In re Trico Marine Serv. Inc.

• Citation: 450 B.R. 474
• Decision Date: 15 April 2011
• Docket Number: No. 10–12653.,10–12653.
• Parties: In re TRICO MARINE SERVICES, INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

450 B.R. 474

In re TRICO MARINE SERVICES, INC., et al., Debtors.

No. 10–12653.

United States Bankruptcy Court, D. Delaware.

April 15, 2011.

Andrew Remming, Robert J. Dehney, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE, John E. Mitchell, Tonya M. Ramsey, Angela B. Degeyter, Vinson & Elkins LLP, Dallas, TX, for the Debtors and Debtors–in–Possession.Kurt Gwynne, Timothy P. Reiley, Reed Smith LLP, Wilmington, DE, for Bank of New York Mellon Trust Company, N.A., as indenture trustee.

OPINION ¹

BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court is a motion (the “Motion”) [Docket No. 942] filed by Trico Marine Services, Inc. (the “Debtors”) to determine the validity and priority of a certain make-whole premium (the “Make–Whole Premium”) asserted by Bank of New York Mellon Trust Company, N.A. (the “Indenture Trustee”). Pursuant to an order of this Court approving the sale of certain assets, the Indenture Trustee seeks full and immediate payment of the Make–Whole Premium out of sale proceeds currently held in escrow. By the Motion, the Debtors contest the Indenture Trustee's entitlement to such payment. For the following reasons, the Court has concluded that the Indenture Trustee is not entitled to full and immediate payment on account of the Make–Whole Premium out of the sale proceeds. Accordingly, the Court will grant the Motion. ²

I. BACKGROUND

On August 25, 2011 (the “Petition Date”), Trico Marine Services, Inc. and various of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the Bankruptcy Court for the District of Delaware.³ Prior to and after the Petition Date, the Debtors have been engaged in the business of providing support services in the oil industry. Their primary line of work is providing logistical and technical support to operators of off-shore oil rigs.

A. The Indenture

In 1999, Debtor Trico Marine International, Inc. (“TMI”) issued notes, payable in 2014, in the amount of $18,867,000 (the “Obligation”) to finance the construction of two supply vessels, the Hondo River and the Spirit River (collectively, the “Vessels”). The Obligation is governed by the terms of a trust indenture, dated April 21, 1999 (the “Indenture”) by and between TMI and Bank One Trust Company, N.A. (“Bank One”), the predecessor-in-interest to the Indenture Trustee.

Pursuant to the Indenture, the Obligation accrues interest at a rate of 6.11% per annum and is subject to semi-annual mandatory sinking fund redemption payments (the “Mandatory Redemption Payments”) on April 21 and October 21 annually, until April 21, 2014, when the outstanding principal and accrued interest becomes due. Indenture ¶ 3.02(a). Each Mandatory Redemption Payment is scheduled in the amount of $629,000 of the principal plus accrued interest. The record reflects that the Debtors have made all Mandatory Redemption Payments as and when due.

B. The Guarantee

The Indenture is not secured by any of the Debtors' property. However, to induce the extension of this credit facility to the Debtors, the Obligation was guaranteed by the United States Secretary of Transportation, on behalf of the Maritime Administration (“MARAD”), under the terms of the U.S. Government Guaranteed Ship Financing Bond and the Guarantee of the United States of America, dated April 21, 1999 (the “Guarantee”). Pursuant to the Guarantee, MARAD guaranteed “payment of the unpaid interest on, and the unpaid balance of the principal of, such Obligation, including interest accruing between the date of the default under such Obligation, and the payment in full of this Obligation under this Guarantee.” Guarantee at 8.

TMI issued to MARAD a promissory note secured by a first-priority lien on the Vessels dated April 21, 1999 (the “Security Agreement”) “[a]s security for the due and timely payment of the Secretary's Note” in the event that the Guarantee is called and MARAD becomes entitled to seek reimbursement from TMI. Security Agreement, Special Provisions ¶ F. Among other provisions, the Security Agreement prohibited the sale of the Vessels without MARAD's prior written consent. Security Agreement ¶ 2.02(b). The Indenture Trustee is not a party to the Security Agreement.

C. The Sale of the Vessels

The record reflects that construction of the Vessels was completed and the Vessels joined the Debtors' fleet in 2000. The Debtors have continued to own and operate the Vessels through the Petition Date. However, following the Petition Date, the Debtors decided to liquidate certain assets of the Debtors' estates, including the Vessels. The Debtors accepted an offer from Odyssea Vessels, Inc. (“Odyssea”) to purchase both of the Vessels for a total of $13,000,000. Accordingly, TMI and Odyssea entered into a memorandum of agreement, dated January 24, 2011 (the “Agreement”), for the sale of the Vessels to Odyssea (the “Sale”).

