In re Metaldyne Corp.

• Decision Date: 12 August 2009
• Docket Number: No. 09-13412 (MG).,09-13412 (MG).
• Citation: 409 B.R. 671
• Parties: In re METALDYNE CORPORATION, et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 671

409 B.R. 671

In re METALDYNE CORPORATION, et al., Debtors.

No. 09-13412 (MG).

United States Bankruptcy Court, S.D. New York.

August 12, 2009.

Jones Day by: Heather Lennox, Esq., Ryan T. Routh, Esq., Cleveland, OH, by: Robert W. Hamilton, Esq., Columbus, OH, by: Richard H. Engman, Esq., New York, NY, by: George T. Manning, Esq., Dallas, TX, Attorneys for the Debtors in Possession.

Reed Smith LLP, New York, NY, by: Mark D. Silverschotz, Esq., Wilmington, DE, by: Kurt F. Gwynne, Esq., Attorneys for the Official Committee of Unsecured Creditors.

Kirkland & Ellis LLP, Chicago, IL, by: David A. Agay, Esq., New York, NY, by: Benjamin J. Steele, Esq., Attorneys for MD Investors Corporation.

Bingham McCutchen LLP, New York, NY, by: Steven Wilamowsky, Esq., by: Sabin Willett, Esq., Boston, MA, Attorneys for BDC Finance, LLC.

MEMORANDUM OPINION GRANTING DEBTORS' MOTION TO APPROVE SALE OF SUBSTANTIALLY ALL OF THE DEBTORS' ASSETS TO MD INVESTORS CORP.

MARTIN GLENN, Bankruptcy Judge.

INTRODUCTION

Pending before the Court is the Debtors' motion pursuant to § 363(b)(1) and (k) to approve the sale of substantially all of their assets to MD Investors Corporation ("MDI"), a consortium led by The Carlyle Group and Solus Alternative Asset Management LP representing approximately 97% of the Debtors' Prepetition Term Lenders' secured debt. Virtually all of the Debtors' constituencies support the sale. As detailed in a separate Sale Order being entered contemporaneously, the Court concludes that the elements of § 363, as interpreted by the Second Circuit most recently in In re Chrysler LLC, 576 F.3d 108 (2d Cir.2009), as well as in Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063 (2d Cir.1983), have been satisfied. This Opinion addresses the only objection to the sale,¹ raised by BDC Finance, L.L.C. ("BDC"), an owner of approximately $3.5 million of the over $425 million of the Debtors' prepetition secured term debt. BDC argues that the Prepetition Term Lenders' agent, JPMorgan Chase, N.A. (the "Agent"), could not properly credit bid 100% of the prepetition term debt under § 363(k), even though 97% of the Prepetition Term Lenders are participants in MDI and directed the Agent to credit bid. BDC also challenges the Agent's release of the lien on certain collateral that will be retained by the Debtors. For the reasons explained below, the Court concludes that nothing in § 363(k), or in the cases interpreting § 363, prohibits the Agent from credit-bidding in this fashion. The Debtors' motion to approve the sale is therefore GRANTED.

BACKGROUND

A. The Auction Process

The Court has issued two earlier opinions detailing the factual background of this case, familiarity with which is assumed. See In re Metaldyne Corp., 2009 Bankr.LEXIS 1533 (Bankr.S.D.N.Y. June 23, 2009) (ECF Doc. # 294); In re Metaldyne Corp., 409 B.R. 661, 2009 WL 2244602 (Bankr.S.D.N.Y. July 28, 2009) (ECF Doc. # 542). At the time the Debtors filed their chapter 11 petitions in May 2009, they contemplated that there would be several public auctions to sell their four principal business units: the powertain assets, the chassis assets, the balance shaft module ("BSM") assets, and the tubular assets. Two different investment bankers were retained to assist in marketing those assets—Lazard Freres & Co. (for the powertrain and chassis assets) and Donnelly Penman & Co. (for the BSM and tubular assets). The Court entered separate bidding procedures orders for auctions of the chassis assets and the powertrain assets.² The auctions were scheduled for August 3, 2009 (for the chassis assets), and August 5, 2009 (for the powertrain assets).³

On July 31, 2009, in anticipation of both auctions, MDI submitted a bid for all four of the Debtors' business units. (ECF Doc. # 637 ¶ 26.) The bid consisted of $38 million in cash, subject to various purchase price adjustments, and a credit bid component. (Id.) The MDI bid was the only bid for that particular package of assets. The bid was also supported by $100 million commitment letters provided by Carlyle and Sola, which led Lazard to conclude that MDI would be able to consummate a sale transaction with the Debtors. (Id.) The Debtors' Special Committee therefore concluded that the MDI bid was a qualified bid. On August 2, 2009, the Debtors filed a notice of adjournment of the August 3 chassis assets auction, indicating that they had received a bid for substantially all of the company's assets, and so were going to hold the two auctions simultaneously on August 5, 2009.

