You
Thank you.
This is the court clerk again.
There's someone who I've just admitted with an iPhone number.
Would you please rename yourself or let me know who you are?
Thank you.
Hi, this is Anna Yarumali from Latham.
That cell phone line is a Latham line and we will correct the name.
Thank you very much.
Good afternoon, everyone.
This is Judge Owens.
We are gathered together today virtually for a first day hearing in the Virgin Orbit Holdings
case.
We have a lot of ground to cover today, so I will turn the podium over to proposed counsel
for the debtors and you can walk me through today's agenda.
Good afternoon, Your Honor.
Kara Coyle, Young Conaway, Stargate and Taylor, proposed co-counsel to the debtors Virgin
Orbit Holdings Inc. and certain of its affiliates.
Can you hear me, Your Honor?
I can.
On behalf of the company, we'd like to thank Your Honor and your chambers for making the
time to hear us today.
We certainly appreciate it.
We'd also like to take the time to thank Ms. Sarkeesian and the Office of the United States
Trustee for working with us so constructively over the past week.
I believe we've narrowed many of the issues that were raised by Ms. Sarkeesian for purposes
of today.
Your Honor, we're pleased to be working with our colleagues from Latham and Watkins, many
of whom you'll hear from today.
They've each been admitted pro hoc VJ.
If it pleases the Court, before I cede the podium, the virtual podium to Ms. Yuramali,
I had one housekeeping matter.
We're trying to meet a funding deadline today, so we were hoping to take the dip up first
and then wages and then cash management.
So we would be going outside of the order that was presented in the agenda.
That would be fine.
All right.
Thank you, Your Honor.
Unless Your Honor has any questions for me, I'll cede the virtual podium to Ms. Yuramali.
Okay.
And just so everyone knows, I've read all the pleadings.
And since you have a funding deadline, you can tailor your presentations as you see fit.
Of course, I know how important it is to tell your story on the first day, so I don't mean
to imply that you should not present in the manner that you see fit.
But if we are running up against a funding deadline, I'm happy to accommodate a shortened
presentations on the first days and other papers as well.
Ms. Yuramali, good afternoon.
Thank you, Your Honor.
Good afternoon.
Anu Yuramali of Latham and Watkins, proposed council to the debtors.
I'm here today with George Cladonis, Lisa Burton, Brian Rosen, and Mohini Rarick, who
will all introduce themselves as they take the podium.
I echo Ms. Coyle in thanking the court for accommodating us on short notice so that we
have the opportunity today to seek the very important first day relief you'll hear about
shortly.
Your Honor, we have a few slides that we'd like to use for these introductory remarks.
May I please ask the court to provide Gail Reiser with screen sharing privileges?
Yep, we're all set.
Thank you.
Before we get into the substance, I want to introduce a few folks to the court.
First, Dan Hart, the company's chief executive officer and one of the first day declarants.
Brian Whitman of Alvarez and Marcell, the company's financial advisor and the other first day
declarant.
Agnes Tang and Dave Zubricki of Dusera Partners, the company's investment banker.
Your Honor, we filed for Chapter 11 overnight Monday and served the motions and notice of
the first day hearing on all of the relevant parties listed in the notice provision of
each motion.
We worked with our DIP lender and their counsel, Davis Polk, pre-filing and before the hearing
on the form of proposed orders to accommodate their comments.
We also have had very productive discussions with Ms. Sarkeesian of the Office of the United
States Trustee, which has led to the resolution of almost all of the office's questions and
concerns and because of her efforts, we will hopefully have a relatively straightforward
hearing today.
I will provide brief remarks now about the background of the company and how we ended
up here today and then we'll turn the podium over to my colleagues to go through the agenda.
I plan to introduce the debtors and their business to the court, review their corporate
and capital structure, and spend some time explaining how the company arrived here today
and the path forward.
The DIP financing is a part of this story, but I'll leave that for Mr. Cladonis so that
we are not being repetitive.
I am also sure Your Honor has read the first day declaration and I will try to avoid redundancy
there as well.
Your Honor, the debtors were founded in 2017.
And from 2017 to 2020, the debtors designed, manufactured, and tested their space equipment
and refined their operations for state-of-the-art satellite and launch technologies.
The debtors began commercial operations in 2020, achieving 33 successful satellite launches.
The company is headquartered in Long Beach, California, and has a testing site in Mojave,
California.
The debtors provide rideshare satellite services to their customers, and by rideshare I mean
that the debtors can launch multiple satellites belonging to multiple customers in a single
mission.
The debtors are vertically integrated from design and manufacturing to launch equipment
and operations.
They offer fully mobile launch services using a modified custom-fitted Boeing 747 named
Cosmic Girl and a specially designed rocket named Launcher One that is the world's first
and only liquid-fueled air-launched rocket to reach orbit successfully.
The debtors have the capabilities to provide mobile launch services both domestically and
internationally.
So why is this company different from its competition?
Rather than a ground launch system that is fixed to a specific location, the company
uses an air-launch system that is more reliable and agile and allows the company to execute
launches from any governmental-licensed horizontal spaceport with a runway long enough to support
a Boeing 747-400 aircraft.
The environmental impact of the launch – air-launch system is similar to commercial aircraft
and the launch system is less susceptible to weather-cause delays.
The debtors operate within the space economy, which is an exciting, growing, and competitive
industry.
The debtors serve both the private and public sector with several key contracts for government
and national security agencies to provide their unique capabilities both in the U.S.
and abroad.
On the public side, key defense and national security customers include the governments
of the United States and the United Kingdom.
In addition, the debtors offer their launch services to private companies like ANA, ARCET,
and SATRevolution, and civil launch organizations like NASA and UK Space.
The debtors have had four successful launches in 2021 and 2022.
The debtors did suffer one failed launch in early 2023 but have already determined its
root cause.
The debtors expect to receive return-to-flight status from the FAA during the month of April,
and the next rocket launch is in final integration and test phase in advance of its planned launch
in the third quarter of 2023.
Your Honor, the company consists of five U.S. entities.
Virgin Orbit Holdings, Inc. is the publicly traded parent company.
The largest shareholder is Virgin Investments Limited, holding approximately 64 percent
of the shares in Virgin Orbit Holdings, and Fifteenth Investment Company is another large
shareholder.
The stock traded on the NASDAQ until yesterday when it was delisted.
Moving down the structure, there are four U.S. subsidiaries, which are all debtors.
Virgin Orbit LLC is the company's operational entity, and together with Virgin Orbit National
Systems LLC, these two entities are the domestic employers and both hold certain customer and
vendor contracts, intellectual property, and equipment.
In addition, JACM Holdings, Inc. holds certain equipment, and finally, Viaco USA, Inc. was
part of the merger process.
The company also has three foreign subsidiaries in Brazil, Mexico, and UK that hold limited
assets, and these entities are non-debtors, and these entities do not anticipate receiving
funding from the debtors.
Pre-petition, the debtors issued approximately $70.9 million in secured convertible notes
to Virgin Investments Limited from November 2022 to March 2023 to infuse liquidity into
the company.
These notes are issued by Virgin Orbit Holdings and are guaranteed by the U.S. debtors.
The debtors also issued approximately $51 million in unsecured convertible notes to
YA2PN Limited, who we call Yorkville, in January 2022 – in January 22 and March 2023.
Through a series of conversions into equity over time and the recent issuance of additional
convertible notes, Yorkville now has approximately $2 million in unsecured debt outstanding.
Also as of the petition date, the debtors have approximately $34 million in unsecured
trade payables, $41 million of contractual purchase obligations, and are holding approximately
$25 million in customer deposits, as well as approximately $6 million in other unsecured
liabilities or other contingent claims.
With respect to the company's liquidity, it's worth going back to the beginning.
The company was formed in 2017, and the debtors announced its plans to go public in July 2021
through a merger with a SPAC.
In December 2021, companies DSPAC and related transactions, including a pipe, raised $228
million in net proceeds.
However, this amount was less than anticipated.
Since early 2022, in an effort to meet its capital needs, the company worked with Bank
of America and Goldman Sachs on strategic transactions and capital raises.
Numerous parties executed MDAs and explored options with the company, including strategic
acquisitions and debt financing.
The company continued these marketing efforts in earnest through March 2023, including after
the failed launch I had described earlier.
