smb Doc 346 Filed 02/05/19 Entered 02/05/19 15:52:06 Main Document Pg 1 of 10

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1 Pg 1 of 10 Brian Trust Scott Zemser MAYER BROWN LLP 1221 Avenue of the Americas New York, New York Telephone (212) Hearing Date and Time February 12, 2019 at 1000 a.m. Counsel to Glas Trust Company LLC UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK x In re WAYPOINT LEASING HOLDINGS LIMITED, et al., Debtors. Chapter 11 Case No (SMB) (Jointly Administered) x STATEMENT OF GLAS TRUST COMPANY LLC, AS AGENT, REGARDING PROPOSED FORM OF ORDER APPROVING THE PURCHASE AGREEMENT AND OTHER TRANSACTION DOCUMENTS AND AUTHORIZING THE SALE OF THE ACQUIRED ASSETS TO MACQUARIE Glas Trust Company LLC, in its capacity as WAC3 Administrative Agent (defined below), by and through its undersigned attorneys, hereby submits this statement (the Statement ) with respect to the Motion of Debtors for Entry of Orders Approving (I) (A) Bidding Procedures, (B) Bid Protections, (C) Form and Manner of Notice of Auction, Sale Transaction, and Sale Hearing, and (D) Procedures for the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (II) (A) Sale of Substantially all of the Debtors Assets Free and Clear of Liens, Claims, Encumbrances, and Other Interests, (B) Assumption and Assignment of Certain Executory Contracts and Unexpired Leases, and (C)

2 Pg 2 of 10 Related Relief [Dkt. 64] (the Sale Motion ). 1 In connection with this Statement, the WAC3 Administrative Agent respectfully states as follows PRELIMINARY STATEMENT 1. The WAC3 Administrative Agent supports the Sale Transaction and the Court s approval of the sale of the WAC3 Collateral to Macquarie. The WAC3 Administrative Agent, however, submits this Statement to address open issues with respect to the Proposed Sale Order (as defined herein) including, most notably, the methodology to allocate certain expenses of these Chapter 11 cases and the Sale Transaction. As described further herein, the Proposed Sale Order includes two approaches to such cost allocation one based on net book value, and one based on the actual consideration to be received from the Sale Transaction. The WAC3 Administrative Agent submits that the latter method is the proper one, as it is the only method that ensures the lenders bear the costs of these cases that are directly proportionate to the benefit they receive. 2. Additionally, the Debtors request a holdback of the net proceeds to be deposited in a cash collateral account and used for certain undetermined purposes, and if not so used, to be returned to the lenders at some unspecified date. Based on information provided by the Debtors, the WAC3 Administrative Agent understands that the Debtors propose to holdback thirty percent (30%) or $17.8 million of the net proceeds allocated to the WAC3 Lenders. Such amount is neither supportable as a rational matter nor acceptable to the WAC3 Lenders, and the WAC3 Administrative Agent requests the Court approve a lower holdback amount that is tied to the actual and demonstrable need of these estates. 1 Capitalized terms used but not defined in this Statement shall have the meanings ascribed to such terms in the Notice of Filing of Proposed Macquarie Sale Order [Dkt. 326]. -2-

3 Pg 3 of 10 BACKGROUND 3. Glas Trust Company LLC, as the Successor Agent to BNP Paribas, is the Administrative Agent (the WAC3 Administrative Agent ), pursuant to that certain Credit Agreement, dated as of August 6, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the WAC3 Credit Agreement ), by and among Waypoint Asset Funding 3 LLC, as U.S. Borrower, Waypoint Asset Co 3 Limited, as Irish Borrower, Waypoint Leasing Holdings Ltd., as Holdings and a Guarantor, Waypoint Leasing (Luxembourg) S.A.R.L., as Luxco and a Guarantor, Waypoint Leasing (Ireland) Limited, as Manager and a Guarantor; the Lenders party thereto (including any successors and assigns, the WAC3 Lenders ); the WAC3 Administrative Agent; Wells Fargo, National Association, as Collateral Agent; and the other parties thereto. 4. On December 21, 2018, the Court entered the Order Approving (A) Bidding Procedures, (B) Bid Protections, (C) Form and Manner of Notice of Cure Costs, Auction, Sale Transaction, and Sale Hearing, and (D) Date for Auction, if Necessary, and Sale Hearing [Dkt. 159] (the Bidding Procedures Order ), which set certain deadlines with respect to the sale of certain assets, including the collateral under the WAC3 Credit Agreement (the WAC3 Collateral ). The order contemplated the potential sale of the WAC3 Collateral to Macquarie Rotorcraft Leasing Holdings Limited ( Macquarie ) as the stalking horse bidder, a possibility that will come to fruition upon the Court s approval of the Sale Motion and related Proposed Sale Order. 5. On January 3, 2019, the predecessor to the WAC3 Administrative Agent filed a reservation of rights with respect to the Bidding Procedures Order. See Reservation of Rights of BNP Paribas, as WAC3 Administrative Agent, with Respect to Bidding Procedures Order [Dkt. -3-

