black diamond circus exclusivity motion
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K&E 22993788
PATRICK J. NASH, P.C., ESQ.Illinois State Bar No. 6237749RYAN PRESTON DAHL, ESQ.Illinois State Bar No. 6292645CHRISTOPHER H. LANGBEIN, ESQ.
Illinois State Bar No. 6300289KIRKLAND & ELLIS LLP300 North LaSalle St.Chicago, Illinois 60654Telephone:(312) 862-2000Facsimile: (312) 862-2200Email: [email protected]
[email protected]@kirkland.com
Counsel for Black Diamond Capital
Management, L.L.C.
JANET L. CHUBB, ESQ.Nevada State Bar No. 176LOUIS M. BUBALA III, ESQ.Nevada State Bar No. 8974ARMSTRONG TEASDALE LLP50 West Liberty, Suite 950
Reno, NV 89501Telephone: (775) 322-7400Facsimile: (775) 322-9049Email: [email protected]
Local Counsel for Black Diamond Capital
Management, L.L.C.
ELECTRONICALLY FILED ON
AUGUST 16, 2012
UNITED STATES BANKRUPTCY COURTDISTRICT OF NEVADA
In re
CIRCUS AND ELDORADO JOINTVENTURE, et al.,
Affects this DebtorAffects all DebtorsAffects Silver Legacy Capital Corp.
Debtors.
Case No.: BK-12-51156-BTB
Chapter: 11
Jointly Administered with
BK-N-12-51157-BTB
BLACK DIAMOND CAPITALMANAGEMENT, L.L.C.S MOTIONFOR ENTRY OF AN ORDERTERMINATING THE EXCLUSIVEPERIODS IN WHICH ONLY THEDEBTORS MAY FILE A PLAN ANDSOLICIT ACCEPTANCES THEREOF
Hearing Date: TBDHearing Time: TBDPlace: TBD
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1251156120816000000000009
Docket #0452 Date Filed: 8/16/20
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TO THE HONORABLE BRUCE T. BEESLEY, UNITED STATES BANKRUPTCY JUDGE, THEOFFICE OF THE UNITED STATES TRUSTEE, AND ALL PARTIES IN INTEREST:
1. Black Diamond Capital Management, L.L.C. (Black Diamond), in its capacity as adirect or indirect holder and beneficial owner of secured mortgage notes (the Mortgage Notes)
issued under that certain indenture dated as of March 5, 2002 by and between The Bank of New
York, as indenture trustee, and Silver Legacy Capital Corporation and Circus and El Dorado Joint
Venture, as co-issuers (collectively, the Debtors), seeks entry of an order, substantially in the form
attached hereto as Exhibit A, terminating the exclusive periods during which only the Debtors may
file and solicit a plan of reorganization.
I. PRELIMINARY STATEMENT12. Subject to the relief requested herein, Black Diamond stands ready, willing, and able
to file a plan of reorganization that will be superior to the Debtors Plan on multiple levels. Black
Diamonds plan would materially enhance Mortgage Noteholders recoveries relative to both the
Debtors consensual and non-consensual (or cram-up) alternatives. Black Diamonds plan would
not wrongly circumvent the absolute priority rule, would not artificially impair unsecured creditors
to gerrymander an impaired consenting class, and would not require vigorously contested cram-up
litigation. Indeed, Black Diamond, as holder in excess of 33 percent of outstanding Mortgage
Notes, presently intends to reject the Debtors Plan.
3. Among other things, Black Diamond would propose to: increase cash recoveries for Mortgage Noteholders by $5 million versus the Debtors
consensual Plan scenario, with a corresponding reduction in second lien takeback
paper issued to Mortgage Noteholders;
provide all qualifying Mortgage Noteholders with the right (but not the obligation) toinvest new money through a rights offering backstopped by Black Diamondin addition to their recovery of cash and second lien takeback paper;
1 Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Debtors FirsAmended Joint Chapter 11 Plan of Reorganization (Dated June 1, 2012) [Docket No. 254] (the Plan).
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raise an appropriate level of new first lien financing that, based on currently availableinformation, Black Diamond is prepared to anchor;
unimpair General Unsecured Creditors and U.S. Foods;
generally treat other creditors no less favorably than under the Debtors existing Plan;and
provide the Reorganized Debtors with a significantly de-leveraged balance sheetversus the Debtors non-consensual scenariomaterially improving plan feasibility.
To this end, Black Diamond has partnered with ACEP Management, LLC (an affiliate of American
Casino & Entertainment Properties, LLC), an experienced gaming operator, to operate the Silver
Legacy on a reorganized basis. Subject to customary regulatory approvals, Black Diamond and
participating Mortgage Noteholders would seamlessly transition ownership and operations following
the consummation of Black Diamonds plan.
