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Tensions ran high in the Southern District of Texas courtroom this afternoon as Incora CFO Raymond Carney faced a rigorous cross-examination from counsel representing the 2024/2026 noteholders plaintiffs. In his line of questioning, Zachary Rosenbaum of Kobre Kim focused on the process to assemble required documentation and authorization of signatures to execute the company’s controversial LME transaction.

Under a blitz of intense questioning from Rosenbaum, Carney said that he had, at times, signed blank documents and gave blanket authority to the company counsel Milbank to use his signature in relation to paperwork needed to execute the transaction. For instance, Carney said he did not read the new indentures, and gave Milbank approval to use his signature for the transaction four days before Incora’s board ratified the transaction.

From the stand, Carney said he didn’t remember certain sequences of events and dates, such as when the original indentures were canceled and the LME transaction closed. Carney’s lack of specificity on timing matters prompted Judge Marvin Isgur to question why Incora counsel selected Carney as their lead witness.

Rosenbaum also probed into whether what the company has characterized as a multi-step LME deal could in fact be legally interpreted as a single transaction. In making his point, Rosenbaum highlighted references to “the transaction” in board meeting documents and pointed out matching semantics in emails and other parties’ interactions. The single-transaction theory governs whether a series of separate agreements or step with a singular purpose may be treated as one transaction, which is prohibited under several sections of the secured indentures.

When it came to negotiating the deal, Carney said he understood that the majority secured group of noteholders would not issue new money to Incora on a pari passu basis with existing creditors, but rather the group was insistent on taking a superpriority position. Additionally, Carney was initially left in the dark that the excluded group of noteholders claimed to have a blocking position in the secured notes, and their position only came to his attention after the transaction closed.

Carney also testified that he always understood that there was a risk of litigation and that indemnity rights of the majority secured group were causing a drain on liquidity in the months leading to the bankruptcy as the company faced New York State court litigation.

The hearing is expected to continue through the evening until all parties have a chance to cross-examine Carney. The trial will again resume tomorrow at 9:00 CT.

At stake in these proceedings is the potential unwinding of the 2022 transaction wherein a group of creditors exchanged $1bn of their holdings into priming positions, leaving $519mn of previously secured notes stripped of their protections. The company’s disclosure statement has already been approved in the bankruptcy proceeding, so a ruling in favor of the 2024/2026 subordinated notes could upend the capital structure that the chapter 11 plan is predicated upon.


The “2022 Transaction,” as it is referred to in pleadings, is the aggressive uptiering exchange that Incora executed in 2022, alongside securing $250mn of new money. The secured noteholders, a group including Silver Point and PIMCO, exchanged $1bn of their holdings of the original secured notes into a new, priming 7.5% cash/3% PIK note due 2026. The participating funds also backstopped a $250mn new-money portion of the new 2026 priming note.

A group of bondholders, primarily led by Carlyle and PE sponsor Platinum, then uptiered $446mn of unsecured notes into a secured 1.25-lien position, leaving behind $519mn of previously secured notes that have been stripped of their protections.

In October 2022, a group of Kobre Kim-led 2024 unsecured noteholders and 2026 unsecured noteholders (whose status as senior secured was stripped by the LME) filed suit in the New York Supreme Court against the debtor, other affiliates and third parties, including Incora’s private equity sponsor Platinum Equity (SSD Investments Action).

In January 2023, Langur Maize, a single holder of the 2027 unsecured notes, initiated a separate action in the New York Supreme Court against the debtor and the participating noteholders who previously held 2027 unsecured notes that uptiered, including Platinum and Carlyle Group. The Langur Maize action, brought by counsel Jones Day, sought to unwind the 2022 transaction, alleging that the participating noteholders sought to transfer value to themselves and that the transaction constituted a preferential transfer and violated the applicable indenture and the implied covenant of good faith and fair dealing.


Jennifer Lappe, J.D.
LevFin Insights


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