280
premises. And the debtors are open and operating

00:57:53.280 --> 00:57:56.519
in those premises today. And there's been many,

00:57:56.579 --> 00:58:00.599
many statements today that This case and this

00:58:00.599 --> 00:58:03.380
debt is needed to keep that inventory flowing

00:58:03.380 --> 00:58:06.820
into the stores. Surcharge is not about the debt.

00:58:07.099 --> 00:58:09.440
It's actually about the collateral. And that

00:58:09.440 --> 00:58:12.179
collateral is being commingled in the stores

00:58:12.179 --> 00:58:17.440
as soon after you enter this order. So it just

00:58:17.440 --> 00:58:21.659
makes no difference if we're granting a surcharge

00:58:21.659 --> 00:58:24.389
waiver or waivers on the first day. solely to

00:58:24.389 --> 00:58:26.989
the dip lenders, but reserving the pre -petition

00:58:26.989 --> 00:58:29.530
lenders because it's the collateral that matters,

00:58:29.929 --> 00:58:32.929
and the harm will be already done if it's granted

00:58:32.929 --> 00:58:35.969
today. The rights that the debtors are asking

00:58:35.969 --> 00:58:38.309
this court to waive today are precisely the rights

00:58:38.309 --> 00:58:41.210
designed and put into the bankruptcy code specifically

00:58:41.210 --> 00:58:44.230
to protect the interests of creditors providing

00:58:44.230 --> 00:58:46.969
post -petition goods and services to these debtors.

00:58:47.269 --> 00:58:49.909
Those rights should not be waived on an expedited

00:58:49.909 --> 00:58:53.199
basis on the first day. prior to the formation

00:58:53.199 --> 00:58:56.059
of the creditors committee to evaluate these

00:58:56.059 --> 00:58:58.320
issues, to evaluate the budget, and certainly

00:58:58.320 --> 00:59:01.079
not before a final hearing on notice and due

00:59:01.079 --> 00:59:04.260
process. And again, I think we all said this,

00:59:04.360 --> 00:59:07.059
the simple solution here is one that has been

00:59:07.059 --> 00:59:09.059
reached and frankly agreed to only virtually

00:59:09.059 --> 00:59:12.639
every retail case in recent history. Those provisions