4. Black Diamond believes its Plan will obtain a significant degree of creditor supportby comparison to the Debtors Plan. Black Diamond is also prepared to work constructively with
the Debtors and all parties in interest to prosecute disclosure statement approval and commence
solicitation on a highly expedited basis to facilitate a prompt confirmation and consummation
process.
5. Yet Black Diamond cannot formally propose this superior alternative to creditors byvirtue of the Debtors statutory exclusivity period. See 11 U.S.C. 1121(d). At the same time
Black Diamond understands that the Debtors have no intention of marketing their assets, seeking
higher or better bids, or otherwise amending their Plan to reflect stakeholder interests, despite the
fact that Mortgage Noteholders are, by an overwhelming margin, the largest constituency in these
chapter 11 cases.2 Although the Debtors cannot disregard their duties to creditors, as fiduciaries of
2 Mortgage Noteholders hold in excess of $150 million in prepetition claims. General unsecured creditors, by theDebtors estimates, hold less than $5 million in prepetition claims (without deducting for claims paid through firstday relief). (See Disclosure Statement, Art. I.B.)
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these chapter 11 estates, the Debtors have shown no willingness to consider any alternatives that
Mortgage Noteholders might support.
6. Exclusivity must therefore be terminated on the record here. First, the Debtors Planis a new value plan that is not fair and equitable under the Supreme Courts holding in Bank of
America, N.A. v. 203 North LaSalle St. L.P., 526 U.S. 434 (1999) (203 North LaSalle). Under
203 North LaSalle, a debtor cannot use exclusivity to reserve value for existing equityholders while
failing to pay senior creditors in full. In such a case, 203 North LaSalle requires the debtor to either
incorporate a competitive bidding process or else terminate exclusivity. There is no dispute that the
Debtors consensual Plan scenario will pay Mortgage Noteholders less than 100 cents on the
dollar. Nor can the Debtors rely on unproven assertions as somehow establishing that a
7.3% Cram-Down Note will pay Mortgage Noteholders in full, particularly in the absence of a
market test.3 Moreover, and contrary to the Debtors prior assertions that [t]he only Plan scenario
in which existing equity holders would make any new investment . . . is the consensual treatment
scenario, (see Disclosure Statement Reply 17), equityholders are now investing $15 million of
new money as a reserve under the Debtors non-consensual Plan. (See Notice of Filing of
Redacted Expert Report of M. Freddie Reiss [Docket No. 403], Ex. 1 (the Reiss Report), p. 41.) In
consideration for cramming up the Mortgage Noteholders with this new investment, old equity wil
retain complete ownership without any market testin violation of 203 North LaSalle. Exclusivity
must therefore be terminated to permit Black Diamond to file and prosecute a plan that more fairly
reflects stakeholder interests in these chapter 11 cases.
3 By comparison, the interest rate proposed by the Debtors Cram-Down Note is significantly lower than the Primeplus 500 bps interest rate proposed by the Debtors $70 million New First Lien Term Loan (which would be issuedunder the Debtors consensual plan scenario). See First Lien Credit Agreement p. 2 (defining ApplicableMargin) available at First Plan Supplement for Debtors First Amended Joint Plan of Reorganization, datedAugust 10, 2012 [Docket No. 434].
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7. Second, and in the alternative, the Court should terminate exclusivity for cause on thefacts of these chapter 11 cases. See 11 U.S.C. 1121(d)(1).4 Cause exists to terminate exclusivity
where, as here, the Debtors have abused exclusivity, as for example, by trying to prefer incumbent
equity or management; by spurning a testing of the value of the company in the marketplace; or by
trying to circumvent the absolute priority rule. In re Adelphia Commcns Corp., 336 B.R. 610, 644
(Bankr. S.D.N.Y. 2006).
8. By the Debtors admission, these chapter 11 cases are not large or complex:[I]ts one property, one set of operations; remarkably straightforward. Every time Isit and look at projections or the capital structure of this thing, Im struck at how
how straightforward it is. I dont want to say simple, because I think that has anegative connotation to it, but it is certainly straightforward, and not complex in theway you think of other big, multi-debtor cases with all sorts of convoluted capitalstructures with different pieces coming in and out.
July 25, 2012 Hrg Tr. at 23:1017. Nor were these chapter 11 cases filed to pursue an operationa
restructuring, to resolve unliquidated or contingent liabilities, or to provide the Debtors with a
breathing spell necessitated by a short term liquidity crunch. Rather, these chapter 11 cases were
filed only to continue the same restructuring the Debtors have been forcing upon Mortgage
Noteholders for over a yearnamely, a restructuring intended to preserve value for existing
shareholders by forcing Mortgage Noteholders to either accept an 85.7 percent recovery in cash and
takeback paper or else be crammed down at an interest rate interest almost 300 basis points below
their existing coupon.5
4 Section 1121(d)(1) provides in, relevant part: [O]n request of a party in interest . . . and after notice and a hearingthe court may for cause reduce or increase the 120-day period or the 180-day period referred to in [section1121(c)].