The company also engaged in contingency planning with the assistance of Latham, Ducera, and
Alvarez and Marzal.
While the company remained focused on out-of-court financing solutions up until the petition
date, management proceeded down a dual track to ensure that the value of the business and
the key assets was maintained.
The company also formed a transaction committee in March 2023 to evaluate potential strategic
alternatives, including but not limited to any debtor and possession financing and any
Section 363 sale transactions, particularly those types of transactions involving the
majority shareholders, including VIL.
The company has faced numerous challenges in its business operations and the ability
to raise additional funding.
These include significant upfront investment needs to develop launch capabilities and acquire
customers and scalability issues.
This is coupled with challenging financial markets and high interest rates, competition
in the commercial markets, attrition, and technical issues leading to slow production.
And an unsuccessful launch in January 23 negatively impacted the company's ability to obtain
significant additional liquidity.
Despite those challenges, the company's out-of-court marketing efforts were robust and resulted
in one indication of interest in a potential sale and one for a structured financing transaction.
Unfortunately, neither of those transactions materialized despite significant effort from
parties leading up to the petition date.
In the run-up to the filing of these cases, the debtors faced liquidity constraints while
they continued these out-of-market – out-of-court marketing efforts.
In mid-March, the debtors paused operations and placed the vast majority of their workforce
on vacation.
To that end, they also raised an additional $1 million in unsecured financing from Yorkville
that provided additional runway to seek an out-of-court transaction.
Unfortunately, these out-of-court efforts did not materialize and additional liquidity
was not available to the company.
On March 30th, the debtors secured $10.9 million in bridge financing from the parent, BIL,
to implement a reduction in force impacting approximately 670 employees and – which
was used to provide these employees with severance, COBRA, and outplacement services.
The company's workforce has now been reduced to 100 employees that have the key knowledge
to maintain the assets and allow business operations to restart once a buyer is – buyer
can be identified.
These employees will also assist with marketing the business, maintaining the debtors' assets,
and providing the necessary reporting during the Chapter 11 cases, all with an eye towards
maximizing value.
Even after these significant measures were taken, the debtors did continue to explore
out-of-court options, but ultimately came to the conclusion that a fulsome open marketing
process in court would be the most value-maximizing path forward.
Your Honor, there are three key elements to these cases.
First is the DIP.
Mr. Clodonis will shortly provide more detail on that, but the debtors intend to fund these
cases and ongoing operations using the DIP facility being provided by BIL, which includes
a new money component of approximately $27 million.
The company and its advisors had hard-fought negotiations with BIL and its advisors Davis
Polk and FTI on the DIP and the timeline.
Where do we go from here?
We intend to continue the sale process.
We've negotiated for a case timeline that will allow the company to continue marketing
a sale for their assets in whole or in part.
The debtors believe that the parties already identified in the pre-petition marketing process,
as well as new parties, will have interest in pursuing an acquisition of the debtors.
Mr. Clodonis will provide more detail on the milestones, but the debtors do believe that
they provide the ability to seek value-maximizing bids, but will also ensure that the company
does not linger in Chapter 11.
Simultaneously with the sale efforts, the debtors will be working towards a plan and
confirmation process.
A UCC will be appointed in short order, and the debtors intend to work with all of their
stakeholders to hopefully achieve a consensual and efficient conclusion to these cases.
Unless Your Honor has any questions for me on the background that I just provided, I
will cede the podium to my colleague, Amy Quartarola.
Thank you very much.
I have no questions.
Thank you, Your Honor.
Good afternoon, Your Honor.
Can you hear me okay?
I can.
Okay.
Amy, for the record, Amy Quartarola of Latham & Watkins has proposed counsel to the debtors.
We will be offering an additional declaration when we get to the DIP motion, but for now,
we have three declarations that we would like to offer into evidence in connection with
the first day relief being sought today.
First is the declaration of Daniel M. Hart in support of Chapter 11 petitions and first-day
pleadings.
That can be found at Docket Number 13.
Second, the declaration of Brian Whitman in support of Chapter 11 petitions and first-day
pleadings.
That can be found at Docket Number 14.
And third, the supplemental declaration of Brian Whitman in support of Chapter 11 petitions
and first-day pleadings that was filed earlier this morning.
That can be found at Docket Number 56.
In addition, at the request of the Office of the United States Trustee, the debtors
will make a short proffer, which is as follows.
Daniel M. Hart, the Chief Executive Officer of the debtors, is in the courtroom today
and prepared to testify as a supplement to the statements in his filed declaration as
follows.
Mr. Hart would testify that the statements contained in paragraphs 24 through 86 of the
declaration of Brian Whitman, which is found at Docket Number 14, as offered in support
of the first-day relief being sought by the debtors here today, are, to the best of Mr.
Hart's knowledge, accurate.
Both Mr. Hart and Mr. Whitman are on Zoom and available for questioning.
Accordingly, the debtors would request the Court admit into evidence Docket Numbers 13,
14, and 56.
Thank you very much.
Does anyone object to the admission of the three declarations, the two of Mr. Whitman
and the one of Mr. Hart, as well as the admission of the supplemental proffer?
I'm hearing no objections, so they're admitted.
For my housekeeping purposes, does anyone tend to cross-examine the witnesses today
on the substance of their testimony?
Okay.
Thank you very much.
I appreciate the declarants' time and attention to submitting their declarations.
I had the opportunity to review them prior to taking the bench, and they were very helpful.
So thank you very much for those submissions.
Thank you, Your Honor.
I'll now turn the podium over to my colleague, Mr. Flodones.
Okay.
Great.
Thank you.
Good afternoon, Your Honor.
George Clodones of Latham and Watkins, representing the debtors in possession here.
Good afternoon.
I'd like to turn to the motion for entry of interim and final orders with respect to
the post-petition financing, use of cash collateral, granting leads providing super-priority admin
expense, adequate protection, and modifying the automatic stay.
As part of that request for relief, we submit an additional declaration for David Zubricki,
who's the investment banker from DuSera, docket number 18.
Okay.
Does anyone object to the admission of Mr. Zubricki's declaration today?
Hearing no objection, the declaration is admitted.
For housekeeping purposes, does anyone intend to examine Mr. Zubricki on the substance of
his testimony today?
All right.
I'm not hearing anyone.
Thank you very much.
Thank you, Your Honor.
First, I'd like to thank the U.S. trustee for working with us all weekend, up until right
before the hearing, to get to an almost consensual dip order.
I do believe that the negotiations between the company and the dip lender on one hand
and the U.S. trustee on the other have gotten very close to a consensual dip order.
That said, the latest version that we filed was about an hour ago.
I docked at number 55.
At some point, we can turn to that and go through some more comments and thoughts from
the U.S. trustee.
But before we get into the details of the dip facility itself, I just want to highlight
a few points here on the background, and my colleague, Mr. Amali, mentioned them, but
I just want to highlight that the company has been out in the market since the closing
of its lease back in December 2021, trying to raise capital.
And although it's been out since December 2021 or early 2022, the negotiations really
intensified towards the end of 2022.
More specifically, the company hired two bankers pre-petitioned to run a variation of a public
equity raise and a debt raise and other sources of capital to try to bring in liquidity.
That process was run by two independent members of the board, but unfortunately, the company
was running out of money and continued to run out of cash a number of times between
November 2022 up until the eve of bankruptcy a couple days ago.
So at the time that Virgin Group or VIL, which is the company's largest shareholder, had
agreed to provide liquidity in the form of debt, and we call those the pre-petition notes
in the declaration.
More specifically, Your Honor, there were five instances that Virgin Group had provided
the company with liquidity, totaling approximately $70.9 million, $70.9 million.
A central part of the negotiations with respect to those pre-petition notes pertained to post-petition
financing, which would definitely be necessary if the company were to implement any transaction
through an in-court process.
As payables and wages were coming due, the key here was to get the company into a Chapter
11 process as soon as possible, build consensus around a sale process, and inject these estates
on the company with much needed liquidity.
It's important to note that the company filed with little liquidity, enough to pay for wages,
and so the dip financing here is crucial to stabilize the company.
So through the dip motion, Your Honor, we're seeking to enter into, or have authorization,
rather, to enter into the dip credit agreement and incur the dip financing, as well as the
rollout on an interim basis, which I'll get to in a second.