00:59:12.639 --> 00:59:16.760
should be subject to the final order and everybody

00:59:16.760 --> 00:59:19.179
should have notice of those provisions. Thank

00:59:19.179 --> 00:59:25.519
you, Your Honor. All right, Mr. Britton. Thank

00:59:25.519 --> 00:59:28.280
you, Your Honor. I'll be brief. It's late, and

00:59:28.280 --> 00:59:31.539
I just want to clarify a few points. I think

00:59:31.539 --> 00:59:35.559
that enclosing argument, various counsel models,

00:59:35.900 --> 00:59:38.519
facts, and evidence have been presented to Your

00:59:38.519 --> 00:59:40.820
Honor today. So I just want to make four very

00:59:40.820 --> 00:59:45.739
brief points. First, to be very clear, no World

00:59:45.739 --> 00:59:49.039
Code II creditor is being primed by our dip,

00:59:49.400 --> 00:59:52.500
other than ourselves. We are consensually priming

00:59:52.500 --> 00:59:55.639
our own lien. None of the other liens being taken

00:59:55.639 --> 00:59:58.119
by any creditor, Ms. Porty's client, or any other

00:59:58.119 --> 01:00:02.820
secured client within Old Co. II. Second, what

01:00:02.820 --> 01:00:05.000
the DIP loaner says in respect to the landlord's

01:00:05.000 --> 01:00:08.000
argument, Your Honor, is that with respect to

01:00:08.000 --> 01:00:12.519
the DIP loans, 506C and 552 don't apply the way

01:00:12.519 --> 01:00:15.380
it does on the first day to the extent they would

01:00:15.380 --> 01:00:17.920
apply. What they do not grant us is what we have

01:00:17.920 --> 01:00:22.239
not asked for. is a 506C waiver, 552B waiver,

01:00:22.679 --> 01:00:24.699
with respect to any pre -petition debt on an

01:00:24.699 --> 01:00:27.340
interim basis. So to the extent that the landlords

01:00:27.340 --> 01:00:29.719
are concerned about those issues, we're not asking

01:00:29.719 --> 01:00:34.900
for it. Third, Your Honor, there was some dialogue

01:00:34.900 --> 01:00:39.000
in cross -examination about, well, if you made

01:00:39.000 --> 01:00:43.420
up a hypothetical valuation for OCO -2 for the

01:00:43.420 --> 01:00:46.599
flagship stores, and some made up unrealistic

01:00:46.599 --> 01:00:49.800
hypothetical valuation, might there be a recovery

01:00:49.800 --> 01:00:52.519
to creditors, even in liquidation? And yeah,

01:00:52.519 --> 01:00:54.940
sure, if you want to make up numbers, at some

01:00:54.940 --> 01:00:57.000
number, you're going to get to a recovery. But

01:00:57.000 --> 01:01:00.400
the uncontroverted evidence and testimony from

01:01:00.400 --> 01:01:03.480
the debtor's CRO was that he believes, and he

01:01:03.480 --> 01:01:06.800
believes that his other fiduciaries who made

01:01:06.800 --> 01:01:09.679
decisions here around incurrence of the dip financing

01:01:09.679 --> 01:01:12.260
and the filing of these bankruptcy cases believe,

01:01:12.880 --> 01:01:15.699
that without a growing concern business, at the

01:01:15.699 --> 01:01:19.719
opto, Without continued rent payments to less,

01:01:19.719 --> 01:01:24.059
to less, uh, flagship entities, that those creditors

01:01:24.059 --> 01:01:27.019
won't be a zero. And liquidation, which is what

01:01:27.019 --> 01:01:29.940
that would be, they would get no recovery. The

01:01:29.940 --> 01:01:31.820
debt preserves their ability to fight for another

01:01:31.820 --> 01:01:36.079
day, your honor. Third, uh, uh, fourth, I guess,

01:01:36.340 --> 01:01:39.199
and this is the most important, just one simple

01:01:39.199 --> 01:01:42.579
point. There's been a lot of argument, a lot

01:01:42.579 --> 01:01:45.300
of statement, a lot of supposition. along the

01:01:45.300 --> 01:01:49.139
way, by Miss Sporty, by others. Well, dip lenders

01:01:49.139 --> 01:01:51.300
always say they will fund, but they always do.

01:01:51.679 --> 01:01:53.980
And what we should do is just maintain the status

01:01:53.980 --> 01:01:57.760
quo for 30 days. And inherent in that statement,

01:01:57.920 --> 01:02:02.199
Your Honor, is that we're willing to fund the

01:02:02.199 --> 01:02:04.980
status quo for 30 days. I just want to be abundantly

01:02:04.980 --> 01:02:10.500
clear. Without the value of flagship two, this

01:02:10.500 --> 01:02:14.119
loan is not financeable. This is not a loan that

01:02:14.119 --> 01:02:17.619
we can underwrite or we can carry to a second

01:02:17.619 --> 01:02:20.440
day hearing. Do we try it again? Without the

01:02:20.440 --> 01:02:24.039
value of the non -priming means that the debtors

01:02:24.039 --> 01:02:27.880
have proposed a place on flagship two, there

01:02:27.880 --> 01:02:30.079
is no dip load to get us to a second day hearing

01:02:30.079 --> 01:02:36.780
and maintain the status quo. Thank you. All right.

01:02:36.780 --> 01:02:43.719
Any further response? Your Honor, if I may? Yes,

01:02:43.719 --> 01:02:48.420
sir. Again, for the record, Dan Piero from Otterberg,

01:02:48.639 --> 01:02:52.320
co -counsel to the B of A, Bank of America, the

01:02:52.320 --> 01:02:54.900
administrative agent for the ABL bank group.