In exchange for its consent to the Sale, MARAD required the Debtors to redeem the Obligation in full to ensure that the Indenture Trustee would not call upon the Guarantee. Accordingly, upon closing of the Sale, the Debtors caused the Indenture Trustee to receive $4,555,489 (the “Payoff”), which included the outstanding principal ($4,400,000) and accrued but unpaid interest ($60,489) under the Obligation, as well as an estimate of the Indenture Trustee's attorneys' fees and expenses to date ($95,000).

On February 2, 2011, following a full hearing (the “Sale Hearing”), the Court entered an order (the “Sale Order”) [Docket No. 850] pursuant to which it, inter alia, approved both TMI's entry into the Agreement and the Sale.

D. The Make–Whole Premium

Under the terms of the Indenture, the Obligation is also subject to an optional redemption premium (the “Make–Whole Premium”) that matures only if and when TMI elects, at its option, to redeem the Obligations, “in whole or in part, at any time, at the redemption prices.” Indenture ¶ 3.03. In advance of the Sale Hearing and in connection with the contemplated Payoff, the Indenture Trustee claimed that it was entitled to receive an additional sum of money on account of the Make–Whole Premium that would accrue upon TMI's election to redeem the Obligations using the proceeds of the Sale. Based upon the date of redemption, the Indenture Trustee asserts that the Make–Whole Premium is $511,849.01, and the record reflects that the Debtors have not contested this figure.

However, the Debtors disputed, or at least challenged, the validity and priority of the Indenture Trustee's claim to the Make–Whole Premium, but lacked sufficient opportunity to investigate its validity and priority in advance of the Sale Hearing. Nonetheless, to avoid delaying the Sale, the parties agreed in the Sale Order that the Debtors would reserve $535,000 from the proceeds of the Sale in a separate escrow (the “MARAD Escrow”) pending resolution of the dispute as to the Make–Whole Premium. Sale Order ¶ 12.

The Sale Order provides that the Debtors and the Indenture Trustee would attempt to resolve the issue regarding the Make–Whole Premium. Id. But, to the extent that the parties would be unable to reach resolution, or to the extent that other interested parties would not consent to a resolution, the Sale Order provides that the issue would be brought before the Court for adjudication. Id. To date, the Indenture Trustee and the Debtors have been unable to resolve their dispute concerning the Make–Whole Premium. In accordance with the Sale Order, the issue is now before the Court.⁴

II. THE PARTIES' POSITIONS

A. The Debtors' Position

By the Motion, the Debtors seek a determination that the Make–Whole Premium is not an allowable claim because it is unmatured interest subject to disallowance under 11 U.S.C. § 502(b)(2). Alternatively, the Debtors assert that the Make–Whole Premium is, at best, a general unsecured claim that is not covered by the Guarantee and is therefore not subject to MARAD's lien under the Security Agreement.

The Debtors contend that they elected to redeem in full the Obligation owed to the Indenture Trustee in order to obtain MARAD's consent to the Sale and to prevent the Guarantee from being called upon. Although the Obligation is itself unsecured, the Debtors' obligation to reimburse MARAD on account of the Guarantee is secured by the Vessels. Rather than risk the call on the Guarantee and the consequent fees and costs that the Debtors would owe to MARAD as a result of its collection efforts, the Debtors chose to pay the Indenture Trustee, directly from the Sale proceeds, all principal and interest due on account of the unsecured Obligation.

The Debtors do not dispute that the Indenture Trustee is entitled to the Make–Whole Premium to the extent that it is valid. However, the Debtors contend that the Indenture Trustee's claim for the Make–Whole Premium is neither a secured claim nor covered by the Guarantee.

The Debtors assert that applicable case law supports their contention that the Make–Whole Payment is not “principal or interest,” and that it is therefore not covered by the Guarantee. For this reason, the Debtors argue that the Indenture Trustee's claim should not be treated as a secured claim and is not entitled to full payment out of the funds in the MARAD Escrow. Therefore, the Debtors contend that the Indenture Trustee's claim for the Make–Whole Premium is only an unsecured claim in the event and to the extent that it is allowed.

B. The Indenture Trustee's Position

The Indenture Trustee makes two alternative arguments. First, it contends that by the terms of the Sale Order, it need only demonstrate that it has an “allowed” claim—not necessarily a secured claim or one that is covered by the Guarantee—in order to establish its entitlement to full payment on the Make–Whole Premium out of the MARAD Escrow. In the alternative, the Indenture Trustee contends that the Make–Whole Premium is in fact covered by the Guarantee, and thus the...