In terms of the numbers and what the dip does for the company, let me just lay out real
quickly exactly what we're asking for.
There's $12.5 million of new money today on an interim basis.
That's fresh new capital post-petition.
The company is also seeking to roll out $10.9 million of what we call bridge notes, which
are pre-petition, which were issued last Thursday and used to pay for severance for pre-petition
reduction in force.
It also gives the debtors an additional $15,150,000 in the final date, and it also has the capability
of accessing $4.2 million if the company needs to undergo another reduction in force, depending
on where the marketing process goes.
Finally, there's a rollup in there for a total of $42.5 million, and if you do the math between
both pre-petition and post-petition, it comes out to be about a one-to-one ratio.
Some of the key terms to highlight, but they're pretty clear in the motion.
In terms of interest, the new money in the bridge is cash pay at 12%.
The rollup loans are not cash pay.
They're PIC.
There are upfront fees for fresh capital, the 3%, and that's interim, final, severance,
and these bridge notes, which pay for the severance.
The maturity date is July 8, 2023, and it gives the company the capability to run the
sale process and get to a plan, too, at the end of the case.
The company submitted... Sorry, let me just go back for a second.
The company believes that the debtors have met their burden based on the first aid declaration
and the declaration of Mrs. Zubricki, as well as Mr. Whitman.
The company also believes that this is the best and only dip out there.
Ducera did assess the market for dip financing, and in fact, not only shopped potential dip
financing, but shopped the dip proposal that was provided by Virgin Group.
They not only shopped what you would typically see as a junior dip and as a senior dip or
priming dip, albeit on a contested basis, but also whether any third parties were interested
in doing something a little more holistic in the form of refinancing the pre-petition
notes to effectuate some kind of in-court or out-of-court transaction.
There was no interest.
The dip financing and the proposed roll-up amounts is integrated with the lender's support
for the company and the sale process, which is why we're here today.
The lender, who is also the company's largest shareholder, has consistently supported this
company, both in assuring that there's adequate liquidity to run a strategic process, as well
as for the company to take care of its workforce, including the employees that were severed
a couple days ago.
Your Honor, I mentioned the two components of the dip, the roll-up, and the fact that
it's what has been referred to as an insider dip.
I do have a little bit to say on that, but I don't know if you have any questions on
the dip itself.
I do.
Am I correct in understanding that there is an 18% interest wealth pick on the rolled-up
loans that are currently at 16% or lower?
Yes.
Okay, so it's a higher interest rate for the roll-up loan?
Correct.
Am I understanding that the dip lender is demanding a 3% fee on the roll-up portions?
Or has that been taken out?
The 3% fee, which is the upfront cash fee, is on the interim, on the final, on the severance,
which is the 4.2.
Those are the three post-petition fresh new money components, as well as the bridge, which
is the 10.9 that was just done pre-petition.
So yes, there's a component that's on the roll-up, but not on the interim final.
Sorry.
The interim, final, and severance are all post-petition.
Was there a fee charge for the 10.9 bridge loan just a week ago?
You mean fee charge pre-petition that we paid as a company?
Yes.
Is the company already obligated to pay a fee for the 10.9 that was extended last week
by VIL?
No, we didn't pay a fee pre-petition.
No fees.
Okay.
All right, thank you.
Those are my only questions right now.
Okay.
I just want to touch briefly on the roll-up point and the insider point, because I think
it's kind of important to the narrative.
The company does use the roll-up important as part of the DIP, and there's a few reasons
why.
First, I mean the obvious, it's a condition to the DIP financing, and we need the DIP
financing, so it's important to the company.
The second is 10.9 million from last Thursday.
That was effectively viewed as a pre-DIP financing facility, allowed the company to pay approximately
671 employee severance, and allowed the company to treat its people properly, and most importantly,
retain the people that are currently still at the company, approximately 100 people,
so that they understand that they're still, you know, that the people are important to
this company during this process.
The roll-up economics are slightly similar, although to your point, Your Honor, they're
a little higher at 2% on the roll-up piece.
The bridge notes have allowed the company to maintain, and when I say the bridge notes,
the pre-petition notes that were entered into the 10.9 million, they've allowed the
company to maintain the core business, the core employees, the key components that are
required to run a good marketing process here, and to entice potential buyers to make bids.
I also think a key component here, at least on an interim basis, is the roll-up is also
subject to the challenge, so I'm not sure how unsecured creditors could be harmed, because
when a committee is formed, they'll have the ability to challenge.
And then finally, on the insider piece, I mean, there is a board here.
That board, when discussions began about SIPP, decided to create a transaction committee.
That transaction committee consisted of existing board members, Susan Helms and Katerina McFarland,
who were independent.
The transaction committee had authority to provide recommendations to the full board.
And when the board realized that this is going more toward the Chapter 11 restructuring process,
the board decided to bring in two restructuring independents to be added to that transaction
committee, Alan Carr and Jill Friesly.
And in the end, there was very much active engagement between the committee and the advisors
on one hand, and Virgin Group on the other hand, arms-length negotiations.
At the end, the transaction committee recommended that the board enter into the DIP.
We think it's squarely false, it's in the companies and the board's business judgment.
Virgin Group did not fixate the terms of this transaction.
There was an independent negotiation involved.
The directors weren't uninformed, did not lack independence.
So we don't think the insider piece is relevant here in terms of the way the process was done
at the board level.
And finally, just to close it out, the company believes that if this DIP financing is not
approved along with the 10.9, the company will be irreparably harmed.
There's virtually not enough cash on hand after we make our next payroll.
So Your Honor, we ask that the motion for DIP financing be entered on an interim basis.
Okay.
Well, I think you've previewed through a reply what Ms. Sarkeesian's issues or objections
might be with the DIP.
I'm happy to hear from all the parties that are in support of the DIP.
And then I'll hear from Ms. Sarkeesian and then you'll have the opportunity to reply.
Mr. Resnick, are you here for VLI?
Hi, Your Honor.
Nice to be back before you and good afternoon.
Good afternoon and nice to see you again.
So I'm here virtually with my colleagues, Josh Sturm and Jared Erickson, as well as
our co-counsel from Morris Nichols, Robert Denny and Eric Schwartz.
We are representing Virgin Investments Limited, which is the 64% shareholder, as well as the
existing pre-petition lender and the proposed DIP lender.
As Your Honor has heard, our client has been funding the company since last November, the
tune of $70.9 million as the company has engaged in its process to seek various types of transactions,
retail transactions, financing transactions, et cetera.
And Your Honor, just in terms of the roll-up here, just to directly, we were very surgical
and targeted in what we're requesting on the first day here.
The remaining part of the roll-up is subject to the final order.
And despite the fact that we engaged in five financings leading up to the bankruptcy, we
decided, our clients decided that for these purposes to request just a roll-up of the
financing that was provided four days in advance of the bankruptcy, it was to fund, as you
heard, the reduction in force and allow severance payments to 87% of the workforce, this is
671 employees, to right-size the workforce for this process.
And just to reiterate what was said before, we understand that the debtors were working
until literally the petition date to find alternatives to Chapter 11.
So we believe that the funding gave the company the chance of potentially avoiding Chapter
11.
And we think that this is the type of funding that was done as a quote-unquote pre-DIP and
was done expressly with a covenant to seek a roll-up of this amount.
We think this is the type of funding that should be promoted and supported.
And so we think it's entirely appropriate to be rolled up.
And as Mr. Pladona said, very importantly, the roll-up is fully subject to the challenge
rights of a committee.
And so we don't believe there are any issues with the financing.
But of course, if there were any issues with the $10.9 million financing, a committee would
be totally entitled to raise whatever challenge that they have.
Your Honor, I would also just echo the thanks to Ms. Sarkeesian.
We've been working with her nonstop since yesterday and several hours this morning.
And I believe we've come to a largely consensual order.
I do think there are a few other provisions throughout that I understand that she intends
to raise, Your Honor.
And we will be happy to respond when she does so.
Okay.
Thank you, Mr. Resnick.
Could you shed some light?
I understand, or at least I can anticipate the issues that Ms. Sarkeesian may have with
respect to the roll-up and putting those issues aside for the moment.