01:02:55.300 --> 01:02:57.159
Your Honor, I'll be brief as well. I just want

01:02:57.159 --> 01:02:59.059
to respond to a few points, and I'll try not

01:02:59.059 --> 01:03:04.500
to repeat what's already been said. The dip financing

01:03:04.500 --> 01:03:07.679
facilities of both the ABL and the node holders

01:03:07.679 --> 01:03:12.960
are actually... Sorry, I didn't echo. They're

01:03:12.960 --> 01:03:15.840
basically constructed to work in tandem. What

01:03:15.840 --> 01:03:18.719
I mean by that is the ADL dip, which is going

01:03:18.719 --> 01:03:23.139
to provide approximately $240 million of incremental

01:03:23.139 --> 01:03:26.079
liquidity that the company did not have prior

01:03:26.079 --> 01:03:28.699
to the bankruptcy as a result of the bank group

01:03:28.699 --> 01:03:31.980
releasing various reserves against the collateral,

01:03:32.480 --> 01:03:35.579
is a substantial contribution to the company's

01:03:35.579 --> 01:03:38.710
cash flow and liquidity needs. That money will

01:03:38.710 --> 01:03:41.769
be released when the note holders dip tranches,

01:03:41.849 --> 01:03:44.909
three tranches, the first of which is 400 million,

01:03:45.570 --> 01:03:47.469
and then the next two will be 300 million and

01:03:47.469 --> 01:03:51.369
300 million. Those monies are all being funded

01:03:51.369 --> 01:03:54.170
at the same time, in accordance with the budget,

01:03:54.550 --> 01:03:56.909
which is intended to get this company through

01:03:56.909 --> 01:04:00.050
a restructuring process. These dips are not.

01:04:00.280 --> 01:04:03.679
And I repeat, not structured to liquidate the

01:04:03.679 --> 01:04:06.000
collateral through some store -wide closing sales.

01:04:06.159 --> 01:04:08.579
That is not the goal. That is not the way these

01:04:08.579 --> 01:04:10.780
dips are designed. And to hear the landlords

01:04:10.780 --> 01:04:12.960
say, this is just another retail case, and the

01:04:12.960 --> 01:04:15.179
likelihood is we're not going to get to the final

01:04:15.179 --> 01:04:17.219
order without the fault in liquidating these

01:04:17.219 --> 01:04:20.260
stores is completely contrary to the negotiations

01:04:20.260 --> 01:04:23.400
that we've all had over the last week, every

01:04:23.400 --> 01:04:26.460
night, all night, weekends, not getting sleep.

01:04:26.760 --> 01:04:28.820
We are doing this to give the company the best

01:04:28.820 --> 01:04:31.889
shot. to restructure and reorganize the businesses

01:04:31.889 --> 01:04:34.849
and maintain and go into certain value. And,

01:04:34.929 --> 01:04:37.590
Your Honor, the waivers that we've asked for,

01:04:38.730 --> 01:04:41.929
as counsel for the note holders noted, is only

01:04:41.929 --> 01:04:45.570
regarding the DIP loan status, with regard to

01:04:45.570 --> 01:04:48.929
the pre -petition loan status of both the ABL

01:04:48.929 --> 01:04:53.030
and the note holders' secured claims. The 506C

01:04:53.030 --> 01:04:55.429
waiver, the 552Equities of the Case waiver, the

01:04:55.429 --> 01:04:57.699
Marshalling waiver, Those will be final order

01:04:57.699 --> 01:05:00.320
issues. What we're asking for, however, is in

01:05:00.320 --> 01:05:05.980
consideration for the $550 million of first day

01:05:05.980 --> 01:05:08.739
liquidity that will be provided between the ABL

01:05:08.739 --> 01:05:11.940
and the note holder dip facilities, we do want

01:05:11.940 --> 01:05:14.239
those waivers in effect with respect to those

01:05:14.239 --> 01:05:18.280
post -petition loans that we're making to effectively

01:05:18.280 --> 01:05:21.079
give this case the best jump start we can to

01:05:21.079 --> 01:05:23.000
successfully navigate through the Chapter 11.

