Case GLT Doc 577 Filed 06/23/17 Entered 06/23/17 14:22:20 Desc Main Document Page 1 of 8

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1 Document Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA In re: Case No (GLT rue21, inc., et al., 1 Chapter 11 Debtors. (Jointly Administered Hearing Date: June 30, 2017 at 2:00 p.m. (prevailing Eastern Time White Oak Commercial Finance, LLC f/k/a Capital Business Credit LLC, Related to Doc. No. 348 Movants, v. rue21, inc., et al. Respondents. DEBTORS OBJECTION TO MOTION OF WHITE OAK COMMERCIAL FINANCE, LLC f/k/a/ CAPITAL BUSINESS CREDIT LLC FOR IMMEDIATE PAYMENT OF ADMINISTRATIVE EXPENSE CLAIM PURSUANT TO 11 U.S.C. 503(B(9 rue21, inc. and its debtor affiliates, as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the Debtors, respectfully state the following in support of this objection (this Objection to the Amended Motion of White Oak Commercial 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: rue21, inc. (1645; Rhodes Holdco, Inc. (6922; r services llc (9425; and rue services corporation (0396. The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania

2 Document Page 2 of 8 Finance, LLC f/k/a Capital Business Credit LLC for Allowance and Immediate Payment of Administrative Expense Claim Pursuant to 11 U.S.C. 503(b(9 [Docket No. 348] (the Motion filed by White Oak Commercial Finance, LLC f/k/a Capital Business Credit LLC (the Claimant : Jurisdiction 1. The United States Bankruptcy Court for the Western District of Pennsylvania (the Bankruptcy Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b. The Debtors confirm their consent, pursuant to Rule 7008 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules, to the entry of a final order by the Bankruptcy Court in connection with this Objection to the extent that it is later determined that the Bankruptcy Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 2. Venue is proper pursuant to 28 U.S.C and Objection 3. As set forth in the Motion, Claimant seeks (a allowance of a claim in the amount of $115, under section 503(b(9 of the Bankruptcy Code, with priority under section 507(a(2 of the Bankruptcy Code (the Requested Claim, on account of certain goods delivered to the Debtors during the 20 days prior to the Petition Date, and (b immediate payment of the Requested Claim. 4. The Debtors do not dispute the allowance or the amount of the Requested Claim; which will be set forth in the Debtors schedules and statements to be filed in these chapter 11 cases on or about June 24, However, Claimant seeks immediate payment of the Requested Claim without providing any specific authority or any evidence whatsoever supporting such 2

3 Document Page 3 of 8 relief. For the reasons set forth below, immediate payment of the Requested Claim would not be in the best interests of the Debtors or their estates and there is no basis in law or equity to order the immediate payment of such claims. As a result, the Motion must be denied. I. Claimant is Not Entitled to the Immediate Payment of any Section 503(b(9 Claims A. The Bankruptcy Code Does Not Provide for Immediate Payment of Section 503(b(9 Claims 5. The Bankruptcy Code does not specify the timing for payment of claims under section 503(b(9. See 11 U.S.C. 503(b(9. As an initial matter, holders of allowed claims under section 503(b(9 of the Bankruptcy Code enjoy two substantial benefits on account of such claims. First, allowed administrative expense claims, including those under section 503(b(9, have priority in payment of claims before distribution to general unsecured creditors. See 11 U.S.C. 503(b, 507(a(2. Second, and on account of such payment priority, allowed administrative expense claims under section 503(b of the Bankruptcy Code must generally be paid in full in cash upon confirmation of a chapter 11 plan, as a condition to such confirmation. See 11 U.S.C. 1129(a(9(A. 6. While the Bankruptcy Code does not provide specific guidance on whether debtors may pay administrative claims prior to confirmation of the plan, the decision regarding whether to award the relief of accelerating payment of an allowed section 503(b(9 claim prior to confirmation is left to the discretion of the Bankruptcy Court. See In re Bookbinders' Rest., Inc., No. BKY ELF, 2006 WL , at *4 n.14, *6-7 (Bankr. E.D. Pa. Dec. 28, 2006 (stating that there is no legislative history to support the contention that a 503(b(9 claim should be paid prior to confirmation and had Congress intended to provide 503(b(9 claimants with some type of enhanced right to payment after allowance of the expense, I am convinced that it would have made its intent express in the statute and it has not done so. ; In re 3