5 As the Court is aware, the 88.8 percent recovery the Debtors claim Mortgage Noteholders will receive in theirconsensual plan scenario overstates creditor recoveries by including approximately $4.8 million of postpetitionadequate protection payments, or approximately 3.1 cents on the dollar (by the Debtors estimates), in the88.8 percent total.
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9. Exclusivity will only facilitate the Debtors coercion of Mortgage Noteholders intoaccepting a plan that does not fully or fairly protect their interests but that reserves all of the equity
upside for the Debtors current owners. Parties in interest should have an opportunity to review the
Debtors Plan in light of higher or better offers, and creditors should have the opportunity to vote on
their preferred course of action. All creditors will benefit from a competitive plan process, as
opposed to a plan that results solely from equityholders determination to preserve value at their
senior creditors expense. Exclusivity has no justifiable basis on these facts, and the Motion should
be granted.
II. JURISDICTION10. The United States Bankruptcy Court for the District of Nevada (the Court) has
jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. This matter is a core
proceeding within the meaning of 28 U.S.C. 157(b)(2)(A).
11. Venue is proper in this Court pursuant to 28 U.S.C. 1408.12. The basis for the relief requested herein in section 1121(d) of the United States
Bankruptcy Code, 11 U.S.C. 1011532 (the Bankruptcy Code).
III. RELIEF REQUESTED13. By this motion, Black Diamond seeks entry of an order pursuant to section 1121(d)(1)
of the Bankruptcy Code, substantially in the form attached hereto as Exhibit A, terminating the
statutory periods during which only the Debtors may file and solicit a plan of reorganization.
IV. BACKGROUND14. In March 2002, the Debtors issued $160.0 million of Mortgage Notes, maturing
March 1, 2012 (of which $17.2 million were subsequently repurchased and retired). See
Declaration of Stephanie D. Lepori in Support of Debtors First Day Motions [Docket No. 24]
(the First Day Decl.) 19. Per their Disclosure Statement, the Debtors sought to refinance the
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Mortgage Notes on multiple occasions in advance of their March 2012 maturity commencing in the
Spring of 2011.
15. The Debtors were unable to obtain such financing on terms acceptable to theDebtors, and their refinancing efforts were ultimately unsuccessful. See [Proposed] Disclosure
Statement for Debtors First Amended Joint Chapter 11 Plan of Reorganization (Dated June 1,
2012) [Docket No. 253] (the Disclosure Statement), Art. II.D. To date, the Debtors have not
identified what they mean by terms acceptable to the Debtors.
16. On March 16, 2012, the Debtors filed with the United States Securities and ExchangeCommission a Form 8-K report, disclosing entry into a forbearance agreement and restructuring
support agreement (the RSA) with Capital Research and Management Company (Cap Re).6 See
Circus and El Dorado Joint Venture/Silver Legacy Capital Corp. (Form 8-K), March 16, 2012, at Ex
99.1, attached hereto as Exhibit B.
17. The RSA proposed a chapter 11 plan through which recoveries to MortgageNoteholders would take the form of $70 million in cash (financed by a new first lien term loan
facility), $15 million in cash contributed by existing equityholders, $15 million in cash from the
Debtors balance sheet, and $27.5 million of new second lien notes. (See id.) The RSA also
proposed to pay unsecured creditors in full in the ordinary course of business. (See id.) The
restructuring proposed under the RSA is substantially identical to the Plan the Debtors now seek to
confirm,7 with the notable exceptions that unsecured creditors are now impaired by the Debtors
Plan and that Mortgage Noteholders will receive half as much balance sheet cash in the Debtors
consensual scenario. (See Disclosure Statement, Arts. III.B.5, III.B.3.)
6 On information and belief, Black Diamond and Cap Re are the largest and second largest holders, respectively, ofMortgage Notes.
7 See July 25 Hrg Tr. 25:2425, 26:14 (I think the [first lien] terms were described . . . back in March.) (statementof Mr. Kreller); see also id. at 31:167 (ordering restructuring term sheets be attached to the Disclosure Statement).
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18. On information and belief, the Debtors have made no effort to auction, sell, orotherwise market their assets to third party bidders, either prior to or after the Petition Date
notwithstanding their obligations to maximize creditor recoveries. Moreover, the Debtors Plan does
not contemplate that the Debtors will ever undertake such efforts or that the Debtors will allow
existing creditors the opportunity to bid on the Debtors assetseither through a contribution of new
capital or through a credit bid. See 11 U.S.C. 363(k), 1129(b)(a)(A)(ii); see also RadLAX
Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065, 2071 (2012) ([D]ebtors may not sell
their property free of liens under 1129(b)(2)(A) without allowing lienholders to credit-bid, as
required by clause (ii).).