01:05:23.260 --> 01:05:25.940
And your honor, I would make one more point with

01:05:25.940 --> 01:05:28.000
regard to the consigning vendors and the concession

01:05:28.000 --> 01:05:30.539
vendors. We are not priming their interests.

01:05:31.320 --> 01:05:33.639
This interim order does not affect their interests.

01:05:34.239 --> 01:05:36.599
All rights are reserved. We fully anticipate

01:05:36.599 --> 01:05:40.440
engaging with council for those vendors in an

01:05:40.440 --> 01:05:42.619
attempt to get language that many of us have

01:05:42.619 --> 01:05:45.000
seen in other tip orders in Chapter 11 cases

01:05:45.000 --> 01:05:48.099
such as this to get a consensual resolution.

01:05:48.409 --> 01:05:51.829
And obviously, between the interim hearing and

01:05:51.829 --> 01:05:54.110
the final hearing, all those rights will be reserved

01:05:54.110 --> 01:05:56.769
while we negotiate. Thank you, Your Honor. Thank

01:05:56.769 --> 01:06:02.210
you. All right. Anything further? Your Honor,

01:06:02.230 --> 01:06:05.090
I just had two minutes in response, if that's

01:06:05.090 --> 01:06:10.329
OK? Yes. Yes, absolutely. OK. Just a few points

01:06:10.329 --> 01:06:12.269
I want to hit based on the various arguments

01:06:12.269 --> 01:06:18.739
the parties made. I'll be very brief. $175 million

01:06:18.739 --> 01:06:22.340
claim against told go to You know that cream

01:06:22.340 --> 01:06:24.320
is claim isn't even crystallized yet. Yes. We

01:06:24.320 --> 01:06:26.460
filed a motion to reject their contract. It hasn't

01:06:26.460 --> 01:06:30.019
been rejected yet Even once it's rejected the

01:06:30.019 --> 01:06:32.599
actual size of that claim is still to be determined

01:06:32.599 --> 01:06:35.219
So at the moment all they have is a contingent

01:06:35.219 --> 01:06:51.010
claim little to no confidence will emerge, no

01:06:51.010 --> 01:06:55.949
game plan. That is belied by the facts here.

01:06:57.530 --> 01:07:00.909
The DIP lenders are putting over a billion dollars

01:07:00.909 --> 01:07:03.409
into this company. I don't believe they would

01:07:03.409 --> 01:08:02.719
do that. on the debtor's other assets, you heard

01:08:02.719 --> 01:08:06.960
from Mr. Britton, that's not financeable. And

01:08:06.960 --> 01:08:09.519
Mr. Baird, nobody was willing to fund without

01:08:09.519 --> 01:08:12.599
Holdcode 2 as collateral. The only world we live

01:08:12.599 --> 01:08:15.219
in now is the world where we're in, which is

01:08:15.219 --> 01:08:17.640
the only diff financing that will fund this company

01:08:17.640 --> 01:08:21.600
is the one that requires a lien at Holdcode 2.

01:10:39.529 --> 01:10:42.130
Your Honor, may I just respond very briefly?

01:10:42.949 --> 01:10:45.189
Yes. Mr. Cohen says we point to nothing. We do

01:10:45.189 --> 01:10:47.550
point to things. We point to things in our objection.

01:10:48.090 --> 01:10:50.229
I've stated things on the record, and that's

01:10:50.229 --> 01:10:52.510
why we need the time to be able to develop the

01:10:52.510 --> 01:10:55.590
record for Your Honor. So I sort of say the other

01:10:55.590 --> 01:10:57.590
side, which is it can't be the case that the

01:10:57.590 --> 01:11:00.069
debtors can just say, you know, we can come in

01:11:00.069 --> 01:11:02.569
here and impair a secure creditor's rights, and

01:11:02.569 --> 01:11:04.649
they don't get an opportunity to protect those

01:11:04.649 --> 01:11:07.189
rights because it's the first day. All right.

