IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION In re: BENDER SHIPBUILDING & REPAIR CO., INC. Debtor. Chapter 11 Case No. 09-12616 THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS LIMITED OBJECTION TO ENTRY OF A FINAL ORDER APPROVING THE FINANCING MOTION The Official Committee of Unsecured Creditors (the Committee ) appointed in the above-referenced chapter 11 case of Bender Shipbuilding & Repair Co., Inc. (the Debtor ), hereby files this limited objection (the Limited Objection ) to entry of a final order (the Final Order ) approving the Debtor s motion for authority and approval to obtain post-petition secured financing (the Financing Motion ). In support of the Objection, the Committee respectfully represents upon information and belief as follows: PRELIMINARY STATEMENT 1. The Committee is supportive of the Debtor s request for final approval of its post-petition financing because it is necessary to fund a sale of the Debtor s assets. But given the Committee s serious concerns over ongoing sale process and the Debtor s liquidity crisis, no prepetition secured creditor of the Debtor should be granted any additional adequate protection absent the appointment of a Chief Restructuring Officer or a trustee. Specifically, the Committee has serious concerns (i) whether the Debtor s financing is sufficient to get the Debtor through a fully vetted sale process that will maximize value to all creditors, (ii) whether under the Debtor s present course, the sale process will be conducted fairly and equitably rather than favoring existing management in light of Mr. Bender s personal guaranties of much of the Debtor s NY01/KAMS/1378046.6 Document Page 1 of 5
secured debt, and (iii) whether side deals will be cut before next Tuesday s hearing that pledge currently unencumbered assets and waive avoidance actions that would otherwise benefit unsecured creditors if the Debtor were in a chapter 7 or were immediately liquidated. 2. The facts suggest that the sale process, up until recently, has been focused on a management deal with a financial buyer rather than on maximizing value to all creditors by aggressive marketing of the Debtor s business to strategic buyers in the United States and abroad. Tellingly, the Debtor s financial advisors, Global Hunter, have been engaged by the Debtor for nearly six months (since early April 2009), but for the first time invited strategic buyers into the sale process less than two weeks ago, on September 25, 2009. Simply put, the post-petition financing process should not be structured tactically to provide liquidity sufficient only to fund a quick sale of the Debtor s assets to a financial (rather than strategic) buyer, for no other reason but to protect existing equity holders and management, and to the detriment of unsecured creditors who are owed millions of dollars by the Debtor. The Court should consider these issues before approving any additional adequate protection to pre-petition secured creditors. LIMITED OBJECTION 3. The Committee s concerns are well founded. It is currently doubtful whether the ongoing sale process, which is aimed at keeping existing management in place, will yield sufficient proceeds to pay out the pre- and post-petition secured creditors and leave any meaningful value for unsecured creditors. The Debtor has informed the Committee and has disclosed to the local media that the likely stalking horse is SunTX, a financial buyer, who would continue to employ existing management to run the Debtor s business. Less than a week ago, NY01/KAMS/1378046.6 2 Document Page 2 of 5
Tom Bender, the President of the Debtor, made this statement that was quoted in Mobile s Press- Register: Tom Bender said Wednesday that the transaction is part of a bankruptcy auction that allows an initial bidder, known colloquially as a stalking horse, special privileges such as expense reimbursements. He said Dallas private-equity firm SunTx Capital Partners will be announced as the initial bidder in mid-october, but added that SunTx is in it to get it and have an ongoing business. He said that neither he nor members of his family plan to submit bids. But should SunTx win, he said, the management of the shipyard will go to work for the new company. Press Register, Mobile, AL, Kaija Wilkinson, Oct. 1, 2009, available at www.al.com/news/pressregister/metro.ssf?/base/news/1254388516115950.xml&coll=3. 4. The Committee is deeply concerned about the chilling effect Mr. Bender s statement will have on the interest of strategic buyers, who are likely to bring the greatest value to the sale process. Strategic buyers have the utmost ability to generate new business in the short term by instilling the financial and operational confidence in customers that current management had lost. For example, GulfMark, a Committee member and major pre-petition new construction customer of the Debtor, has refused to continue its ongoing vessel construction projects at the Debtor s shipyard if existing management remains in control of the Debtor s finances and operations. The Committee also understands that another Committee member, OSG/Maritrans, is taking the same position with respect to the prospect of returning some of its new construction projects to the shipyard. 5. A subcommittee of the remaining Committee members has requested that GulfMark and OSG/Maritrans engage in discussions with the subcommittee in an effort to obtain commitments to continue projects at the shipyard (in the case of GulfMark) and bring work back to the shipyard (in the case of OSG/Maritrans) to enhance the Debtor s value as a going concern NY01/KAMS/1378046.6 3 Document Page 3 of 5
in the context of a sale to a strategic buyer. Because this would require the replacement of existing financial and operational management, the Committee has asked the Debtor to consent to the engagement of a mutually acceptable Chief Restructuring Officer and outside construction manager if the Committee successfully brokers a deal to bring such critical work back to the shipyard. The Debtor s answer was an unequivocal no. 6. Meanwhile, the Debtor continues to burn through its post-petition financing without attracting any meaningful new business to the shipyard. At the present burn rate, the entire $5 million in post-petition financing will be exhausted in the next 60 to 75 days. Such a timeline makes it difficult to attract and close a deal with a strategic buyer given that the sale solicitation materials were first sent to strategic buyers less than two weeks ago and almost six months after Global Hunter was engaged by the Debtor. 7. The Committee is concerned that the sale proceeds may be insufficient to result in meaningful distributions to unsecured creditors unless a postpetition financing budget provides the Debtor with sufficient time for aggressive marketing of its assets to strategic buyers. In light the current budget and time constrains, however, unsecured creditors may be left with little more than a distribution only from the Debtor s remaining unencumbered assets and causes of action. But if such assets are pledged and claims are waived through the post-petition financing process, little or no value for unsecured creditors will remain. 8. The Committee therefore reserves the right to (i) request that any further impairment of the unsecured creditors position in this case be denied or conditioned on the appointment of a Chief Restructuring Officer, (ii) seek the appointment of a trustee or examiner, and (iii) supplement this Limited Objection in writing or orally at the final hearing on the Financing Motion. NY01/KAMS/1378046.6 4 Document Page 4 of 5
Dated: October 6, 2009 Respectfully submitted, /s/ Christopher Kern Christopher Kern P.O. Box 210 Mobile, AL 36601 Tel: (251) 438-4357 -and- KELLEY DRYE & WARREN LLP Craig A. Wolfe (pro hac vice admission pending) 101 Park Avenue New York, NY 10178 Telephone: (212) 808-7800 Facsimile: (212) 808-7897 cwolfe@kelleydrye.com Counsel to The Official Committee of Unsecured Creditors Committee Website: http://extranets.kelleydrye.com/sites/020003/default.aspx CERTIFICATE OF SERVICE I certify that I have this 6 th day of October, 2009, served a copy of the foregoing pleading by electronic means to all parties who have requested service via the Court ECF filing system. /s/ Christopher Kern NY01/KAMS/1378046.6 5 Document Page 5 of 5