19. Instead, the Debtors seek to pay Mortgage Noteholders approximately 85.7 cents onthe dollar through cash and second lien paper or, in the alternative, to pursue a cram-up plan under
section 1129(b)(2)(A)(i) of the Bankruptcy Code. (See Disclosure Statement, Art. I.B.
Equityholders have the exclusive right to invest new capital in the Debtors by purchasing
$15 million in New Subordinated Notes (if Mortgage Noteholders accept the Plan) or by funding a
$15 million reserve (if Mortgage Noteholders reject the Plan). (See Plan, Art I.A, p. 6 (defining
New Subordinated Notes); Reiss Report, p.41). As noted above, the Debtors have not materially
changed Mortgage Noteholders treatment from the March RSA. See Circus and El Dorado Join
Venture/Silver Legacy Capital Corp. (Form 8-K), March 16, 2012, at Ex. 99.1.
20. If Mortgage Noteholders vote to reject the Plan, the Debtors propose to distributecash and a Cram-Down Note to Mortgage Noteholders, paying interest at 7.3%. (See Disclosure
Statement, Art. I.A, p. 3 (defining Cram-Down Note).)8 By comparison, the Debtors proposed
8 It should be noted that, under any scenario, the Debtors Plan will not pay Mortgage Noteholders in full. TheDebtors seek to wrongly exclude compound interest from Mortgage Noteholders claims, although compoundinterest is provided for under the Mortgage Notes Indenture. See Mortgage Notes Indenture 2.12. The Debtorshave suggested that the Cash Collateral Stipulation caused Mortgage Noteholders to implicitly waive compoundinterest by virtue of the Debtors having stipulated to the balance of accrued Mortgage Note Claims. (SeeDebtorsOmnibus Reply to Objections of Black Diamond Capital Management, L.L.C. and Bank of New York Mellon Trus
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interest rate is almost 300 basis points less than the Mortgage Notes existing coupon. Junior
creditors will still be paid in full and existing equity interests will still be unimpaired in this scenario
(See Disclosure Statement, Art. III.B.56.) And, as noted above, the Debtors recently disclosed that
existing equityholders will contribute $15 million of new capital as a reserve for the Cram-Down
Notes (see Reiss Report, p. 41), despite their prior assertions that equityholders would not contribute
new value in a cram-up scenario. (See Disclosure Statement Reply 17.)
21. At the same time, these chapter 11 cases are not complicated. They involve a singleoperating entity managing one business property. (See Disclosure Statement, Art. II.) The
Mortgage Notes comprise practically the entire capital structure in these chapter 11 cases, which
includes less than $5 million of general unsecured claims. (See Disclosure Statement, Art. I.B.) In
fact, the Debtors refused to adjourn their Disclosure Statement hearing by two weeks on the basis
that these cases are remarkably straightforward, that the Debtors are struck at howhow
straightforward it is, that they are not complex in the way you think of other big, multi-debtor
cases, and that the simplicity continues in the makeup of the bondholder group. (See July 25
2012 Hrg Tr. at 23:1017.) The Court itself found that these cases have: a pretty straightforward
financing structure, . . . a pretty straightforward plan. Its a lot simpler than the apartment complex
ones for half the money that I see. (July 25, 2012 Hrg Tr. at 43:1012.)
V. BASIS FOR RELIEF22. The Court should terminate exclusivity because: (a) the Supreme Courts holding in
203 North LaSalle requires termination; and (b) in the alternative, cause otherwise exists to
terminate exclusivity under section 1121(d) of the Bankruptcy Code.
Company, N.A. to Debtors Motion for Approval of Disclosure Statement and Establishment of Solicitation, Voting
and Confirmation Procedures and Related Matters [Docket No. 331] (the Disclosure Statement Reply) 54.) TheCash Collateral Stipulation, however, clearly reserved all rights for Mortgage Noteholders in all respects: Nothingcontained herein shall prejudice the Prepetition Secured Parties with respect to any matters . . . . (See CashCollateral Order 6.)
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A. The Court Must Terminate Exclusivity under 203 North LaSalle1. 203 North LaSalle Generally
23. Under 203 North LaSalle, exclusivity must be terminated where a debtors plan doesnot pay senior creditors in full and yet reserves the debtors reorganized value for existing equity
unless the debtor establishes its proposed equity value with a market-tested process. See H.G
Roebuck & Son, Inc. v. Alter Commcns, Inc., Case No. 11-0157, 2011 WL 2261483, at *8 (D. Md
June 3, 2011); In re Situation Mgmt Sys., Inc., 252 B.R. 859, 864 (Bankr. D. Mass. 2000). Under
203 North LaSalle, a new value plan is fair and equitable only where it includes a full and fair
marketing process or where exclusivity is terminated. In re Union Fin. Servs. Group, Inc., 303 B.R
390, 426 (Bankr. E.D. Mo. 2003) (The Debtors have complied with the letter and spirit of 203
North LaSalle Street. They offered an opportunity to submit competing bids for the Restructuring
Plan as a whole as well as the right to bid for the MDP package.).
