Oct 05, 2020
Eric Anderson and Michael Sullivan authored the article "Killing Two Birds with One Stone: BAP Denies Novel Attempt for § 364(d) Exit Financing in SARE Case, Rules Stay Relief Should Have Been Granted," featured on the cover of the November issue of ABI Journal.
Faced with a near impossibility of obtaining post-confirmation exit financing necessary to fund operations, debtors in a single asset real estate (SARE) case recently attempted a novel approach to entice an exit lender to extend financing. In conjunction with a proposed plan of reorganization, the debtors sought to apply the priming provisions of § 364(d)—typically used to secure financing during a bankruptcy case—to proposed exit financing needed to fund the reorganized debtors after confirmation.
To accomplish this, the debtors filed a financing motion prior to confirmation seeking approval of the proposed priming liens on the debtors’ real estate under § 364(d)(1). The existing secured creditor objected and filed its own motion for relief from the automatic stay under the SARE provisions of § 362(d)(3). The bankruptcy court deferred ruling on the § 364 financing motion and denied the stay relief motion, holding denial of stay relief was proper given the existence of equity in the collateral.
On appeal to the Tenth Circuit Bankruptcy Appellate Panel (BAP), the BAP reversed the bankruptcy court, first holding that the bankruptcy court had abused its discretion in denying stay relief without deciding whether or not the plan was confirmable, as provided in § 363(d)(3). In order to make such a determination, the bankruptcy court was required to rule on whether the debtors could obtain financing under § 364, because without that financing the proposed plan could not be confirmed. The BAP then elected to address the § 364 financing motion and held that the benefits of DIP financing afforded under § 364 are not available after confirmation, and that stay relief therefore should have been granted. The BAP’s opinion provides instructive analysis of both § 364’s financing provisions and motions for relief from stay in SARE cases under § 363(d)(3).
Read the article here.
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Oct 05, 2020