01:11:07.189 --> 01:11:09.880
Thank you. All right, anything further from anyone?

01:11:13.720 --> 01:11:18.180
All right, so, you know, we've been here for

01:11:18.180 --> 01:11:20.939
almost five and a half hours, no, six, five and

01:11:20.939 --> 01:11:27.619
a half, no, seven and a half hours. Seven and

01:11:27.619 --> 01:11:32.779
a half hours. And I think a significant factual

01:11:32.779 --> 01:11:40.250
record has been developed. And so, A lot of what

01:11:40.250 --> 01:11:44.770
was discussed today really doesn't go to the

01:11:44.770 --> 01:11:50.970
debtor's burden under 364 to get or under 363

01:11:50.970 --> 01:11:54.590
and 364 to obtain the financing. The arguments

01:11:54.590 --> 01:11:58.689
about, you know, management and all of those

01:11:58.689 --> 01:12:00.489
things, I mean, those can be addressed at other

01:12:00.489 --> 01:12:03.229
places. I think they were highlighted in the

01:12:03.229 --> 01:12:06.689
motion. So I'm going to focus on, you know, number

01:12:06.689 --> 01:12:09.699
one, the evidence, and number two, the requirements

01:12:09.699 --> 01:12:14.180
of Section 364. Based on the evidence, I find

01:12:14.180 --> 01:12:18.300
that the testimony has been that this is the

01:12:18.300 --> 01:12:24.420
only actionable dip, that it was well marketed

01:12:24.420 --> 01:12:30.939
and well developed, and that the premise that

01:12:30.939 --> 01:12:34.300
anyone could finance this company without the

01:12:34.300 --> 01:12:37.609
flagship debtors is just simply not borne out

01:12:37.609 --> 01:12:42.069
by the facts. So then the question becomes, is

01:12:42.069 --> 01:12:45.130
that a proper exercise of the debtor's business

01:12:45.130 --> 01:12:50.010
judgment? And when the evidence clearly indicates

01:12:50.010 --> 01:12:55.250
that the alternative is liquidation, I believe

01:12:55.250 --> 01:12:59.989
that that is properly a proper exercise of the

01:12:59.989 --> 01:13:03.909
debtor's business judgment. I also think that

01:13:03.909 --> 01:13:12.819
it's a false narrative to say that the H2 debtors

01:13:12.819 --> 01:13:16.420
are going to have a billion five in additional

01:13:16.420 --> 01:13:21.279
debt. I mean, they will incur that amount, but

01:13:21.279 --> 01:13:24.079
they will also have contribution rights from

01:13:24.079 --> 01:13:26.619
all the other subsidiaries. There are significant

01:13:26.619 --> 01:13:29.500
assets in the other subsidiaries, so we're not

01:13:29.500 --> 01:13:36.420
really talking about the contribution rights

01:13:36.420 --> 01:13:41.260
with respect to that. I agree with counsel that

01:13:41.260 --> 01:13:46.659
this isn't a priming lien. This is not a situation

01:13:46.659 --> 01:13:50.899
where the only priming here is consensual. To

01:13:50.899 --> 01:13:53.100
the extent these acts were ultra virus, again,

01:13:53.159 --> 01:13:55.420
I'm not deciding that today. To the extent they

01:13:55.420 --> 01:13:58.420
were ultra virus and the debtor didn't have the

01:13:58.420 --> 01:14:02.340
ability to do that, I think that that's That's

01:14:02.340 --> 01:14:04.319
a risk that the debtor is running, because I'm

01:14:04.319 --> 01:14:08.979
not making any determination as to whether it

01:14:08.979 --> 01:14:12.840
was ultraviolet. So as it relates to the business

01:14:12.840 --> 01:14:15.680
justification, I think that there is a business

01:14:15.680 --> 01:14:20.020