24. Thus, exclusivity must be terminated automatically if a debtor files a plan thatreserves option value solely for existing shareholders where senior creditors are not paid in full
unless the plan incorporates an auction process. See H.G. Roebuck & Son, Inc. v. Alter Commcns
Inc., Case No. 11-0157, 2011 WL 2261483, at *8 (LaSalle mandates market valuation of the new
equity in the reorganized debtor and provides two potential solutions: competitive bidding or
termination of exclusivity and the opportunity to file competing bids.); see also Bruce A. Markell
Owners, Auctions, and Absolute Priority in Bankruptcy Reorganizations, 44 Stan. L. Rev. 69, 119
(1991) (The text of the Code and judicial precedent both support categorizing the filing of a new
value plan as sufficient cause to terminate exclusivity.).
2. 203 North LaSalle Applies Here25. By their Plan, the Debtors seek to pay Mortgage Noteholders 85.7 cents on the dollar
or to provide Mortgage Noteholders with a sub-par Cram-Down Note while permitting existing
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equityholders to retain their interests and also granting existing equityholders the exclusive right to
invest new capital. (See Plan, Art. III.B.3, 6; Reiss Report p. 41.) The Plan does not incorporate an
auction or marketing process, and the Debtors will not permit creditors or third parties to bid on the
Debtors assets. Exclusivity must therefore be terminated as a matter of law. See Situation Mgmt
252 B.R. at 864 (holding that filing a new value plan is sufficient cause to terminate the debtors
exclusive right to file a plan). The Debtors have argued that equityholders are permitted to reserve
an exclusive investment right because the Debtors 85.7 cent recovery arises under a consensual
plan and because the Debtors cram-down plan will, at least theoretically, pay Mortgage Noteholders
in full. (See Disclosure Statement Arts. I.B, III.B.)9
As discussed further below, this structure
improperly and coercively uses exclusivity to force Mortgage Noteholders into a false choice
between an admittedly less than full recovery or a Cram-Down Note that will trade at a significan
discount to par if imposed.
26. The Debtors assertion (made in their Disclosure Statement Reply) that theirnon-consensual Plan scenario does not violate 203 North LaSalle because existing equityholders
are not literally contributing new value in their non-consensual scenario both misstates the facts
and mischaracterizes 203 North LaSalles holding. (See Disclosure Statement Reply 17.) First
and contrary to their prior statements that existing equity would only be investing new value in the
consensual Plan, (see id. at 17), equityholders are, in fact, investing new capital as a reserve
under their non-consensual Plan scenario, (see Reiss Report, p. 41.) This new investment forms the
basis on which the Debtors intend to cram up Mortgage Noteholders so that existing equityholders
will retain ownership. (Id.) In other words, this new investment is intended to preserve enterprise
9 As noted above, the Debtors Plan does not propose to pay Mortgage Noteholders in full under any scenario becausethe Debtors have sought to deny Mortgage Noteholders rights to compound interest as provided by the MortgageNotes Indenture.
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value for existing equity (and only existing equity) and therefore requires a market test under 203
North LaSalle. See 526 U.S. at 458.
27. Second, even if existing equityholders were not contributing a reserve, permittingold equity to capture a debtors reorganized equity value without a market test violates the most
basic principles guiding the Supreme Courts opinion in 203 North LaSalle. First and foremost
203 North LaSalle was concerned by the extent to which existing equity could wrongly use
exclusivity to evade a market test for their proposed enterprise value: Under a plan granting an
exclusive right, making no provision for competing bids or competing plans, any determination that
the price was top dollar would necessarily be made by a judge in bankruptcy court, whereas the best
way to determine value is exposure to a market. 526 U.S. at 457 (emphasis added). Thus, the
Supreme Court held that existing equityholders cannot rely on desktop valuations to preserve their
interests but, instead, must test value in the marketplace:
On the interpretation assumed here, it would, of course, be a fatal flaw if old equityacquired or retained the property interest without paying full value. It would thus benecessary for old equity to demonstrate its payment of top dollar, but this it could notsatisfactorily do when it would receive or retain its property under a plan giving itexclusive rights and in the absence of a competing plan of any sort.
Id. (emphasis added). The Supreme Courts concerns are central to these chapter 11 cases. The
Debtors have not sought and will not seek a market test for their assets. The Debtors will not permi
parties such as Black Diamond to participate in a competitive bidding process. The Debtors seek
only to confirm a plan that reserves value for existing equity at their senior creditors expense
notwithstanding their obligations to maximize creditor recoveries. In short, 203 North LaSalles
direction that exclusivity cannot be used to circumvent a market test applies with full force here, and
exclusivity must be terminated.
