Case MFW Doc 2605 Filed 07/26/16 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case MFW Doc 2605 Filed 07/26/16 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 SPORTS AUTHORITY HOLDINGS, INC., et al. 1, Debtors. Case No (MFW (Jointly Administered RE: Docket No LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO DEBTORS MOTION FOR AN ORDER, PURSUANT TO SECTION 105(a OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 9019, APPROVING THE SETTLEMENT AGREEMENT BETWEEN THE DEBTORS AND WILMINGTON SAVINGS FUND SOCIETY, FSB, AS THE TERM LOAN AGENT TO THE HONORABLE MARY WALRATH, U.S. BANKRUPTCY JUDGE: COME NOW, DPF Narragansett, LLC ( DPF and Centerton Square, LLC ( Centerton, and together with DPF, the Landlords, and file their Limited Objection (the Objection to the Debtors Motion for an Order, Pursuant to Section 105(a of the Bankruptcy Code and Bankruptcy Rule 9010, Approving the Settlement Agreement Between the Debtors and Wilmington Savings Fund Society, FSB, as the Term Loan Agent [Dkt. No. 2484] (the Motion 2 ; and in support thereof would respectfully show as follows: I. RELEVANT BACKGROUND FACTS 1. The Landlords and TSA Stores, Inc., one of the above-captioned debtors and debtors-in-possession (individually, Debtor TSA, and collectively with all other debtors, the 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Sports Authority Holdings, Inc. (9008; Slap Shot Holdings, Corp. (8209; The Sports Authority, Inc. (2802; TSA Stores, Inc. (1120; TSA Gift Card, Inc. (1918; TSA Ponce, Inc. (4817; and TSA Caribe, Inc. (5664. The headquarters for the above-captioned Debtors is located at 1050 West Hampden Avenue, Englewood, Colorado Capitalized terms not specifically defined herein shall have the meaning ascribed in the Objection. LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 1

2 Case MFW Doc 2605 Filed 07/26/16 Page 2 of 7 Debtors, as tenant, are parties to the following unexpired, nonresidential real property leases (collectively, the Leases, each of which relate to real property in a shopping center as that term is used in section 365(b(3 of the Bankruptcy Code: 3 a. That certain Shopping Center Lease between Centerton and Debtor TSA dated as of October 27, 2004, as amended and extended (the Centerton Lease, for Store No. 461, referred to as Mt. Laurel NJ, at Centerton Rd & Marter Ave, Moorestown, NJ; and b. That certain Memorandum of Shopping Center Lease between Salt Pond Corp., prior landlord and Debtor TSA (the DPF Lease, for Store No. 73, at 91 Point Judith Rd, Narragansett, RI; and together with the Centerton Lease, the Leases. 2. On March 2, 2016, the Debtors commenced these chapter 11 cases. 3. On June 29, 2016, the Debtors filed their Thirteenth Omnibus Motion to Reject Certain Leases Nunc Pro Tunc to June 30, 2016 [Dkt. No. 2344], including the DPF Lease. 4. To date, the Debtors have not filed a Motion to Reject the Centerton Lease, nor has the Centerton Lease been assumed, nor is it the subject of any pending motion to assume. The Debtors continue to occupy the Centerton Store and liquidate inventory located at the Centerton Store for the benefit of the estate. 5. On June 12, 2016, the Debtors filed the Motion seeking approval of a settlement agreement (the Settlement between the Debtors and Wilmington Savings Fund Society, FSB, as the Term Loan Agent (the Agent. In the Motion, the Debtors state that the, Liquidating Agent is in the process of conducting going out of business sales at the Debtors remaining store locations through August 31, 2016 (or later, as permitted under the Sale Order. Motion The budget that was filed in connection with the last extension of the use of cash 3 See In re Joshua Slocum, Ltd., 922 F.2d 1081, (3d Cir LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 2

3 Case MFW Doc 2605 Filed 07/26/16 Page 3 of 7 collateral is attached to the Order Approving Stipulation Between Debtors and Term Loan Agent Regarding Debtors Continued Use of Cash Collateral [Dkt. No. 2538] and does not provide for payment of any rent for August 2016 for any landlords. As stated, the Debtors continue to occupy the Centerton location and to date have not sought to assume or reject the Centerton Lease. II. ARGUMENT 7. Regardless of the fact that they filed for bankruptcy on March 2, continued to operate the DPF location through June 30, 2016 and are still operating the Centerton location, the Debtors propose that the Landlords not receive stub rent for March 2-March 31, 2016 as they are entitled to under the Code but that such stub rent be limited to 85% of the rent for the month of March. In addition, that amount could be further reduced if the total stub rent claims submitted by landlords exceed $21 million. 8. The Debtors provide no analysis as to the likelihood of whether the stub rent claims will exceed $21 million in order for the Landlords to analyze the likelihood of receiving 85% of the Stub Rent. Therefore, it is impossible for the Landlords to adequately assess the benefits and drawbacks of the proposed Settlement. 9. Likewise, the Debtors do not disclose how additional outstanding administrative claims of any of the landlords will be addressed while at the same time providing for the payment of administrative claims to estate professionals whose claims under the Bankruptcy Code are pari passu with other administrative claimants. 10. The proposed order approving the Motion also provides that the Lenders will consent to pay or fund any unpaid expenses that, if not paid, could under applicable law result in personal liability for the Debtors directors and officers. Proposed Order 8. Such claims are LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 3