I'm interested in the basis for the higher interest rate on the roll-up loan as well
as the 3% fee on the interim bridge.
Can you shed some light onto that?
I think that's a fairly unusual, perhaps detrimental give by the estate on these roll-up loans.
And while I may not take issue on giving roll-ups on a bridge, this does seem to give the lender
more than to which it was entitled to one week ago.
And so could you shed some light on why that would be appropriate at the interim?
Sure.
At the time that our clients did the financing, last Thursday, I believe we were looking to
match the terms of the prior funding that had been done.
And so I think we matched the pre-petition rates that were in effect.
That's my understanding, I don't have it in front of me, so...
I think you were at 12 to 16% on the prior loans.
Exactly.
And the 4% differential represents...
That's right, now I've put this in front of...
So the 4% differential represents the default rate.
So the March 30th financing matched the interest rate of the February and the January financings.
Because if the company were to avoid Chapter 11, then we would have been fine with the
same rate being in effect.
The default rate is the additional 4% that would get you to 16%.
And so now, Your Honor, our view that if this is being rolled up into a debt, it should
have the same rate as the new money loans, albeit I understand it's being paid in kind.
And then there were no upfront fees charged last Thursday, the company did not have the
liquidity to pay it.
So we just would have had to upsize the loans and...
Sorry, upsize the node and round trip the 3% to ourselves, which we didn't think would
make sense to do last Thursday.
And so that's why we're seeking payment of the fee today, where the company will have
the liquidity under the financing.
Okay.
Thank you.
Okay.
Well, why don't I hear from Ms. Sarkeesian?
Thank you, Your Honor.
Can you hear me?
Yes, I can.
Thank you.
Good afternoon, Your Honor.
So for the record, Juliet Sarkeesian on behalf of the U.S. Trustee.
So I'm going to start with the issue of the roll up.
So my understanding and counsel can correct me if I'm wrong, is that on an interim basis,
there's going to be a total amount of $23.1 million.
Of that, $10.9 million is a roll up.
So by my math, that's 47% of the interim DIP financing is a roll up.
This is an insider loan.
So the DIP lender is the majority shareholder of the debtors, controls, is an indirect parent.
It is the prepetition lender.
And it also, my understanding is, is the licensor of the trademark of Virgin.
I'll talk a little bit about that in a minute.
So it is unquestionably an insider loan.
And to have such a significant percentage of the interim financing, almost 50%, be a
roll up on the first day with an insider loan, the U.S. Trustee objects to that.
In addition, as Your Honor pointed out, the interest rate is 18% on the roll up, and it's
12% on the new money.
I mean, that's what I saw in the motion.
I just heard Lenders Council, I thought said something higher than that.
But my understanding based on the motion is it's 12% for new money that is paid in cash,
and then the 12% is paid in kind, plus the 3% fee.
So that's a very significant difference in addition to being more than what it was for
the prepetition piece of it.
The U.S. Trustee believes that the committee absolutely should have an opportunity to be
heard on the roll up.
And if a roll up is allowed on the first day, they certainly can't, they could challenge
the rest of it at the final hearing, but they will not be able to challenge rolling up that
10.9 million.
Now, I heard Lenders Council say, well, you know, it's subject to the challenge period.
So if someone, if the committee or another party in interest were to challenge the, say,
the validity or the perfection of the prepetition liens, and that was successful, then of course
the roll up would be unwound.
But that's only a piece of it.
The other piece is the fact that the roll up takes what was a prepetition-sutured loan
with, which would going into bankruptcy be a prepetition-sutured claim and turns it into,
certainly the claim then becomes a super priority claim.
So that is a difference and that does not change.
Again, of course, if the underlying prepetition liens are set aside, if there's a successful
challenge, yes, that would affect everything.
But it may be that there's not a successful challenge, but nevertheless, one could still
object to taking the prepetition claim and turning it into a super priority claim.
And that is something I believe that the committee should have the opportunity to object to.
I do also want to put on the record that the U.S. trustee reserves its right at the final
hearing to object to the roll up even on a final basis, but we're not addressing that
at this point in time, just the, just the interim.
We also believe that a roll up here is unnecessary.
And again, this is based on the many hats that the lender's wearing here.
I mean, it really appears honestly that this bankruptcy is being run primarily, if not
exclusively for the benefit of the lenders, who again are also the majority shareholders
here.
And I can't, it's really hard for me to imagine an entity in this position where the majority
shareholder, they already have the prepetition loans to walk away if they're not getting
a 47% roll up on the first day.
And I now want to talk about that trademark issue, which is really concerning me.
So it's my understanding based on the documents that prior to the petition being filed, that
the lenders who are also, again, the prepetition slash dip lenders who are also the holders
of the Virgin license have terminated that license.
Or I understand that the debtors can continue to use the Virgin name until the sale is done,
but it effectively means that the debtors will not be able to sell as part of the sale.
And this is a, from what I understand, a fast sale case, that is the lenders are pushing
a really fast deadline here, that they're not going to be able to market that when we
sell this, you are going to be able to use the Virgin name.
So that's not going to be part of what's being sold.
And I'm not disputing that the lenders may be within their rights contractually to have
done that.
I have no idea.
I haven't seen the license.
I assume that the committee will look into that.
But it does hamper the ability of the debtors to get the highest possible recovery for their
assets.
So I think in light of all of these things and how many hats that the dip lenders are
wearing here, that a roll-up is just, again, on the first day, we would ask that it not
be approved.
Your Honor, unless you have further questions with respect to the, my argument with respect
to the roll-up is finished.
And I would just ask, Your Honor, you may like to hear other parties respond to my argument
on the roll-up before we get on to the other issues, which are, I would say, much less
significant than this one?
My preference is to hear your argument in its entirety.
And then I'll hear from other parties in interest, and we'll move forward.
Absolutely.
Okay.
And just so everyone is aware, I have a contested dip hearing starting at 3 today.
So while I am anxiously awaiting, and will give you as much time as I can, just be mindful
of that 3 o'clock hearing.
And Your Honor, if it pleases the Court, I would like to refer to the black line that
was, for pagination purposes, the black line that was filed with the Court at around noon.
That's fine.
It should be document number 55, I believe, Your Honor.
I have it up.
Thank you.
Perfect.
Okay.
So the first page would be on 31 of the black line, which is paragraph 7B as in boy.
Okay, one subsection B as in boy.
So the issue here is that these are the dip financing liens, and this has to do with the
priority of the dip financing liens.
So in A, talks about unencumbered property, so we're not dealing with that.
But in B, I had asked that these are the priming liens, and it states in the third line that
this will be, these liens shall be first priority senior priming security interests in all tangible
and intangible pre-petition, post-petition property of the dip loan parties, which are
the debtors.
So I had asked, this is what I understand is standard to have an exception, which is
to make such liens subject to any valid perfected and non-avoidable lien in existence as of
the petition date, maybe other than the primes, other than the pre-petition lenders liens,
and any valid non-avoidable lien in existence as of the petition date that is subsequently
perfected pursuant to 546B of the code.
Now that is included in subsection C, but it's not in B, and I think that that is appropriate
to be in B as well, subsection B as well.
And I know that the heading of it is liens priming certain pre-petition secured party
liens.
If you read the language, it is not actually limited to the pre-petition secured party
liens, because these dip liens are becoming first priority senior pronging security interests.
So that is, does Your Honor have any question about that point?
I apologize.
What paragraph are you in?
I understand what your position is, but I'm, there's, seems as if there's three paragraphs
that this could be relevant to, and I just want to make sure I'm looking at, or at least
two paragraphs.
Seven B is in boy, and it's on page 30, it's like the top of page 31 of the of the file
black line.
Okay.
And you said that this language you requested is in another paragraph?
Well, it's in paragraph C is in cat, but the difference is that they specify it's under,
well, so it's one, two, three, four, four, starting at four lines down in C is in cat,
and it continues over to the next page.
The difference there is there it specifically says senior, uses the word senior liens, whereas
again, just in my experience with at least with interim orders, it usually doesn't say
specify senior just says valid perfected non-avoidable security interest as a petition date or that
becomes so pursuant to 546b.
Okay.
So, okay.
All right.
So the next one is seven, I'm sorry, so the next one is in seven D is in dog, and that
is on page 32 of the black line.