In addition to MDI's bid for substantially all of the assets, the Debtors also received separate bids on the powertrain and chassis assets. The Debtors had executed stalking horse contracts with HHI Holdings, LLC for the powertrain assets and with Revstone Industries LLC for the chassis assets. Negotiations continued up to the bid deadlines of July 31 for the chassis assets and August 3 for the powertrain assets. Shortly before the August 3 auction, Revstone informed the Debtors that it was withdrawing from the sale process. (ECF Doc. # 637 ¶ 34.) As a result, the only qualified bid for the chassis assets was from a Carlyle affiliate, Chassis Products LLC. Also on August 3, 2009, the Debtors received a bid for the powertrain assets from ACOF MD Holdings Ltd ("Ares"). (ECF Doc. #641 ¶ 14.) The Debtors, in consultation with their advisors, determined that the Ares bid was the best and highest qualified bid for the powertrain assets, and so would set the floor for bidding for the start of the powertrain auction on August 5.

The auction commenced on August 5. After consulting with the Special Committee, the Debtors informed the auction participants that since the Chassis Products bid was the only qualified bid for the chassis assets, there would be no auction for the chassis assets. (ECF Doc. # 641 ¶ 16.) The auction proceeded well into the night of August 5, and continued again on August 6, with bids for the various assets increasing incrementally. The final MDI bid was almost $70 million more in value than the combined stalking horse bids, and $27 million more than the combined next highest bids on the Debtors' individual business units. (ECF Doc. # 637, at Ex. 1.) The final MDI bid consisted of $39.5 million in cash (subject to certain adjustments), assumption of $8.5 million in administrative priority claims, $2.5 million in cash to fund a litigation trust for the Creditors' Committee, assumption of a 15 million note, and, most critically in this case, a credit bid of all the senior secured term loan debt, in an amount not less than $425 million and the release of liens on any assets that are not included in the sale. (ECF Doc. #637 ¶¶ 39-44.) The Special Committee then decided, in consultation with its advisors and interested parties, that no other bids were forthcoming, and deemed the MDI bid the successful bid. (ECF Doc. # 641 ¶ 24.)

After the Special Committee reached its conclusion, the Debtors filed a notice of successful bidder, attaching the proposed asset purchase agreement with MDI. (ECF Doc. # 632.) The Debtors also filed a memorandum of law in support of the sale (ECF Doc. #640), and declarations by Michael Macakanja (of Lazard Freres), Jeremy Lamb and Adam Fovenesi (of Donnelly Penman), and David Kell (a member of the Special Committee).⁴

BDC filed two motions: an emergency motion to adjourn the sale hearing and a formal objection to the sale itself. (ECF Docs. # 636, 638.) The sale hearing commenced August 7, the morning after the auction concluded. After hearing argument, the Court denied BDC's motion to adjourn the sale hearing, ruling that the motion did not raise any issues that would require further briefing or discovery. BDC's counsel acknowledged that its objection raised a legal issue concerning the proper interpretation of the Credit Agreement and Security Agreement. (See Section B, infra.) The Court then conducted an evidentiary hearing on the sale motion, heard argument of counsel for parties-in-interest, and took the matter under submission.

B. The Prepetition Term Loan Facility's Relevant Provisions

The Debtors Metaldyne Company LLC and Metaldyne Intermediate Holdco, Inc. are parties to a Prepetition Term Loan Facility, with JPMorgan Chase Bank, N.A. as Agent, with several lending parties. The Prepetition Term Loan Facility is governed by two documents relevant to this dispute, both of which were executed on January 11, 2007: the Credit Agreement and the Security Agreement.⁵ BDC is one of the lenders under the Credit Agreement. As of the petition date, the principal amount owed was in excess of $425 million. BDC's share was approximately $3.5 million. The dispute between BDC, MDI, and the Debtors turns on interpreting these two agreements.

BDC argues that under the Credit Agreement and Security Agreement, MDI cannot direct the Agent to credit bid for the Debtors' assets under § 363(k) for the full amount of the debt, or to release BDC's liens on the Debtors' collateral, without BDC's consent and without distributing the proceeds of the sale pro rata to BDC. Specifically, BDC points to § 5.01 of the Security Agreement, which provides in relevant part:

At any public ... sale made pursuant to this Section, any Secured Party[⁶] may bid for or purchase free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of any Grantor ... the Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to such Secured Party from any Grantor as a credit against the purchase price, and such Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Grantor therefor.

In addition, BDC points to § 9.02(b) of the Credit Agreement, which provides in relevant part that the Credit Agreement may not "be waived, amended...