FBI trustee files breakup fee objection
Heath E. Combs -- Furniture Today, September 27, 2013
ST. LOUIS — An objection filed by Furniture Brands International's bankruptcy court trustee on Thursday could open the door for new bidding for its iconic brands.
Roberta A. DeAngelis, U.S. Trustee for the case, filed an objection against FBI's proposal to pay a $6 million break-up fee to stalking horse bidder Oaktree Capital Management if their proposed asset purchase agreement is terminated. The trustee said the fee is excessive.
FBI's breakup fee totals about 7% of the proposed $166 million sale's cash component. Affiliates of funds managed by Oaktree Capital Management would acquire substantially all of the assets of FBI except Lane.
Typically, the thought process behind a breakup fee is to cover due diligence costs and provide an incentive for the stalking horse to come forward and a benefit if the stalking horse is not the successful bidder, according to Robert Boghosian, an attorney and partner with Jerry Cohen at Cohen Tauber.
But, DeAngelis objection said, FBI already has an existing relationship with Oaktree and doesn't need those protections. Oaktree has already committed to $140 million in debtor-in-possession financing and $50 million of new liquidity to FBI.
DeAngelis said that since Oaktree already has a strategic interest in bidding-- it is providing DIP financing--- it doesn't need the breakup fee's protections.
"The stalking horse purchaser presumably already knows the details of the Debtors' operation and financial affairs," DeAngelis motion said.
Cohen Tauber's Boghosian added: the trustees objection has merit and it's up to the bankruptcy court to decide.
DeAngelis added that if a breakup fee is awarded, it shouldn't be until after a sale and that FBI's proposal that the breakup fee be treated as a "superpriority" - one of the highest classes of claim in bankruptcy - isn't allowed by the bankruptcy code.
A hearing on FBI's sale procedures will be heard next Wednesday.
Losing the breakup fee could increase interest by potential bidders.
"A bidder may not want to bid because when one looks at the price, ands adds up the breakup fee. It may be going in a direction higher than what the assets are worth. A breakup fee could have an impact of chilling the bidding," Boghosian said."
Boghosian added that a breakup fee of about 3% - or lower - is standard in breakup fees in bankruptcies in Delaware, where Furniture Brands has filed.
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- Nov 19, 2013
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