And this is the heading is liens senior to certain other liens.
And if your honor goes down starting in line and line five, going on to seven, it's including,
so it's senior to certain liens and it specifies any liens or security interest granted in
favor of federal, state, municipal or other governmental units.
And I had requested or regulatory bodies, and I had requested that that particular provision
regarding governmental units and regulatory bodies, you need subject to final order just
to give such entities an opportunity to come in as I am not particularly knowledgeable
about regulatory governmental regulatory liens and what certainly like the opportunity for
those entities to be heard at the final hearing.
And that's also it's the exact same issue in paragraph 19a.
I don't think you need to look at that.
It's exactly the same wording.
And unless your honor has any questions about that, I will move on.
So the next one is paragraph 10, there's no subsection paragraph 10.
And on the black line, it's at the towards the bottom of page 35.
And this this provision relates to rights and remedies upon default.
And I'm looking at three lines from the bottom of page 35.
It's talking about what issues can be raised in an emergency hearing.
If there is a default and the debtors or other parties want to run in an expert emergency
hearing, this says that the sole purpose of the hearing would be to contest whether or
not an event of default has occurred or is continuing.
Your honor, I know I don't know that I had this issue discussed before your honor, but
I know some other judges do have an objection to the word soul for limiting them to just
addressing whether or not an event of default has occurred or is continuing.
So I'm actually just flagging this for your honor.
If your honor wishes to change that.
Should I move on to the next?
Yes, I agree.
The next is paragraph 13, which is on page 37 of the black line.
And there's two issues here.
So this provision is headed payments free and clear.
And is your honor caught up?
Yes, I'm there.
Okay.
So it says any and all payments or proceeds remitted to the dip agent by through or on
behalf of the dip secured parties pursuant to the provisions of this interim order, comma
the dip documents.
And then the next piece of it says or any subsequent order of the court shall be irrevocable,
receive free and clear of all claims, et cetera.
And I had a concern, you know, talking about any subsequent order of the court.
We don't know what those words might be.
So I was uncomfortable with with having that language in here.
I'm sure that if there's a subsequent order of the court that's relevant that the dip
agents will ask for whatever they deem is necessary for their protection.
But I was concerned about putting it putting it in here.
And then the other piece, and it's the same paragraph.
So you'll see if you go down to line five and six, there is a reference to sections
506 C and 552 B of the code.
And there I had asked that those provisions be subject to final order.
Just as they are in paragraphs 11 and 12, I believe.
11 and 12.
And I know this is a little bit different because it has to do with payments.
But again, nevertheless, it seemed consistent with what is typically done with respect to
506 C and 552 B to make that anything related to that be subject to final order so that
the committee can raise any concerns they might have.
Your honor, should I move on?
Just keep going forward and I'll let you know if we need to go slower.
The next one is page 46 and it's paragraph 19.
At the end of paragraph 19 B is in boy, it's towards the top of page 46.
And this is the actual the last three lines of this paragraph.
It's subsection C and it says this court shall retain jurisdiction and not withstanding such
dismissal, meaning dismissal of the case for the purposes of enforcing the claims, liens,
and security interests referred to in this paragraph and otherwise in this in-home order.
And I do know, again, I don't know if I've had this issue before you, but I know that
some judges object to this provision.
And surely, your honor, I mean, if the case is reopened, there's no question that the
court would have jurisdiction.
But prior to the case being reopened, I don't think it makes a whole lot of sense here.
But again, I'm really mostly, your honor, flagging it for you so that you would see
it and make whatever ruling is consistent with what you've done in the past.
Okay.
So that is okay.
Next is paragraph 20, which is on okay, 20 is payment of fees and expenses and we're
on page 49.
So what this provision relates to is it requires the debtors to pay the professional fees,
among other things, but the professional fees of the lenders.
And it has the usual language that we negotiated in the past and they put it in here where
they would send the invoices to our office.
We would have 10 days to review the invoices.
They're limited.
We're not getting full invoices.
We're getting a limited amount of information, but it's at least some information.
And then we have the opportunity to object if we feel that the fees are unreasonable.
And so that's fine until you get to page 49, where in the middle of the page, they make
an exception.
And let me tell you what it is first and I'll tell you where you can find it because it
doesn't really stand out.
Basically, the exception is, well, anything, any of the professional fees relating to the
dip financing, so the dip fees and expenses, including those relating to professionals
engaged by the dip secure parties or the prepayment secure parties, they get paid without having
to follow the provisions set forth in this order.
The lenders had offered to, I understand the closing is, if the dip is approved by the
court, that the closing is planned for tomorrow.
They offered to give me these invoices, I guess, now.
I appreciate that offer.
It's not a lot of time.
And if I had any objection to them, I would really not have enough time to run in here.
I also think the committee is one of the parties that also gets copies of these.
Obviously, they're not going to be formed by tomorrow.
And so, you know, we think that that should come out.
I think it could be subject to the same procedures.
I don't have a problem with them getting paid as long as it's subject to discouragement.
If we or the committee later challenge the amounts as unreasonable and are successful.
Okay.
All right.
Now we get to paragraph 21, which is the effect of the stipulation on third parties.
This is commonly what's known as a challenge provision.
And it starts, there's a few issues here.
It starts on page 50.
So if I would go to about the middle of the page, two, four, six, eight, ten, I think
it's the beginning of ten, line ten, there's a parenthetical that says that in each case,
what was it standing has to be obtained pursuant to an order for the court prior to the expiration
of the challenge period.
So a party has to file the motion for standing and your honor has to rule on it prior to
the expiration of the challenge period.
We had an issue with that.
We don't think that's fair.
Then in fact, in this case, the challenge period might even be less than 75 days because
it's the shorter of 75 days or I think plan confirmation.
So we typically, the language, what we typically ask for, and I know we've certainly gotten
this in many cases.
Again, I don't know that I've had this issue before, your honor.
Sorry, I'm just trying to get to my page on this.
Okay.
So we asked for that language to come out and instead we asked for language that said
that the filing of a motion seeking standing to file a challenge before the end of the
challenge period, if it attaches the proposed challenge, shall extend the challenge period
with respect to that party until two business days after the court rules on the standing
motion, if the court grants the standing motion, they would then have two days after entry
of the court order in order to go ahead and file so that it doesn't otherwise, effectively,
that 75 days becomes a much, much shorter period.
And again, also, I think forces the court to have to make somebody, the person making
the motion has to guess as to how long it's going to take the court to rule on it.
So that was one issue that we had.
And then the other issue, and I will have to say to debtors council and lenders council,
I apologize.
I had not, this was language I gave you.
You did not accept it.
In our call, I had overlooked it.
So we had asked that if the case converts to a case under Chapter 7 or Chapter 11, I'm
sorry, if the case converts to a Chapter 7 or if a Chapter 11 trustee is appointed prior
to the end of the challenge period, so before the end of the challenge period, a trustee,
either Chapter 7 or Chapter 11 is appointed, then the challenge period shall be extended
for that Chapter 7 or Chapter 11 trustee to 30 days after their appointment.
And we have some flexibility on the days, but if they got appointed, say, two or three
days before, or the case converts two or three days before the challenge period ends, it
would be nearly impossible for a trustee to pull everything together in a day or two to
do what's being demanded.
And again, that's pretty standard to have some period.
It might not be 30 days in every case, but that's pretty standard, asking a pretty standard
agreement that we get.
Okay.
And we are getting to the end of this, Your Honor.
I think, okay, this extension, okay, just two more things, Your Honor.
Okay, so we have 24, so that is on page 56 of the black line, and this provision is titled
interim order, interim order governs, and the first, well, the only sentence now is
that in the event of any inconsistency between the provisions of this interim order and the
DIP documents, that's fine, but then it says in the third line, or any other order entered
by this court, the provisions of this interim order shall govern.
So the interim order governs over any other order Your Honor may enter, whether today
or apparently at any point in the future, and that, what we think is problematic.
We're okay with the rest of that.
Obviously, interim order should govern over the DIP documents, but not any other order
that is entered by this court.
And I think that's consistent with, I know Your ruling's in the past with respect to
having similar language in the actual, like, individual orders, like wages or insurance,
that I know in the past Your Honor has just excised that type of provision in those orders.
This is the same provision as just in the financing order instead of the individual.