4 Pg 4 of ] (the Reservation of Rights ). In the Reservation of Rights, the WAC3 Administrative Agent s predecessor reserved its rights to raise any objection to the proposed sale, and noted in particular the unresolved issue of how to allocate costs and expenses to the WAC3 Lenders. 6. This issue remains unresolved. On January 3, 2019, the Debtors filed the proposed form of order authorizing the sale of certain assets (including the WAC3 Collateral) to Macquarie (the Proposed Sale Order ). See Notice of Filing of Proposed Macquarie Sale Order [Dkt. 326]. The Proposed Sale Order sets forth two methods for allocating the Winddown Account and certain fees and expenses related to the sale of the assets one based on the net book value and one allocating value pro rata based on the consideration to be received by each group of WAC lenders on account of the sale (the latter referred to hereinafter as the Market- Based Approach ). 7. A hearing for the Court to consider the approval of the Macquarie Bid and the entry of the Proposed Sale Order is scheduled for February 12, The WAC3 Administrative Agent submits this Statement in support of the Market-Based Approach to allocating expenses to the WAC3 Lenders assuming the approval of the sale of the WAC3 Collateral to Macquarie at or following such hearing. STATEMENT I. The Market-Based Approach Ensures the Equitable Allocation of Expenses Among the WAC Facilities 8. The Market-Based Approach is the only method by which each group of holders in the various WAC Facilities would pay its respective share of expenses in proportion to the consideration it is to receive on account of the proposed sale. Historically, the Debtors allocated expenses to and among the various WAC Facilities based on net book value, presumably because this was the best available metric to assess the theoretical value of each WAC Facility s -4-

5 Pg 5 of 10 collateral. Now, however, the sale process has resulted in price discovery and an actual, markettested valuation of the assets, in the form of the successful bids and the allocation of such bids to the WAC Facilities. Not surprisingly, the market values for certain of the Debtors assets established by the market test and the Macquarie purchase price allocation differ from the net book values previously used to estimate value. 9. In the case of the WAC3 Collateral, the difference between the net book value of the WAC3 Collateral and the purchase price allocation based on the market value is stark. The Macquarie Bid proposes to allocate 16.5% of the Base Purchase Price to the WAC3 Lenders. See Proposed Sale Order at 39. However, based on the Debtors historical practice of using net book value, the allocation would have been nearly fifty percent greater, or approximately 24% of the aggregate consideration. On the other hand, if net book value were now used to assess the fees and expenses related to the sale of the assets, including the funding of the Winddown Account, then the WAC3 Lenders would be required to pay $3.5 million more in expenses (based on information provided by the Debtors) than if the Market-Based Approach was applied consistently to proceeds and expenses. 10. The WAC3 Administrative Agent thus urges the Court to adopt the Market-Based Approach to allocation across the board, as an equitable and proportional approach. This approach is consistent with various sections of the Bankruptcy Code that ensure the costs of the bankruptcy process directly relate to the benefits. See, e.g., 11 U.S.C. 330(a)(3)(C) (in allowing fees of any professional, the court shall take into account whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under the Bankruptcy Code); 11 U.S.C. 503(b) (allowing the actual, necessary costs and expenses of preserving the estate ); 11 USC 506(c) (the trustee may -5-

6 Pg 6 of 10 surcharge collateral for the reasonably, necessary costs of preserving and disposing of the property to the extent of any benefit to the secured party). It is also consistent with how various courts have dealt with allocation questions in analogous circumstances. For instance, in the Energy Future Holdings cases, the Delaware Bankruptcy Court allocated administrative fees and expenses across estates on a debtor-by-debtor basis an approach not unlike the allocation among the WAC Facilities, which involve different debtor subsidiaries as borrowers and loan parties noting that professional fees and expenses that are not incurred for the benefit of a particular debtor should not be paid out of the estate of such debtor. In re Energy Future Holdings, 593 B.R. 217, 259 (Bank. D. Del. 2018). Similarly, in the context of Section 506(c) surcharges, the Code recognizes that a debtor may only surcharge estate expenses against secured collateral to the extent such expenses directly benefit the secured creditor. See In re Ceron, 412 B.R. 41, 48 (Bankr. E.D.N.Y. 2009) ( To support a surcharge against a secured creditor, the trustee must also show that the expenditures were made primarily for the benefit of the creditor and that the creditor directly [benefitted] from the expenditure. ). 11. Here, it follows that just as WAC3 Lenders should not pay proportionally more in expenses than the purchase price allocation it receives, neither should other lenders pay less proportionally in expenses than the benefit they will receive. And adherence to the historical practice of using net book value is no justification, as courts in this district have consistently recognized that market value is superior to net book value as a value measure. See, e.g., In re Ames Dept. Stores, Inc., 470 B.R. 280, 283 (S.D.N.Y. 2012) (noting that book values are not ordinarily an accurate reflection of the market value of an asset ). Simply put, the Debtors have asserted no reason to continue to use such an outdated metric here, and there is none. -6-

