In re Young Broadcasting Inc.

• Decision Date: 19 April 2010
• Docket Number: No. 09-10645 (AJG).,09-10645 (AJG).
• Citation: 430 B.R. 99
• Parties: In re YOUNG BROADCASTING INC., et al., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

430 B.R. 99

In re YOUNG BROADCASTING INC., et al., Debtors.

No. 09-10645 (AJG).

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

April 19, 2010.

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Sonnenschein Nath & Rosenthal LLP By Peter D. Wolfson, Esq., Jo Christine Reed, Esq., New York, NY, for Debtors.

Paul, Weiss, Rifkind, Wharton & Garrison LLP By Andrew J. Ehrlich, Esq. Andrew N. Rosenberg, Esq., New York, NY, for the Official Committee of Unsecured Creditors.

Milbank, Tweed, Hadley & McCloy LLP By Linda Dakin-Grimm, Esq., Daniel M. Perry, Esq., Gregory A. Bray, Esq., Mark C. Scarsi, Esq., New York, NY, for Wachovia Bank, N.A., Agent for Senior Secured Lenders.

CONFIRMATION OPINION

ARTHUR J. GONZALEZ, Chief Bankruptcy Judge.

Before this Court are two proposed plans of reorganization. The Official Committee of Unsecured Creditors (the "Committee") of Young Broadcasting, Inc. ("YBI" or the "Debtor") and its affiliated debtors and debtors in possession in the above-captioned cases (collectively, the "Debtors") move before this Court seeking confirmation of the Committee's Amended Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated November 4, 2009 (the "Committee Plan") pursuant to section 1129 of title 11 of the United States Code (the "Bankruptcy Code"). In the event that the Court denies confirmation of the Committee Plan, the Debtors¹ move for confirmation of the joint plan of Young Broadcasting, Inc. and its subsidiaries under chapter 11 of the Bankruptcy Code (as the same may be subsequently amended or supplemented and including all exhibits and supplements thereto, the "Debtors Plan"). For the reasons set forth below, the Court denies confirmation of the Committee Plan and grants confirmation of the Debtors Plan.

Background

On February 13, 2009 (the "Commencement Date"), the Debtors filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On September 16, 2009, Young Broadcasting Capital Corp. and Young Communications, Inc., two of the original Debtors' affiliates, each filed before this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to the Orders dated February 17, 2009 and October 29, 2009, these cases were jointly administered.²

The Debtors' Business

YBI, a Delaware corporation that is currently headquartered in New York, was founded in 1986 by Vincent Young ("Young") and his father, Adam Young. Thereafter, affiliated entities were formed and acquired. The Debtors own and operate ten television stations in geographically diverse markets³ and a national television sales representation firm, Adam Young, Inc.⁴ YBI is the borrower under a Fourth Amended and Restated Credit Agreement, dated as of May 3, 2005 (as subsequently amended and supplemented, and together with related loan and security documents, the "Credit Agreement"), among YBI, the Lenders (the "Lenders") from time to time party thereto, Wachovia (as administrative agent, collateral agent and issuing bank), Lehman Commercial Paper Inc., and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as syndication agents), BNP Paribas (as documentation agent), and Wachovia Capital Markets, LLC, Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (as joint lead arrangers and joint lead book-runners). The Credit Agreement originally provided for a $300 million term loan that matures in November 2012. Subsequent amendments increased the term loan to $350 million.⁵ The YBI's obligations under the Credit Agreement are secured by a first priority security interest in and liens upon substantially all of the Debtors' assets. As of the Commencement Date, the allowed amount of secured obligations owed to the Lenders was $338,451,923.85.⁶

On March 1, 2001, YBI completed a private offering of $500 million of 10% senior subordinated notes due 2001. On December 23, 2003, YBI`completed another private offering of $140 million of 8¾ % senior subordinated notes due 2014. These two series of notes are collectively referred to as the "Senior Subordinated Notes" and have an aggregate face amount of $640 million. The Senior Subordinated Notes are general unsecured obligations of the YBI, subordinated in right of payment to all senior debt, including all of the YBI's indebtedness under the Credit Agreement. The Senior Subordinated Notes are guaranteed by each of the Debtors. As of December 31, 2008, the principal amount outstanding under the Senior Subordinated Notes was approximately $484.3 million.