4 Document Page 4 of 8 Garden Ridge Corp., 323 B.R. 136 (Bankr. D. Del (finding that timing of the payment of an administrative claim is within the discretion of the bankruptcy court; In re Glob. Home Prod., LLC, No KG, 2006 WL , at *3 (Bankr. D. Del. Dec. 21, 2006 (denying the creditor s request for immediate payment on account of its section 503(b(9 claim; In re HQ Global Holdings, Inc., 282 B.R. 169, 173 (Bankr. D. Del. 2002; In re Budget Uniform, Inc., 71 B.R. 652, 654 (Bankr. E.D. Pa 1987 (administrative claims must wait for confirmation of a plan before becoming entitled to payment ; see also Alan N. Resnick, The Future of Chapter 11: A Symposium Cosponsored by the American College of Bankruptcy: The Future of the Doctrine of Necessity and Critical Vendor Payments in Chapter 11 Cases, 47 B.C.L. Rev 183, (2005 (section 503(b(9 is a rule of priority, rather than payment and therefore does not specify when payment will be made. B. Claimant Has Made No Showing, and Cannot Make any Showing, Sufficient to Establish Right to Immediate Payment 7. Courts in this circuit consider the following three factors in determining whether administrative expense claims should be paid prior to confirmation of the debtors plan: (a the prejudice to the debtors, (b the hardship to the claimant, and (c the potential detriment to other creditors. See Garden Ridge, 323 B.R. at 143 (discussing the foregoing factors that a court should consider when exercising its discretion to determine whether an administrative claim should be paid immediately; HQ Global Holdings, Inc., 282 B.R. at 173 (same; In re Modern Metal Prods. Co., 2009 WL , at *2 (same; see also In re Plastech Engineered Prod., Inc., 394 B.R. 147, 152 (Bankr. E.D. Mich (same. 8. Claimant has made no showing to establish that it is entitled to the immediate payment of any allowed claim under section 503(b(9 pursuant to this well-established test. 9. The first factor, the prejudice to the Debtors, weighs heavily in favor of denying 4

5 Document Page 5 of 8 the immediate payment of any allowed section 503(b(9 claim, including the Requested Claim. While the Debtors presently are administratively solvent, the bar dates for claims in these cases has not yet passed, and the universe of potential claims, including asserted administrative expense claims, has not yet been defined with certainty. Until the Debtors are able to more particularly quantify their anticipated administrative expense claim liability, including with respect to allowed section 503(b(9 claims, it would be prejudicial to the Debtors if the Debtors were required to pay the Requested Claim in full. Immediate payment of the Requested Claim would likely subject the Debtors to dozens of similar motions asserting the same request, which would lead to a material increase in burden and cost to the Debtors estates as a result of evaluating and responding to such requests and corresponding payments if relief were granted. 10. Additionally, the Debtors currently are negotiating with holders of section 503(b(9 administrative expense claims and would consider appropriate modifications to the timing of the payment of such claims in exchange for some demonstrable benefit to their estates, such as the extension of trade terms or other concessions that are advantageous to the Debtors business. Accordingly, immediate payment of the Requested Claim would undermine the Debtors efforts to negotiate with other similar claimants asserting administrative expense claims. 11. Lastly, immediate payment of section 503(b(9 claims will significantly reduce the Debtors liquidity at a critical juncture in these cases and will likely result in an immediate event of default under the DIP facilities. Although payment of section 503(b(9 claims is included in the long-term budget that the Debtors have negotiated with their DIP lenders (the DIP Budget, immediate payment of such amounts is not. 12. The second factor, the hardship to the Claimant (or lack thereof, also weighs in 5

6 Document Page 6 of 8 favor of denying the immediate payment of any allowed section 503(b(9 claim, including the Requested Claim. Indeed, Claimant has not even asserted (much less presented evidence that waiting for payment of any allowed section 503(b(9 claim until the effective date of a plan in these cases will cause a hardship to Claimant. See, e.g., Glob. Home Prod., LLC, 2006 WL , at *5 (finding that the second factor weighs in favor of declining to order the immediate payment of an administrative claim where waiting for such payment until confirmation of a plan would not cause the claimant to go out of business as a result thereof. 13. On June 1, 2017, the Debtors filed their Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 316], and pursuant to the DIP milestones set forth in the Final Order (I Authorizing the Debtors to Obtain Postpetition Financing, (II Authorizing the Debtors to Use Cash Collateral, (III Granting Liens, (IV Granting Adequate Protection to the Prepetition Lenders, (V Modifying Automatic Stay, and (VI Granting Related Relief [Docket No. 529], the Debtors must obtain an order confirming their plan by September 2, Accordingly, by the time that the hearing on the motion occurs, there will be little more than two months until the anticipated confirmation of the Debtors plan. Claimant s elevated priority status with respect to any allowed section 503(b(9 claim, coupled with the lack of any showing, or even attempt to demonstrate, any hardship to Claimant as a result of waiting for payment of any such claim until a plan is confirmed in these cases, weigh in favor of denying Claimant s request for immediate payment. 14. The third factor, the potential detriment to other creditors, also weighs heavily in favor of denying the immediate payment of any allowed section 503(b(9 claim, including any such claim allowed in favor of Claimant. Ordering the Debtors to pay any section 503(b(9 claim that may be allowed in favor of Claimant would almost certainly result in other potential 6

