A Delaware Judge has approved SFX’s reorganization to emerge from Chapter 11 bankruptcy following an agreement between SFX’s debtors and unsecured creditors.
Judge Mary Walrath signed off on the plan Thursday, which proposes the issuance of three classes of securities: Series A preferred stock, Series B preferred stock and new common stock. She also rejected a request by shareholders to form an equity committee to participate in bankruptcy talks, leaving shareholders no recourse to recover their investment.
Under the plan, the debtors are divided into three classes — the original borrowers that helped formed the company, foreign debtors and a group of four holding companies with guarantees against the company’s DIP funding. Under the plan, all administrative and priority claims are being paid in full. Lenders of the $30 million Tranche A DIP will be paid back through the issuance of the Series A preferred stock. The Tranche B DIP and the issuer of a foreign loan will be paid with a combination of preferred and common stock. All debt is being equitized and the only debt for SFX will be a small working capital line upon emergence.
In addition, the original lenders will receive a combination of warrants and accommodations from a liquidation trust (funded by SFX) or they can elect to receive a pro-rata share of a cash distribution. The plan creates two classes of unsecured creditors — a convenience class and a general unsecured creditors class. The general unsecured creditors will receive cash payments from a $1 million note, recoveries from a litigation trust and warrants from the reorganized debtor. They can also elect to waive any claim over $150,000 and be treated in the convenience class. The convenience class is for $150,000 or less and will receive a cash pool share of $750,000.
The plan calls for the formation of a litigation trust to pursue civil action against company founder Robert Sillerman.
“Possible Causes of Action against Mr. Sillerman include claims for breach of fiduciary duty, breach of contract, negligent misrepresentation and fraud,” the agreement reads. “In addition, the Debtors claims include claims against and arising from agreements with entities affiliated with Mr. Sillerman, including, for breach of contract, negligent misrepresentation, and fraud.”
A hearing to confirm the plan is set for Nov. 9 at 10 a.m. EST.
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