They did not put that in the individual orders.
And the very last thing, Your Honor, is that I just don't know Your Honor's preference
for this, so it has to do with the wording of the subject to final order.
So the language that they've used throughout is just subject to entry of final order.
And I know particularly that Judge Silverstein, the language that she has said that she likes
is subject to, subject to entry, subject to and effective upon entry of a final order
granting such relief.
So I had asked, you know, I think that it would be appropriate after final order to
say granting such relief, because if the final order doesn't grant the relief, then you're
not going to get it.
But again, I just bring this up so that Your Honor, whatever Your preference is in that
regard to make sure that that gets incorporated.
And I believe that those are all of my issues.
Okay.
All right.
Thank you, Ms. Sarkeesian.
Let me ask before I hear from Lenders' Council or Debtors' Council in response, is there
anyone else that wishes to be heard in connection with approval of the interim dip in use of
cash collateral today?
Okay.
I'm not hearing anyone.
Mr. Resnick, Mr. Clodonis, I'll defer to you on how you want to handle the issues.
Quite frankly, I've highlighted many of the same myself that Ms. Sarkeesian pointed out.
So if you want to respond on certain points, this is your opportunity to do that.
Can I just respond on a few points that are not in the context of the dip order, and then
we can talk about the dip order?
I think there was a discussion about the percentage or the ratio being 47%.
I just want to be clear what we're asking for today.
We're asking for 12.25 million new money post-petition under the interim plus the 10.9 million roll
of the bridge notes for the severance.
As far as the interest rate goes, I think there's a little back and forth on that.
Let me just be clear.
The pre-petition bridge notes are 12% with the plus 4% default rate, so 16%, and then
our roll-up on those notes is 18%.
Right.
So it's 2% higher.
And the new money loan interest I read in the pleadings is 12%, so it seems to be 6%
higher than the new money loans.
Is that correct?
Am I misunderstanding the pleadings?
No.
The new money loan for interest is 12% cash.
As far as the role of the pre-petition secured claim and running this process for the benefit
of lenders, just a very quick few points.
If this thing gets challenged by a committee, I think effectively what can happen is 10.9
comes unsecured, and it falls below the pre-petition secured debt.
By the way, VIL is the only other pre-petition secured funded debt holder, so there aren't
any other inter-creditories here.
I think effectively we get to the same place, but it ends up being unsecured.
As far as running for the benefit of the lenders, I think the process of being run for the benefit
of as many people as being benefited from it, which includes employees, vendors, taxing
authorities, insurance, the things we're asking for on day one, because I think the alternative
would have been something worse, and at least we can stabilize on day one to get people
paid on account of certain claims.
Then we'll see where the process goes.
We don't want to say where it's going to go, but we're optimistic and we're hopeful that
the process is going to go well.
On the trademark issue, Your Honor, yes, it was terminated.
I think it was in Mr. Zubricki's declaration that the trademark was terminated pre-petition.
The counterparty had the right to terminate pre-petition.
Laterally, we decided if we could get a better deal by mutual termination, we should do it.
We thought we could, and we did.
Basically, we have supposed to de-brand.
It was called de-branding for Virgin by the time of the disposition, the sale order effectively,
or the closing of the sale, so it gives us some time and some runway.
I mean, I don't think we'd be able to assume and assign it as a licensee over their objection.
The reality is, look, people can do whatever they want, potentially.
If there's a buyer and there's a conversation with anybody on this point, they'll have the
conversation.
We at least wanted to make sure that the bidding process was open and clear, that everybody
understands where we are in terms of the Virgin trademark.
Other than that, we can get into the orders, like the specific things that were raised.
I don't know, Brian, if you have anything you want to add.
Hold on.
Before we move forward, I just want to be clear.
I'm not approving anything today in connection with the trademark termination, am I?
Is there something in the DIP document that I did not see?
No.
No, we just thought it would... I mean, look, it's a condition to funding.
But it's already happened.
You already signed the agreement, correct?
Correct.
Okay.
And we don't want to bury it in the credit agreement, so we put it in one of the declarant
declarations so people saw it.
And we understand somebody might have questions about it, but we don't want it to come up
with one from them, but wait a second.
What is this trademark thing?
So we thought putting it in someone's declaration so that people saw it.
Okay.
Thank you.
I just wanted to make sure that I wasn't essentially approving that termination.
It's just a disclosure issue, it sounds.
Okay.
Thank you.
Mr. Resnick?
Yeah, that's right.
Sure, thank you.
I just wanted to make sure that I was getting everything Mr. Cladonis just said, and I'm
happy to walk through the various provisions of the order if that's helpful and express
our view.
So starting on page 31, I don't think there's a disagreement on substance here, Your Honor.
I think it's just drafting.
But section B talks about the pre-petition secured liens, and I just don't think it's
the right place for the 546B language, which is in section C that refers to the liens
jr. to certain other liens.
And so this is where C is the section that describes the liens being jr. to other liens.
And so I think it's just a proper placement of that provision, but I don't believe there's
anything substantive that we have disagreement on there.
I'll pummel through, but please stop me if you have any questions or want to discuss
any of it.
So I believe page 45 was the next one.
And that is the part...
No, actually, I'm sorry to interrupt.
You did skip one, which was page 32.
Sorry, I think what?
7D is in dog.
7D.
Okay, I'm sorry.
Page 30 what?
32.
This is the issue about the liens by governmental and regulatory...
Got it.
Okay, I said the wrong thing.
That one.
So, right, this is the...
The dip liens are senior to any liens that come up, including those that may be in favor
of governmental units.
So if a governmental creditor wants to raise an issue at the final, they can do that, but
we're not used to seeing this as being subject to the final order.
So in the highly unlikely event that anything were to happen in between interim and final,
we think this is perfectly appropriate relief that we don't have to worry about there being
other liens that are inappropriately ahead of the dip lien.
And quite frankly, I haven't seen that subject to entry of the final order.
Okay.
And then, Your Honor, in terms of the issues that the debtors can raise at a remedies hearing,
I understand that this goes both ways and judges have their preference.
I mean, our view is that a committee can come in and raise what the committee wants, but
the debtors have entered into their agreement with the lender here as to what happens if
there's a default.
And of course, if there's a debate about whether in fact there was a default, and that's perfectly
properly before, Your Honor.
But if there is a default, then the debtors have agreed that lender has the rights that
they have under the agreements.
And so that would be our position on the word sole.
We do understand that courts go various ways on that one, but we think it's appropriate
as between the agreement between the lenders and the debtor.
Page 37, paragraph 13.
So I read this provision is basically saying that if there are any payments made to the
dip, but lenders, so repayments of the dip loan, that those are irrevocable.
And, et cetera.
And this has the subject to sections 506C and 552B of the Bankruptcy Code.
So this is different than I think the sections elsewhere that refer to the 506C waiver and
the equities of the case waiver being subject to final order, which they always are.
This refers to actual repayments of the dip loan.
And so while I'm not entirely sure where you get repayments before the final order, if
the dip loan is repaid prior to the final order, our view is that those should not be
discourageable or subject to any claims retroactively under 506C and 552B.
I will move to, I think, oh, sorry, there was one other point on that paragraph 13.
I believe Ms. Ecclesiastin raised that payments are free and clear if they're required under
any other subsequent order of the court.
So I think this is a little bit more theoretical, to be honest, but if another order of the
court were to require pay down of the dip loan with proceeds, say, of an asset sale,
I think that pay down should be irrevocable.
And I mean, Ms. Ecclesiastin's view is, well, the other order could say that, but of course
our clients are extending the credit today based on this dip order and based on an expectation
that if it receives repayment under the dip, that that is not discourageable.
With that, I will move to page 46.
This is the court retaining jurisdiction, like, for purposes of enforcing claims.
I think it's appropriate.
Maybe courts go different ways on this, but we think it's perfectly fine for the court
to retain jurisdiction following dismissal of a case for the purpose of enforcing the
dip claims.
I don't think we're going to be worried about that in this case, but it's perhaps theoretical,
but we think it's fine and appropriate.
Page 49.
This is the payment of fees.
So in our experience, Your Honor, payment of fees, payment of lender fees are always
paid at closing and are not subject to the review period that, in our experience, starts
thereafter.
