Bankruptcy Partner Madlyn Primoff Discusses Lender and Debtor Cooperation During Reorganization in The Deal
The Deal recently took at look at the Chapter 11 bankruptcy of oil rig operator O&G Leasing LLC, including its battle with secured lender First Security Bank for confirmation of its reorganization plan. As the article explained, First Security, indenture trustee for the debenture holders, not only proposed a rival liquidation plan for O&G but took the “seemingly rare move” of leading an auction of five of O&G's oil rigs in bankruptcy court.
According to Kaye Scholer Bankruptcy & Restructuring Partner Madlyn Primoff, in contrast to the relationship between O&G and First Security, “Sometimes a debtor agrees to let the lender lead and takes a ‘what does it matter anyway’ approach.”
“When the debtor is just ‘shrugging its shoulders’ in such instances, the lender really controls the process anyway, because of its ability to credit-bid its secured debt, as ICM's lenders did. In addition, some debtors are just not competent and capable of running the sale,” Primoff added. "If a price is not achieved that the lender likes, it is going to credit-bid anyway — so debtors may as well let them lead. This wouldn't be my first choice though; it would be my last choice, because assets are generally maximized when debtors and lenders work cooperatively and everyone's interests are aligned.”
Primoff concluded that the lender should want the debtor to be involved because buyers are generally going to want to confer with the debtor and management as part of their diligence process.