Events Leading Up to the Debtors' Chapter 11 Filing

During the years leading up to the Commencement Date, the Debtors were burdened with debt and suffered a decline in revenue as a result of the general decrease in advertising budgets in the current recession. The Debtors also encountered increased competition from other television stations as well as alternate advertising vehicles such as newspapers, radio stations, magazines, cable networks, and internet portals. In particular, the Debtors' largest station, KRON-TV ("KRON"), suffered severe cash flow losses. The Debtors explored various options prior to filing Chapter 11, including cost savings initiatives, attempts to sell KRON, and discussions of out-of-court restructuring with the holders of the Senior Subordinated Notes (the "Noteholders"). These efforts were unsuccessful at solving the Debtors' dire financial problems. In February 2009, the Debtors' board of directors appointed David Pauker of Goldin Associates, LLC as the Debtors' Chief Restructuring Officer ("CRO") to effect a recapitalization and deleveraging through a Chapter 11 plan or a section 363 sale.

The Auction, the Credit Bid, and the Competing Plans

When the cases were first filed, the Debtors pursued a dual track process, exploring a sale of substantially all of their assets while attempting to reach a consensual "stand alone" plan with their major constituents. At the time, the Debtors believed that a section 363 sale would best suit the Debtors' situation and maximize value for the estate. In April 2009, this Court approved the Debtors' bidding procedures for the sale of substantially all of their assets, and after an extensive marketing process, the Debtors received three qualified bids, all seeking to purchase substantially all of the Debtors' assets, and an expression of interest from a potential purchaser who had not participated in the sale process or conducted due diligence.⁷ The Lenders were selected as the stalking horse bidder and offered to credit bid $200 million of their secured debt towards the purchase of the Debtors' assets and to cause the purchasing entity to assume all allowed administrative costs and cure claims, resulting in a bid value of approximately $219.9 million (the "Credit Bid").⁸ After consultation with the Committee and the Lenders, the Debtors deemed the Credit Bid as the prevailing bid and the auction was canceled.⁹

By this time, however, the Debtors' business had improved and had produced sufficient cash flow to operate until at least the end of 2009. Consequently, this Court found that the emergency conditions required to authorize a sale of substantially all of the Debtors' assets outside the plan process were not satisfied and ruled that it would only consider approval of a sale as part of a plan. The Court then entered an order authorizing the Debtors to execute the Asset Purchase Agreement (the "APA") with the Lenders, subject to a further order confirming a plan of reorganization. Meanwhile, the Debtors began negotiating with the Committee to develop an alternative plan of reorganization.

Further, after the Court denied the Debtors' request to approve the sale, the Debtors moved to extend exclusivity, at which time the Committee objected and sought a lifting of exclusivity to file the Committee Plan.¹⁰ The Debtors, with the consent of the Lenders, agreed to a lifting of exclusivity to permit the Committee to propose a plan, provided that the Committee Plan remained on the same timeline towards confirmation as the Debtors Plan. On August 12, 2009, this Court entered an order extending exclusivity with a carve-out to allow the Committee to file a competing plan. The Debtors filed the joint plan of the Debtor and its debtor subsidiaries on September 24, 2009, an amended joint plan on November 4, 2009, and their Disclosure Statement for that plan on October 9, 2009. On October 9, 2009, the Committee filed its Disclosure Statement Supplement. On November 5, 2009, the Court approved both the Committee's Disclosure Statement Supplement for the Committee Plan and the Debtors' Disclosure Statement for the Debtors Plan. On November 6, 2009, the Court entered an order approving solicitation and voting procedures (the "Solicitation Order"). According to the Solicitation Order, the Debtors would solicit votes for the Debtors Plan and the Committee Plan on a single ballot. Creditors entitled to vote would receive a single ballot. On the ballot, creditors could vote for or against either plan and, if voting in favor of both plans, indicate a preference for one plan over the other. In November 2009, pursuant to the Solicitation Order, the Solicitation Package was mailed to creditors.

In December 2009, after a presentation of both plans to the Debtors' board of directors, it decided, exercising its fiduciary duties and business judgment, that it preferred the Committee Plan over the Debtors Plan. As a result, it seeks confirmation of the Debtors Plan only if the Court does not confirm the Committee Plan.

The Debtors Plan

The Debtors Plan, (1) fully compensates allowed administrative expenses, allowed priority claims, and secured claims other than the Lenders' claims; (2) creates a new company, New Young Broadcasting Holding Co., Inc. ("NewCo"), which would receive all of the common stock of...