The dip lender here is funding an amount that takes into account prepetition and fees entered
through closing and would be appropriate and is universal, quite frankly.
We couldn't find a precedent otherwise for fees to be paid at closing and not subject
to the 10-day review period.
We also think this is not a practical issue, but we don't anticipate any issues on fees,
but just as a matter of what is customary and appropriate, we think that if the lender
is funding an amount today that accounts for fees to be paid at closing, that those should
be paid and should not be discourteous based on any process.
We have nothing to hide with the respective professional fees, and we have offered to
share those today with Ms. Sarkisian to be paid at closing, but that would be our position
on that one.
Paragraph 21 is – oh, this is the challenge period in terms of whether a committee or
somebody else pursuing a challenge has to get standing by the deadline or just file
a challenge.
We understand, Your Honor, that courts go different ways on this.
We do have several precedents of Your Honor that provide for this formulation.
We think – we'd like this to be a quick and orderly case, and we think having this
requirement will help in that regard as opposed to having a lender continue to pay at closing.
We do think that the lender will continue to fund an ongoing longer process, but we
do respect the fact that courts go both ways on this issue and would defer to Your Honor's
preference on it, but we believe this is justifiable.
I think paragraph – okay, this was – oh, the extension of –
the extension of the challenge period for 30 days after the appointment of a trustee.
Your Honor, I think if a trustee were appointed, we have no doubt that they would come in,
Your Honor, and seek an extension to pre-legislate for that, which I don't think is necessary.
I know so 30 days is perhaps a long period, but we would defer to Your Honor on that one.
Paragraph 24, in terms of the interim order of governing – so, Your Honor, we did have
language in all the other orders.
They were subject to the DIP Order and the DIP Budget, and we had specific language on
the DIP Budget and stuff.
We agreed to delete that, although I do think it's a helpful language that is justified.
I believe what Ms. Narcissian has an issue now is just a reference to any other order
of the court.
This order says a lot of things, and there are a lot of protections in this order, and
I think we just wanted to be clear that there's no other order that could impact or take away
all the rights, protections, means, and claims, and everything else that is very carefully
and meticulously spelled out and granted in this order.
And then I have – oh, the language of subject entry, the final order.
Yeah, Your Honor, we went with the simple version that we see in many precedents, and
we just think that's appropriate.
I think we were to add additional language, which is arguably superfluous.
It could lead to an ambiguity and a question of whether the relief that we're getting
is similar to the same to the very usual and customary relief that's granted in other
orders.
So, yeah, other preference for our formulation.
I believe I hit all the issues, but I would ask Ms. Narcissian or anybody else to let
me know if I missed any.
You hit them all.
Thank you very much.
I will say this is one of the more thoroughly argued DIP Orders.
And in the interest of time, I am prepared to rule, given what I have after this hearing.
So let me just say, based on the facts and circumstances described in the declaration
– in the declarations and on the records today – record today, I have no doubt that
the relief requested here, the DIP and the cash collateral usage, are absolutely necessary
to the success of these cases.
The issue here, as demonstrated by the parties and myself, comes down to what would be reasonable
terms.
Let's talk about the roll-up first.
Given that the roll-up is subject to the challenge period and the fact that the pre-petition
bridge loan was extended a few days prior to the bankruptcy, I have in the past allowed
roll-ups under these circumstances, even if it is an insider providing the pre-petition
bridge loan, which quite frankly is one of the more common circumstances that I find
on a first aid, given the liquidity issues that are presented by a debtor coming into
a case and the lack of available third-party funding.
Effectively, it's a pre-DIP, as one mentioned.
So I don't take issue with that, nor the amount.
But I am wary of allowing the roll-up at this interim hearing on less than 24 hours notice
if it will be on less favorable terms than what the pre-petition loan was.
That's something that this Court has consistently disfavored.
And so I'm taking issue with the interest rate, which is 18 percent, which is above
the new money loan interest at 12 percent and higher than the pre-petition interest.
And I also am wary of the 3 percent fee being approved at this time.
I would ask the parties consider that those two items be subject to an interim, provided
that I would be prepared to approve the same interest rate on the roll-up loans, the 12
percent or the 16, whichever one it was prior to the filing.
If you want more, you can seek it at a final.
And I think the 3 percent fee, given that it's paid on the closing, I'm not prepared
for that because it would be out the door before a chance for a committee to review
that and weigh in.
So those are two material issues, and I wanted to effectively address those head-on.
With respect to the actual form of order and the terms of the lending, to the extent that
VLI is willing to move forward with the diplomas, given my comments with respect to the interim
roll-up, I am fine with most of the changes suggested by Ms. Sarkeesian.
I think they're reasonable.
However, there are a few that I will not require, and I'll just, for the sake of time, tell
you what those are.
Those are the changes that were requested by Ms. Sarkeesian in paragraph 7b, 7d, 19b,
the standing issue in paragraph 21.
For this point, I see that as a final issue, and I'd like the committee to weigh in on
that.
And the final point about subject to entry of a final order.
I have two other further comments to the form of order, and then I think we need to talk
about breaking so I can handle my hearing and coming back at a later time to finish
this hearing.
So let me just highlight the two other issues I have with the form of order.
Mr. Resnick, with respect to the remedies period, my position has been that the debtor
can raise what it wants to raise.
So that provision would need to be struck.
But there's a paragraph after the at-issue sentence that starts, except to set forth
in this paragraph 10, or otherwise ordered by the court prior to the expiration of the
remedies period.
And then it goes on that the debtor waives this right and shall not be entitled to seek
relief under 105 or any other provision that would impair or restrict the rights and remedies
of the DIP agent and the other secured parties.
I think that's inconsistent with the prior paragraph or the prior sentence.
If the debtor could come in and raise what it would like to raise with me during the
remedies period, then this waiver is not an appropriate waiver.
So I would ask that that sentence be struck.
My second and final comment.
Your Honor, I just want to make sure I'm sure what sentence that is.
It's still in paragraph 10?
Yes, it's the paragraph that starts after the sentence that you had issue, the clause.
And I'm sorry, I lost my page.
And it starts with except for.
So but it's still in the main part of the debtors know where the language is.
As long as the debtors know, I'm fine.
I'm just having trouble.
Top of page 36, page 35, where they reference the section one.
I see it.
Okay.
So that entire sentence should come out then, Your Honor.
Yes.
And I'm sorry.
I'm sorry that I'm acting quickly, but I have many, many people waiting outside my door.
So I'm just trying to push this along.
So my last comment is in paragraph 35 in the paragraph that states payments held in
trust.
It's more of a question.
I certainly understand the point of this provision.
I guess I would ask if there's primed, if there's non-primed lien holders that receive
payment, are they required under this paragraph to hold the funds in cash?
It is the dip collateral.
So I don't think that's what you intend, Mr. Resnick.
I think if you're not priming someone and they receive payment on account of their non-prime
statutory lien, it's of course not going to be held in trust for you.
So if our understanding is aligned, perhaps we need to tweak this paragraph to account
for the non-primed lien holders.
So I don't think my comments to the form of order, quite frankly, are material.
However, I will defer to your client, Mr. Resnick.
But my comments with respect to the interest rate and the fee are material.
And I understand that I'm asking something of the pre-petition lender that perhaps it
was not expecting.
And so I guess I would ask from you, how would you like to proceed given my timing constraints
and also for now basically and the need that we get this order entered as fast as possible
if your client is going to continue to lend?
So, Your Honor, I would like a brief time period to confer with our clients.
I think we can do it briefly if Your Honor didn't have to, but in light of Your Honor's
hearing, is there a time later this afternoon that you'd hear us and does that work for the debtors?
Well, let me ask on the balance of the first days, I have examined all of the first day
pleadings as well as the orders that were submitted.
Are there open issues with respect to those orders that are going to be argued to me today?
Your Honor, if I may speak, I'm Julia Sarkisian on behalf of the U.S.
Trustee.
From the U.S.
Trustee's perspective, the only thing that was open is we needed a clarification with
respect to insurance to be put on the record.
And I am required to, by my client, to read into the record a statement relating to 345B
requirements.
Those are the only two things I'm aware of from the U.S.
Trustee's perspective.
Okay.