28. The Debtors additional argument (also raised in their Disclosure Statement Reply)that Mortgage Noteholders cannot invoke 203 North LaSalle because they are secured creditors is
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equally incorrect. The particular fair and equitable requirements included at sections
1129(b)(2)(A) (for secured creditors) and section 1129(b)(2)(B) (for unsecured creditors) are not
limiting. See 11 U.S.C. 102(3). All plans must be fair and equitable under section 1129(b)(1) of
the Bankruptcy Code. See 11 U.S.C. 1129(b)(1). Thus, Congress also made expressly clear that
it did not intend 1129(b)(2)(B)(ii) to define the entirety of the absolute priority rule. In re Red
Mountain Mach. Co., 448 B.R. 1, 14 (Bankr. D. Ariz. 2011). Indeed, the legislative history to
section 1129(b) provides that:
The general principle of [subsection 1129(b)] permits confirmation notwithstandingnonacceptance by an impaired class if that class and all below it in priority are treated
according to the absolute priority rule. The dissenting class must be paid in full beforeany junior class may share under the plan. If it is paid in full, then junior classes mayshare. Treatment of classes of secured creditors is slightly different because they donot fall in the priority ladder, but the principle is the same.
H.R. Rep. 95-595, at 413 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6369 (discussing 11 U.S.C
1129(b), emphasis added). Thus, the absolute priority rule as addressed by 203 North LaSalle
applies here regardless of whether Mortgage Noteholders are secured (or unsecured) creditors, and
exclusivity must be terminated.
29. In any event, the Debtors have not established that the Mortgage Notes are fullysecured, and the Debtors have no basis to assert that Mortgage Noteholders are not in fact unsecured
creditors protected by section 1129(b)(2)(B). As of the Petition Date, Mortgage Note Claims totaled
more than $153 million, without including compound interest, fees, charges, or expenses due under
the Mortgage Notes Indenture. (See Disclosure Statement, Art. I.B.) The Debtors proposed going
concern valuation is approximately $163 million (see Notice of Filing of Redacted Expert Report of
Ronald F. Greenspan [Docket No. 404], Ex. 1, p. 58), and the Debtors have taken the position that
Mortgage Noteholders collateral package excludes $17 million in cash and related assets, (see
Disclosure Statement, Ex. C (Liquidation Analysis)). The Debtors Liquidation Analysis itself
shows that Mortgage Noteholders recoveries in liquidation may be significantly less than par. See
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id. Mortgage Noteholders must be permitted to protect their rights under section 1129(b)(2)(B) tha
may arise on account of the Debtors apparent position, and exclusivity must be terminated here.
B. Alternatively, Exclusivity Should be Terminated for Cause.30. Section 1121(d) of the Bankruptcy Code permits this Court to terminate exclusivity
for cause. See 11 U.S.C. 1121(d). Cause is not defined by the Bankruptcy Code, but courts in
this jurisdiction and others have identified a number of factors relevant to whether exclusivity may
be terminated or extended. Those factors include:
the size and complexity of the case; whether an unresolved contingency exists. whether the debtor has demonstrated reasonable prospects for filing a viable plan; the existence of good faith progress towards reorganization; the amount of time which has elapsed in the case; the necessity of sufficient time to permit the debtor to negotiate a plan of
reorganization and prepare adequate information to allow a creditor to determinewhether to accept such plan;
whether the debtor is using exclusivity to pressure creditors to submit to the debtorsreorganization demands; and
the fact that the debtor is paying its bills as they become due.See Adelphia, 336 B.R. at 674 (citing In re Dow Corning Corp., 208 B.R. 661, 66465 (Bankr. E.D
Mich. 1997)). The Bankruptcy Appellate Panel for the Ninth Circuit has used these same factors to
analyze whether to modify a debtors statutory exclusivity. In re Henry Mayo Meml Hosp., 282
B.R. 444, 452 (B.A.P. 9th Cir. 2002).
31. In this case, maintaining the Debtors statutory exclusivity will serve no legitimatepurpose. The Debtors are seeking to force their proposed Plan on creditors without negotiation
discussion, or alternative. Creditors cannot be held hostage in this fashion.