justification. I think the evidence compels the

01:14:20.020 --> 01:14:23.079
business justification. And I think the narrative

01:14:23.079 --> 01:14:29.250
that that you can in essence pull out H2 and

01:14:29.250 --> 01:14:32.329
not look at it in the context of the money that

01:14:32.329 --> 01:14:36.369
is being funded for the flagship store to operate,

01:14:36.649 --> 01:14:40.970
to pay the CNBS, to do all of those things that

01:14:40.970 --> 01:14:43.310
you need in order to maintain in the ordinary

01:14:43.310 --> 01:14:46.590
course of business. I think that that is just

01:14:46.590 --> 01:14:51.630
a false premise and it doesn't. go to the debtor's

01:14:51.630 --> 01:14:54.510
business justification with respect to that.

01:14:54.770 --> 01:14:58.630
I had, you know, three major concerns about the

01:14:58.630 --> 01:15:02.229
proposed form of order. I think these are all

01:15:02.229 --> 01:15:09.989
technical. One was the 506c waiver. I think that's

01:15:09.989 --> 01:15:12.409
properly, and I understand that you've limited

01:15:12.409 --> 01:15:15.770
it to the new money, but again, I think that

01:15:15.770 --> 01:15:18.750
that you're getting the liens on the asset. So

01:15:18.750 --> 01:15:23.729
I think that's properly subject to a final order.

01:15:24.050 --> 01:15:28.470
Second, there was only a $50 ,000 budget for

01:15:28.470 --> 01:15:32.789
the unsecured creditors committee. I think we

01:15:32.789 --> 01:15:35.890
need to increase that budget to at least $250

01:15:35.890 --> 01:15:41.449
,000. And then third, there was, in your paragraph,

01:15:45.289 --> 01:15:52.590
in your paragraph 16 with respect to the remedies

01:15:52.590 --> 01:15:58.350
at 16A sub little 6 in the hole and little 7

01:15:58.350 --> 01:16:03.630
in the hole. With respect to those two remedies,

01:16:04.010 --> 01:16:07.670
I think the way you have it is that There's a

01:16:07.670 --> 01:16:10.210
remedies notice period. I think you really, the

01:16:10.210 --> 01:16:13.170
way that we've structured these here is that

01:16:13.170 --> 01:16:15.069
you need to come back to court to get it. But

01:16:15.069 --> 01:16:19.609
I think that, you know, similar to the one that,

01:16:19.729 --> 01:16:22.829
the cash collateral order that was signed before,

01:16:23.170 --> 01:16:25.489
I think it's the same effect, but I think it's

01:16:25.489 --> 01:16:30.350
all as a result of, I don't know what happened

01:16:30.350 --> 01:16:37.149
there. There we go. I think it's just, procedurally,

01:16:37.670 --> 01:16:42.029
I want before you can actually foreclose on the

01:16:42.029 --> 01:16:45.010
collateral, I think you need to get a court order

01:16:45.010 --> 01:16:47.829
and we can do that on, you know, 48 hours notice,

01:16:47.989 --> 01:16:50.649
have the hearing on that on 48 hours notice.

01:16:50.670 --> 01:16:55.409
So with those three, what I consider cosmetic

01:16:55.409 --> 01:17:01.989
changes, I'm prepared to grant the dip and with

01:17:01.989 --> 01:17:06.590
that, and also I want to make sure that The challenge

01:17:06.590 --> 01:17:10.050
period is the challenge period. And to the extent

01:17:10.050 --> 01:17:13.029
that there is a challenge, it's subject to the

01:17:13.029 --> 01:17:16.670
challenge period. And nothing that is other than

01:17:16.670 --> 01:17:20.170
the new money that's being put in, nothing in

01:17:20.170 --> 01:17:24.310
this order affects the ability to challenge it.