4 Case MFW Doc 2605 Filed 07/26/16 Page 4 of 7 likely entitled to priority claim status only, at best, and do not take priority over administrative expense claims. Without an assurance that administrative claims will all be paid and treated pari passu with professional claims, this appears to be a violation of the priority scheme of the Bankruptcy Code. To the extent that the Settlement vitiates the priority scheme of the Bankruptcy Code, its approval should be denied. 11. The Debtors state in the Motion that, [t]he Prepetition Term Loan Agent will agree to fund with encumbered cash substantial value to pay unsecured administrative creditors, including: the funding of ongoing administrative costs and expenses in accordance with a reasonable Wind Down Budget being negotiated in good faith between the Debtors and the Prepetition Term Loan Agent. However, no Wind Down Budget was attached to the Motion. 12. At the end of the day on July 25, less than 24 hours before the objection deadline, the Debtors filed a Wind Down Budget. Counsel for the Landlords has not had sufficient time to fully analyze the Wind Down Budget, but a cursory review suggests that it does not contain sufficient funds to pay all outstanding administrative claims. In addition to their Stub Rent Claims, the Landlords also hold administrative claims for, among other amounts, real property taxes that have not been paid by the Debtors post-petition. 13. The Debtors are agreeing in connection with the settlement to the waiver of their rights under 506(c, even though it appears that there will be insufficient funds to pay administrative claims in the Bankruptcy Case, including the administrative claims of the landlords whose premises were used to sell inventory for the benefit of the estate and the Lenders. 14. In attempting to justify the waiver of the section 506(c claim, the Debtors argue LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 4

5 Case MFW Doc 2605 Filed 07/26/16 Page 5 of 7 that such waiver is justified because under the Settlement Agreement, the Prepetition Term Loan Agent has already agreed to pay the vast majority if not all of the claims that arguably fall in this category [expenses incurred that actually benefitted the secured creditor], including (a 100% of the postpetition trade claims...; (b 85% of Stub Rent Claims (with Stub Rent calculated at the contractual rate up to an aggregate amount of $21 million; and (c subject to the Wind Down Budget, all of the reasonable wind down costs and estate professional fees and expenses associated with these cases. Motion 44. This language does not directly address non-stub Rent claims of landlords that constitute additional administrative claims. 15. The definition of Wind Down Budget references an additional budget that has not been provided to the Court or to the creditors of the estates. More specifically, [t]he Wind Down Budget shall provide, or be deemed to provide, for the payment by the Debtors, on or after the Effective Date, of allowed administrative expense claims under section 503(b of the Bankruptcy Code and resulting from the sale and delivery of goods or the provision of services by the applicable claimant to the Debtors on credit subsequent to the Petition Date, which claims shall be paid pursuant to a schedule to be filed with the Bankruptcy Court prior to the hearing on approval of this Agreement, and must be acceptable to the Prepetition Term Loan Agent in its sole discretion. Settlement Agreement p Landlords cannot adequately assess the Settlement without this additional budget. 17. Further, the Settlement Agreement provides that, [o]n or before July 22, 2016, the Debtors will provide the Prepetition Term Loan Agent with an estimate (the Stub Rent Estimate of their Stub Rent exposure on account of their remaining Leases assuming that the Debtors reject all Leases not currently subject to a motion to assume and assign such Lease to a third party. Settlement Agreement, 3(i(1. The Debtors should be required to provide the LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 5

6 Case MFW Doc 2605 Filed 07/26/16 Page 6 of 7 Stub Rent Estimate to the Landlords and to notify the Landlords as to the Stub Rent number for DPF and Centerton that the Debtors are utilizing in arriving at the Stub Rent Estimate. 18. The Landlords will be filing shortly their Motion or Notice of Stub Rent Claim as well as a Motion for Allowance and Payment of Administrative Claims related to non-stub Rent administrative claims. Landlords had not previously filed such motions because neither the DPF Lease nor the Centerton Lease have been rejected by order of the Court. III. RESERVATION OF RIGHTS 19. The Landlords reserve the right to supplement or amend this Objection based on additional information that may become known regarding the Wind Down Budget and other objections that may be filed to the Motion. The Landlords also reserve the right to join in any objections that may be filed to the Motion. WHEREFORE, the Landlords respectfully request that this Court enter an order in accordance with the Objection and grant the Landlords such other and further relief to which the Landlords may show themselves to be justly entitled at law or in equity LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 6

7 Case MFW Doc 2605 Filed 07/26/16 Page 7 of 7 Dated: July 26, 2016 Wilmington, Delaware DRINKER BIDDLE & REATH LLP /s/ Steven K. Kortanek Steven K. Kortanek (Del. Bar No Delaware Avenue, Suite 1410 Wilmington, DE Telephone: ( Facsimile: ( steven.kortanek@dbr.com -and- MUNSCH HARDT KOPF & HARR, P.C. Deborah M. Perry (Texas Bar No N. Akard Street, Suite 3800 Dallas, Texas Telephone: ( Facsimile: ( dperry@munsch.com Attorneys for DPF Narragansett LLC and Centerton Square LLC LIMITED OBJECTION OF DPF NARRAGANSETT LLC AND CENTERTON SQUARE LLC TO SETTLEMENT Page 7