Just in the interest of time and attempting to conclude this hearing and give you all
adequate time, as well as my other case that I have, I am going to do something that's
very unorthodox, which is I am going to take all of the remaining orders that are being
presented to me on an interim basis.
I'm going to ask, does anybody that's appearing today wish to be heard in opposition to the
interim relief?
Okay.
I'm not hearing anyone.
I have no questions or concerns with respect to the substance of that interim relief.
Again, I have read all of the declarations.
They are entered into evidence and support the necessity for that relief.
It's clear that the U.S.
Trustee has weighed in and commented on all those forms of order, and they are consistent
and customary with those that I have seen in every one of my cases.
And so subject to the representations that are going to be made on insurance and cash
management, I am going to approve those orders.
I also take solace in the fact that we have a local rule that provides reconsideration
of these orders within 30 days, given that we're under extreme time constraints today.
So why don't we hear those two representations?
And then Ms. Coyle, you can announce on the record what the second day hearing is going
to be.
Once those orders are uploaded, we will get them entered as soon as possible, contingent,
of course, on the DIP.
So why don't we take the insurance representation first?
And Ms. Sarkisian, I'll hear you on your 345B representation or explanation that my understanding
is your office is going to put on the record.
Thank you.
Good afternoon, Your Honor.
My name is Mohini Rarick on behalf of proposed counsel to the debtors for Latham and Watkins.
So for the insurance order at Ms. Sarkisian's request, we can confirm that the debtors seek
authority to pay premiums for workers' compensation and aircraft hull policies under the insurance
order.
And these policies benefit only the debtors, specifically only debtor Virgin Orbit LLC,
and not any of the foreign non-debtor subsidiaries to Virgin Orbit Holdings Inc.
Thank you.
Thank you very much.
Ms. Sarkisian.
Thank you, Your Honor.
Again, for the record, Juliet Sarkisian on behalf of the U.S. Trustee.
I will read this as quickly as I can.
That would be great.
Section 345 of the Bankruptcy Code obliges the debtors in possession to require from
an entity in which estate monies are invested.
Number one, a bond, having features defined in the Code Section 345B or alternatively
Section 345B2, the deposit of securities consistent with 31 U.S.C.
Section 9303 unless the court orders otherwise.
So in connection with the cash management motion, we make four observations.
First, Section 345 places an obligation on the debtor in possession to require protection
for its monies from the institutions which hold such monies.
Second, while Section 345 does not mention the United States Trustee's office, this
office in its supervisory role pursuant to 28 U.S.C.
Section 586 assists with protection of debtor in possession funds by its entry into uniform
depository agreements, also known as UDAs.
UDAs obligate depositories to maintain collateral for bankruptcy funds on deposit in an amount
not less than 115% of debtor in possession and trustee deposits which exceed FDIC insurance
limits.
The United States Trustee maintains information on the banks who have executed UDAs regularly,
provide this list to debtors' advisors, and is working to post a current list to its website.
Third, in order for a debtor in possession to comply with Section 345 where a UDA bank
is involved, the debtor in possession must, first, identify and disclose all of the depository
accounts where monies are held, and second, contact those banks to ensure that the relevant
accounts are designated as debtor in possession accounts.
If the debtor in possession does not identify all of its accounts and take steps to ensure
that its accounts are properly designated, then the bank will not treat such accounts
as debtor in possession accounts.
Fourth, recent bank failures highlight the importance of the debtor in possession's
compliance with Section 345 for the benefit of its stakeholders.
U.S. trustees seek specific language in any interim cash management order that identifies
concrete steps and a definite timeframe to achieve compliance with Section 345.
That was done in this instance.
The United States Trustee encourages the debtors to act promptly to ensure full compliance
with Section 345 and reserves the right to be heard on the cash management motion at
the final hearing.
Thank you, Your Honor.
Thank you, Mr. Akijian.
I think that that statement is very helpful, and I'm glad that it's being read into the record.
As I mentioned, this is very unorthodox.
I understand that there are many first-day motions and applications that have been filed,
but again, given my time constraints, I'm going to make the ruling that based on the
facts and circumstances described in the various declarations emitted into evidence today,
I will approve the interim relief sought in those motions and applications.
With one exception, of course, CROHL is being retained on a final basis, and so there's
no interim relief with respect to that.
It's on a final basis.
I am satisfied that the debtors have met their burden necessary to carry the motions and
applications, including that of Rule 6003, and that the relief is appropriate and warranted.
I thank all the attorneys that have worked on all the various first-day motions and applications.
I appreciate that many of you were going to present them today.
Perhaps it was your first or second time presenting in court, and I don't take that lightly,
and I apologize that you did not get your opportunity to do that, but I hope to see you
in second-day hearings and further hearings at the podium, and you'll certainly get,
I'm sure, your opportunity to do that.
So this is not the last time I will see you.
Ms. Coyle, when is the second-day hearing for all those that are participating?
The second-day hearing will be May 1st at 930 in the morning.
Excellent. Thank you.
And then the objection deadlines will be when?
April 24th at 4 p.m.
Okay, perfect.
And Your Honor, just before we close it out, the orders have all been uploaded with two exceptions.
With respect to the critical vendor order and the lien holder order, we noticed there was a typo
where we referenced the trade agreements as being attached to the order.
I don't think that's a substantive change, and we were going to submit revised orders removing that,
and we'll submit those under certification of counsel right after the hearing and upload the orders.
Excellent. Thank you very much.
All right. Mr. Resnick, given that we're only going to be hearing the dip in cash collateral,
I would suggest we come back at 330, and I would give you 15 minutes at that point,
and then I have to go forward on an emergency contested dip hearing, so I cannot give you any more time.
But I certainly want to give what this case needs.
So let's come back at 330 unless you feel like you can get an answer quicker than 330.
That should work, Your Honor.
Can I ask one clarifying question?
I think at 330 it will work.
Okay, great.
Can I ask one clarifying question?
We've been sort of going back and forth, and I just want to make sure you know the discrepancy in what we heard.
In terms of paragraph 20, Your Honor, you heard us heard different things on whether this is payment of visa closing,
whether you are requiring any changes to that effect.
Well, I guess I would say you have two ways to go.
Either you delete the subject sentence that Ms. Sarkeesian highlighted, which effectively nullifies her review period,
or you make it subject to disgorgement.
Got it.
Because you're using estate funds to pay fees and claims, and they need to be reviewed by the U.S. Trustee's office,
and their office needs adequate time to review them.
One day is not sufficient.
So I have no issue with you getting paid, and I think Ms. Sarkeesian made it clear she has no issue with you getting paid,
but we need to have a true review period.
Understood, Your Honor. Thank you.
And when I say disgorgement, I don't mean it to be a lengthy process.
Okay.
If I get it right.
Okay.
Yeah, yeah.
At least I would presumably be the same review process as the go-forward.
Once that 10 days passes, I assume that the disgorgement ends.
The same review process, essentially.
Yes.
Thank you, Your Honor.
Your Honor, could I ask one clarifying question as well?
Sure.
On the provision relating to the challenge period, I heard your ruling regarding standing.
How about the issue of if a Chapter 7 or Chapter 11 Trustee is appointed prior to the end of the challenge period,
getting some additional time?
I agree with you.
My only issue with that paragraph that I don't think needs to be incorporated is changes to standing,
because I want the Committee to weigh in on that.
However, it is customary and appropriate for the Trustees to have additional time if the challenge period has not run prior to their appointment.
So I agree that change should be made, and I apologize for not being clear and running through these issues very quickly.
Does anyone else need anything clarified before we part ways and I see you at 3.30?
Okay. If something comes up between now and then, you bring it up at 3.30, all right?
Thank you, Your Honor.
So we'll take a momentary adjournment.
Thank you all. See you at 3.30.
Thank you.
All right. Thank you. Thank you all very much. I'll just ask, is there anything that we need to discuss before we part ways and I see you at the second day hearing?
No, okay.
Okay. Thank you all very much for your time and attention to this matter. The first day papers were excellent as well as the declarations.
I really understood the issues prior to taking the bench and I know a lot of hard work went into drafting those papers as well as the agreements reached in the DIP.
Look forward to seeing you all as we move forward in these cases. And with that, we're adjourned and I'll see you at the second day hearing. Thank you all very much.
Thank you, Your Honor.
Thank you.