Any business executive worth her salt will admit that timing is everything in business. Launch a product before consumers are ready to try something new or enter a market after the niche is saturated and even the best business plan is unlikely to see you through. The ongoing RadioShack bankruptcy is a good illustration of this concept from a Chapter 11 perspective.
Bankruptcy is business, and frequently it is the business of “just getting it done.” Show up too late in the process or fail to juggle every one of the multitudes of balls in the air in a complex Chapter 11 and you may lose the few options available. The juggling is going fast and furious in the case of RadioShack’s Chapter 11 in Delaware. As you may recall, the Shack filed on February 5 seeking a quick sale of most of its assets, with an affiliate of existing lenders acting as the “stalking horse bidder” subject to higher and better bids.
What sounds simple in the blogosphere is actually a lot more complicated and is as much about timing as anything. When RadioShack filed, it also asked the Bankruptcy Court for authority to borrow up to $20 million in “Debtor in Possession Financing” from its prior lenders, on what many bankruptcy practitioners would consider favorable “roll up” terms. As part of that motion, RadioShack sought to insert a provision in the financing order that would prohibit any party from challenging the security interests of the lenders. The motion was granted over the objection of the Official Committee of Unsecured Creditors and others, but as is common in such orders, the Court gave the Committee (or other parties with standing) just about 60 days to file a challenge to the lenders’ position (i.e. about April 14).
What is the rub? During this very short time there is another major ball up in the air: the proposed sale to the lenders’ affiliate. Under the sale procedures approved by the Court, the sale must close by March 31, 2015. A major component of the lender-related stalking horse bid is not cash, but a credit for the very financing that may be challenged by the Committee. For very good reasons, the Bankruptcy Code makes it extremely hard to undo a sale order, so everyone cramming the conference rooms at Jones Days’ offices in New York for a second day understands that the deal, if one is to be done, will likely have to be brokered before the scheduled sale hearing on March 26, 2015.
What will the deal look like, if one is brokered? That remains unclear. Currently, unsecured creditors may get little or nothing on account of their debt. Will the Committee push right through to the sale hearing and continue to challenge the right of the lenders to credit bid? That’s also unclear. But you can bet everyone involved in the case is trying to keep one eye on the ball and the other on their watch.