7 Document Page 7 of 8 section 503(b(9 claimants and other administrative creditors requesting similar accelerated payment. The ensuing race for preferential payment of such claims from the Debtors assets would be costly to defend and cuts against one of bankruptcy s chief goals: an orderly and equal distribution of assets. See In re Glob. Home Prod., LLC, 2006 WL , at *3 (citing In re HQ Global Holdings, Inc., 282 B.R. 169 (Bankr. D. Del As stated above, immediate payment of such claims will likely also cause a default under the Debtors DIP Budget, potentially leading to a liquidation of these cases and the elimination of any recovery for unsecured creditors. See Exhibit C of the Debtors Disclosure Statement for the Debtors Joint Plan of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code [Docket No. 315]. Accordingly, the potential detriment to other creditors that could result from ordering the Debtors to pay the Claimant s section 503(b(9 claim prior to confirmation of a plan weighs in favor of denying Claimant s requested relief. 7

8 Document Page 8 of 8 WHEREFORE, the Debtors respectfully request that the Bankruptcy Court enter an order substantially in the form attached hereto as Exhibit A and grant such other and further relief as the Court deems just and proper. Dated: June 23, 2017 Jonathan S. Henes, P.C. (admitted pro hac vice Nicole L. Greenblatt, P.C. (pro hac vice admission pending Robert A. Britton (admitted pro hac vice George Klidonas (admitted pro hac vice KIRKLAND & ELLIS LLP KIRKLAND & ELLIS INTERNATIONAL LLP 601 Lexington Avenue New York, New York Telephone: ( Facsimile: ( /s/ Eric A. Schaffer Eric A. Schaffer (PA I.D. #30797 Jared S. Roach (PA I.D. # REED SMITH LLP 225 Fifth Avenue Pittsburgh, Pennsylvania Telephone: ( Facsimile: ( Proposed Local Counsel to the Debtors and Debtors in Possession Proposed Counsel to the Debtors and Debtors in Possession

9 Case GLT Doc Filed 06/23/17 Entered 06/23/17 14:22:20 Desc Proposed Order Page 1 of 4 EXHIBIT A Proposed Order

10 Case GLT Doc Filed 06/23/17 Entered 06/23/17 14:22:20 Desc Proposed Order Page 2 of 4 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA In re: Case No (GLT rue21, inc., et al., 1 Chapter 11 Debtors. (Jointly Administered White Oak Commercial Finance, LLC f/k/a Capital Business Credit LLC, Movants, v. rue21, inc., et al. Respondents. ORDER ON AMENDED MOTION OF WHITE OAK COMMERCIAL FINANCE, LLC f/k/a/ CAPITAL BUSINESS CREDIT LLC FOR ALLOWANCE AND PAYMENT OF CLAIM AS AN ADMINISTRATIVE EXPENSE Upon the Amended Motion of White Oak Commercial Finance, LLC f/k/a Capital Business Credit LLC for Allowance and Immediate Payment of Administrative Expense Claim Pursuant to 11 U.S.C. 503(b(9 [Docket No. 348] (the Motion filed by White Oak Commercial Finance, LLC f/k/a Capital Business Credit LLC. ( Claimant for entry of an order 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: rue21, inc. (1645; Rhodes Holdco, Inc. (6922; r services llc (9425; and rue services corporation (0396. The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania

11 Case GLT Doc Filed 06/23/17 Entered 06/23/17 14:22:20 Desc Proposed Order Page 3 of 4 (this Order for allowance of an administrative expense claim under 11 U.S.C. 503(b(9 with respect to certain goods sold by Claimant to and received by the above-captioned debtors and debtors in possession (collectively, the Debtors within 20 days of the Petition Date and the immediate payment thereof, as more fully set forth in the Motion, and the Debtors Objection to Motion of White Oak Commercial Finance, LLC f/k/a/ Capital Business Credit LLC for Immediate Payment of Administrative Expense Claim Pursuant to 11 U.S.C. 503(b(9 (the Objection [Docket No. ] filed by rue21, inc. and its affiliated debtors (collectively, the Debtors ; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; and this Court having found that it may enter a final order consistent with Article III of the United States Constitution; and this Court having found that venue of this proceeding and the Motion in this district is proper pursuant to 28 U.S.C and 1409; and this Court having found that Claimant s notice of the Motion and opportunity for a hearing on the Motion were appropriate under the circumstances and no other notice need be provided; and this Court having reviewed the Motion and the Objection and having heard the statements in support of and in opposition to the relief requested therein; and this Court having determined that the legal and factual bases set forth in the Motion and the Objection establish just cause for the relief granted herein; and upon all of the proceedings had before this Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Motion is denied. 2. The terms and conditions of this Order shall be immediately effective and enforceable upon its entry and shall be binding upon the parties respective successors and assigns, including any trustee subsequently appointed in these cases. 2

12 Case GLT Doc Filed 06/23/17 Entered 06/23/17 14:22:20 Desc Proposed Order Page 4 of 4 3. The Court retains jurisdiction with respect to all matters arising from or related to the implementation of this Order. Prepared by: Kirkland & Ellis LLP (Proposed Counsel to the Debtors and Debtors in Possession Pittsburgh, Pennsylvania Dated: June, 2017 THE HONORABLE GREGORY L. TADDONIO UNITED STATES BANKRUPTCY JUDGE 3