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1. These Chapter 11 Cases Are Not Large or Complex.32. Exclusivity should be limited where the reorganization does not include large
numbers of debtors, creditors, or parties in interest. See, e.g., In re Gen. Bearing Corp., 136 B.R
361, 367 (Bankr. S.D.N.Y. 1992) (denying exclusivity extension where, inter alia, [t]his is not a
complex case; there are only two secured claimholders). Courts have recognized that
uncomplicated cases create a heightened risk that exclusivity may become a device to coerce
creditors:
In cases involving uncomplicated issues and not unusually large debtors, requests forextensions of the exclusivity periods should not be granted routinely or as a matter ofcourse without proof as to probable success in formulating a plan of reorganizationand evidence that the debtor did not seek the additional extension in order to pressurethe creditors to accede to the debtors reorganization demands.
In re Texaco Inc., 76 B.R. 322, 326 (Bankr. S.D.N.Y. 1987).
33. The Debtors have repeatedly emphasized the simplicity of these chapter 11 cases tothe Court. See July 25, 2012 Hrg Tr. at 23:812 (Thats it, Your Honor, and its one property, one
set of operations; remarkably straightforward. Every time I sit and look at projections or the capital
structure of this thing, Im struck at howhow straightforward it is.). The Court has made a
similar observation. Id. at 43:1213 ([This restructuring is] a lot simpler than the apartment
complex ones for half the money that I see.).
34. Black Diamond agrees on both counts. These chapter 11 cases involve only twodebtors, one of which has no revenues or assets. (See First Day Decl. 16.) The Debtors operate a
single business property in Reno, Nevada and have only two equityholders. (See id. 12, 15.) The
Debtors are restructuring their only tranche of debt, which is heavily concentrated between Cap Re
and Black Diamond. (See July 25, 2012 Hrg Tr. at 24:1314 (The simplicity continues in the
makeup of the bond holder group . . . . We have two large bond holders.).) Furthermore, the
Debtors estimate there will be less than $5 million in unsecured claims. (Disclosure Statement, Art
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I.B.) After almost 3 months, approximately 300 entries have been filed on the docket maintained in
these chapter 11 cases (not including affidavits of service or transfer notices), and no disputed issues
of law or fact have been brought before the Court at this time. In short, no complexity justifies
continued exclusivity on the record here. See In re Curry Corp., 148 B.R. 754, 75556 (Bankr
S.D.N.Y. 1992) (declining to extend exclusivity where [f]inancial information as to the debtors
operations is readily available, where [the] case has not produced numerous and complex
proceedings involving related cases, and where debtors are closely held corporations with few
equity shareholders).
2.
The Debtors Do Not Require Exclusivity to Complete an OperationalRestructuring.
35. From the outset, the Debtors have stated that these chapter 11 cases are intendedsolely to restructure the Mortgage Notes. (See First Day Decl. 6.) The Debtors are not seeking to
restructure key vendor contracts or agreements. The Debtors are not seeking to negotiate collective
bargaining agreements or similar arrangements. The Debtors are not seeking to reject real property
leases, to overhaul operational performance, or to undertake any significant operational initiatives.
Nor do the Debtors require exclusivity to resolve material disputed or unliquidated claims, such as
significant prepetition litigation. Cf. In re Friedmans, Inc., 336 B.R. 884, 888 (Bankr. S.D. Ga
2005) (extending exclusivity because debtors needed time to resolve operational issues and resolve
key litigation in a free-fall bankruptcy). In short, preserving exclusivity will facilitate no legitimate
operational goal.
3. The Debtors Do Not Require Exclusivity to Formulate, Develop, orNegotiate a Plan.
36. The Debtors have already scheduled a confirmation hearing for the Plan, whose termshave not changed materially since March 16, 2012, when the Debtors filed their RSA. In fact, the
Debtors incorporated material provisions of this prepetition proposal into their Disclosure Statement
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and solicitation materials, (see Affidavit of Service of Gil Hopenstand re: Solicitation Materials
Served on July 30 and 31, 2012 [Docket No. 400], Ex. H), and pointed to the prepetition availability
of such materials to justify their confirmation schedule here. (See July 25 Hrg Tr. 25:2425, 26:1
4.) Put simply, the Debtors Plan has been fully baked, by their own admission, since well before
these chapter 11 cases began. Exclusivity serves no purpose with respect to the Debtors efforts to
formulate, develop, or negotiate a plan.
4. Exclusivity Serves Only to Coerce Mortgage Noteholders.37. Exclusivity is not intended to permit debtors to strong-arm their creditors into
accepting an unfavorable plan. See S. Rep. No. 95989, 95th Cong. 2d Sess. 118 (1978), reprinted
in 1978 U.S.C.C.A.N. 5904 (An extension should not be employed as a tactical device to put
pressure on parties in interest to yield to a plan they consider unsatisfactory.). Section 1121 was
designed, and should be faithfully interpreted, to limit the delay that makes creditors the hostages of
Chapter 11 debtors. In re Timbers of Inwood Forest Assocs., Ltd., 808 F.2d 363, 372 (5th Cir
1987), affd, 484 U.S. 365 (1988). Cause therefore exists to terminate exclusivity where the
Debtors have abused exclusivity, as for example, by trying to prefer incumbent equity or
management; by spurning a testing of the value of the company in the marketplace; or by trying to
circumvent the absolute priority rule. Adelphia, 336 B.R. at 644.