01:17:24.890 --> 01:17:31.729
And, you know, I think 60 days after the creditors'

01:17:31.869 --> 01:17:34.510
committee is appointed, We'll do it, but I'm

01:17:34.510 --> 01:17:37.930
prepared to approve the dip with those three

01:17:37.930 --> 01:17:42.430
minor changes. Your Honor, may I ask a clarifying

01:17:42.430 --> 01:17:46.029
question? Yes. This is Ominay Borty on behalf

01:17:46.029 --> 01:17:48.649
of Exonic. If at the final hearing, if we're

01:17:48.649 --> 01:17:50.909
able to convince Your Honor that the filings

01:17:50.909 --> 01:17:54.710
were ultraviruses or that this is a priming lien,

01:17:54.829 --> 01:17:59.710
which we respectfully continue to believe that

01:17:59.710 --> 01:18:03.939
it is, Would the liens then be able to be sort

01:18:03.939 --> 01:18:08.560
of come off of our subsidy area? Yeah, I think

01:18:08.560 --> 01:18:11.840
we'd have to consider that at the time. I would

01:18:11.840 --> 01:18:15.699
need some briefing on that, but I think we would

01:18:15.699 --> 01:18:17.600
need to consider that at the time. I'm not going

01:18:17.600 --> 01:18:20.560
to give an advisory opinion today on what the

01:18:20.560 --> 01:18:24.800
effect of that would be. So we would ask for

01:18:24.800 --> 01:18:27.579
a stay of the order with respect to that entity

01:18:27.579 --> 01:18:29.739
so that we could take an appeal of that issue.

01:18:30.490 --> 01:18:33.689
All right, the stay is denied. Yeah, Mr. Britton.

01:18:35.350 --> 01:18:37.649
Thank you. Thank you, Your Honor. Just quickly

01:18:37.649 --> 01:18:39.970
on behalf of the diplomats, I just wanted to

01:18:39.970 --> 01:18:42.090
confirm that we'll work with the lenders, sorry,

01:18:42.729 --> 01:18:45.369
we'll work with the debtors, Your Honor, to make

01:18:45.369 --> 01:18:47.170
the changes that you've requested of the U .S.

01:18:47.390 --> 01:18:50.489
That's no problem. All right. Thank you. All

01:18:50.489 --> 01:18:54.210
right. So, Mr. Gorin, get that, you know, try

01:18:54.210 --> 01:18:56.470
to get that order to me as quickly as possible.

01:18:57.269 --> 01:19:01.029
There's a whole day seminar tomorrow. So, you

01:19:01.029 --> 01:19:04.869
know, Mr. Laws is gonna have to get me. It's

01:19:04.869 --> 01:19:07.430
downstairs in the building and Mr. Laws will

01:19:07.430 --> 01:19:28.699
get me out to sign the order. consignment concession

01:19:28.699 --> 01:19:32.439
folks as well as the landlords. So that language

01:19:32.439 --> 01:19:34.239
has already all been inputted in the order. That

01:19:34.239 --> 01:19:36.539
should be ready to go. We'll input these three

01:19:36.539 --> 01:19:38.460
changes and get it over to your chambers ASAP.

01:19:38.859 --> 01:19:40.479
All right. Thank you. And you can look at the

01:19:40.479 --> 01:19:42.779
language in the cash collateral order, which

01:19:42.779 --> 01:19:46.520
I think tracked what the way I'd like to see

01:19:46.520 --> 01:19:50.239
the remedies period. Just with respect to the,

01:19:50.239 --> 01:19:54.500
you know, sub 6 and sub 7, not, I mean, they

01:19:54.500 --> 01:19:56.890
can obviously terminate the commitments, stop

01:19:56.890 --> 01:19:59.550
funding, et cetera, all of those things without,

01:19:59.649 --> 01:20:02.409
it's just foreclosing on the collateral. All

01:20:02.409 --> 01:20:05.270
right, so we'll be in recess. Thank you all.