7 Pg 7 of For these reasons, the WAC3 Administrative Agent respectfully submits this Statement in support of the following language proposed by the Debtors in paragraphs 32, 35 and 37 of the Proposed Sale Order (based pro rata on the actual cash consideration being received by each of their respective Participating WAC Groups pursuant to the Sale Transaction and subject to the terms of the Plan & Sale Support Agreement). See Proposed Sale Order 32, 35, The Debtors also have proposed language in paragraph 10 of the Proposed Sale Order providing that a portion of the net proceeds of the Sale Transaction shall be used to repay in full the amounts and obligations outstanding under the DIP Facility, provided, that the DIP Payoff Amount shall be partially funded by the applicable portion of any Exit Payment received on or prior to the Closing Date[.] See Proposed Sale Order 10. The WAC3 Administrative Agent has no objection to the DIP Facility payoff being funded, in part, by a portion of the Exit Payment so long as the applicable components of the Exit Payment (including the Winddown Account) are allocated to the WAC3 Lenders using the Market-Based Approach as set forth above. 2 II. The Requested Holdback of Thirty Percent of Net Proceeds Is Without Basis and Unacceptable 14. In the Proposed Sale Order, the Debtors request that the Court approve a holdback with respect to the net proceeds of the purchase price to be deposited in such lenders respective Cash Collateral accounts, held for the benefit of such lenders, subject to limited rights of the 2 The WAC3 Administrative Agent also notes that the Debtors seek to continue to maintain and preserve their cash management system. See Proposed Sale Order 28. The WAC3 Administrative Agent has no objection to the Debtors continued use of the cash management system so long as expenses are allocated to and among the WAC Facilities in a manner consistent with the Market-Based Approach. -7-

8 Pg 8 of 10 Debtors to draw upon if the funds in the Winddown Account are insufficient and the amount to be withdrawn is reasonable, as determined by agreement by the relevant Affected Participating Lenders or an order of the Court. See Proposed Sale Order 42. Although the Proposed Sale Order does not provide the percent of the net proceeds held back, information provided by the Debtors to the WAC3 Administrative Agent indicates that the Debtors seek to hold back thirty percent (30%) of the net proceeds. Based on the Debtors calculations of the net proceeds (which the WAC3 Administrative Agent has not agreed to, as noted above, because of the Debtors method of using net book value for allocating expenses), such holdback will amount to $17.8 million. 15. The Debtors also provide no further basis for such holdback than the above language quoted from the Proposed Sale Order. Thus, the WAC3 Lenders have no insight into what such held-back amounts are intended to cover, nor the basis for the Debtors estimate of the same, or when any excess funds will likely be returned to the lenders. The WAC3 Administrative Agent requests that the Debtors be required to establish the basis for holding back any material portion of the net proceeds and that such holdback be approved only to the extent necessary and appropriate. 16. As it stands, the Debtors proposal to hold back thirty percent of the net sale proceeds is patently insupportable and should be rejected. The WAC3 Administrative Agent requests this Court instead approve a lower amount that is supported by evidence from the Debtors regarding the circumstances that may arise that will require the Debtors to use such holdback, the potential impact on the Debtors of such circumstances, and the estimated cost to the Debtors of having to address or resolve such circumstances. -8-

9 Pg 9 of 10 JOINDER TO WAC 6 STATEMENT 17. The WAC6 Administrative Agent has filed a statement also requesting that the Court adopt the Market-Based Approach with respect to Winddown Account and certain salerelated fees and expenses. See Statement of Bank of Utah, as WAC 6 Administrative Agent, in Support of Macquarie Sale and Regarding the Allocation of Costs in These Chapter 11 Cases [Dkt. 330]. The WAC3 Administrative Agent joins the statement of the WAC6 Administrative Agent with respect to the arguments made in favor of the Market-Based Approach. CONCLUSION WHEREFORE, the WAC3 Administrative Agent respectfully requests that the Court (1) allocates the costs of these cases consistent with this Statement, (2) approve a lower holdback amount consistent with this Statement, and (3) grant such other and further relief as is just and proper. [Signature on following page] -9-

10 Pg 10 of 10 Dated February 5, 2019 New York, New York /s/ Brian Trust Brian Trust Scott Zemser MAYER BROWN LLP 1221 Avenue of the Americas New York, New York Telephone (212) Facsimile (212) Counsel for Glas Trust Company LLC