Related documents:
Disclosure Statement
UST Objection
Red Lobster gained conditional approval from the Middle District of Florida Bankruptcy for its disclosure statement this morning, subject to changes, after a ruling that the opt-out provision was invalid. Prior to the hearing, the debtor announced that it has canceled its auction for the business and designated the $275mn credit bid by the DIP lenders as the successful bid.
Judge Robson heard arguments from both the US Trustee and King & Spalding on whether the debtor’s opt-out procedures to the third-party release provision were allowable in the jurisdiction. The “real issue for me is the opt-out provision” according to Judge Robson, as there are some cases in the district that can go “either way.” Specifically, the issue for Judge Robson was case law that could direct her decision post-Purdue Pharma Supreme Court decision, as she believes the highest court left open what the definition of a “consensual relief” is.
Judge Robson ruled that the third-party provision, not the exculpation provision, was invalid as written, and the debtor agreed to changes. Judge Robson ruled that there was a lack of consideration for the broadly written opt-out provision as written due to the open-ended nature of unsecured creditor recovery. The provision will be a more narrowly tailored definition of liability under New York law.
The disclosure statement outlines a proposed chapter 11 plan that offers a dual-track sale through either a 363 sale or equity sale. Both options involve the transfer of either the company’s purchased assets or reorganized debtor equity. The final decision will be dictated by the specifics of the sale transaction documents and the orders of the court.
RL Purchaser LLC, an entity formed by the debtor’s prepetition term loan lenders, is the stalking horse bidder, with a bid comprising 100% of the DIP term loan. The DIP facility includes $100mn in new-money term loans and a $175mn roll-up of prepetition term loans. Notably, the final DIP order allocates $2.5mn for general unsecured creditors from the proposed credit bid and sale of the company.