38. Here, exclusivity serves no purpose other than to wrongly pressure MortgageNoteholders. The Debtors are pursuing a plan structure designed to keep old equity in contro
without any attempt to build consensus or to market the business in accordance with the Debtors
obligations to stakeholders. The Debtors have been prosecuting the same restructuring plan since
before March 2012 without alteration and without any market test. Continued exclusivity supports
only the Debtors efforts to force a choice between two sub-par alternatives, and this false choice is
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no choice at all. Particularly since Black Diamond stands ready to propose an alternative plan, the
Debtors should not be permitted to abuse exclusivity in this fashion.
C. Terminating Exclusivity Will Benefit All Parties In Interest.39. When considering the termination of exclusivity, the transcendent question is
whether adjustment of exclusivity will facilitate moving the case forward toward a fair and
equitable resolution. Henry Mayo, 282 B.R. at 453. In this case, terminating exclusivity will resul
in a superior outcome for all creditors. The ability of a creditor to compare Debtors proposals
against other possibilities is a powerful tool by which to judge the reasonableness of [competing]
proposals. A broad exclusivity provision, holding that only Debtors plan may be on the table,
takes this tool from creditors. Century Glove, Inc. v. First Am. Bank, 860 F.2d 94, 102 (3d Cir
1988). Black Diamond is ready to file and prosecute a competing and viable plan as soon as
possible. This plan will provide recoveries to all creditors that meet or exceed the recoveries
proposed by the Debtors while permitting other Mortgage Noteholders to invest in new equity along
with Black Diamond. Creditors in this case deserve the opportunity to review a plan that will more
fully and fairly reflect their interests.
40. At the same time, terminating exclusivity will not prejudice the Debtors efforts tocontinue prosecuting their plan, except insofar as creditors will have a viable, market-tested
alternative. See 11 U.S.C. 1129(c). The Debtors will remain free to promote, solicit, and seek
Plan confirmation. See In re R.G. Pharm., Inc., 374 B.R. 484 (Bankr. D. Conn. 2007) (The fact tha
the debtor no longer has the exclusive right to file a plan does not affect its concurrent right to file a
plan. (citation omitted); In re Parker St. Florist & Garden Ctr., Inc., 31 B.R. 206, 207 (Bankr. D
Mass. 1983) (Denying [an exclusivity extension] only affords creditors their right to file the plan;
there is no negative effect upon the debtors co-existing right to file its plan.). And, as noted above
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Black Diamond is also prepared to work constructively with the Debtors and parties in interest to
prosecute disclosure statement approval and commence solicitation on a highly expedited basis.
VI. CONCLUSIONWHEREFORE, for the reasons set forth herein, Black Diamond respectfully requests that the
Court (a) enter an order pursuant to section 1121(d)(1) of the Bankruptcy Code, substantially in the
form attached hereto as Exhibit A, terminating for cause the statutory periods during which only the
Debtors may file and solicit a plan of reorganization an order and (b) grant such other and further
relief as may be appropriate.
Dated: August 16, 2012 /s/ Patrick J. Nash, P.C.Patrick J. Nash, P.C. (admittedpro hac vice)Illinois State Bar No. 6237749Ryan Preston Dahl (admittedpro hac vice)Illinois State Bar No. 6292645Christopher H. Langbein (admittedpro hac vice)Illinois State Bar No. 6300289KIRKLAND & ELLIS LLP300 N. LaSalleChicago, Illinois 60654Telephone:(312) 862-2000Facsimile: (312) 862-2200
Email: [email protected]@[email protected]
Counsel for Black Diamond CapitalManagement, L.L.C.
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Janet L. Chubb, Nevada State Bar No. 176Louis M. Bubala, Nevada State Bar No. 8974ARMSTRONG TEASDALE LLP50 West Liberty, Suite 950Reno, NV 89501
Telephone:(775) 322-7400Facsimile: (775) 322-9049Email: [email protected]
Local Counsel for Black Diamond CapitalManagement, L.L.C.
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Exhibit A
Proposed Order
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PATRICK J. NASH, P.C., ESQ.Illinois State Bar No. 6237749RYAN PRESTON DAHL, ESQ.Illinois State Bar No. 6292645CHRISTOPHER H. LANGBEIN, ESQ.Illinois State Bar No. 6300289KIRKLAND & ELLIS LLP
300 North LaSalle St.Chicago, Illinois 60654Telephone:(312) 862-2000Facsimile: (312) 862-2200Email: [email protected]
[email protected]@kirkland.com
Counsel for Black Diamond Capital
Management, L.L.C.
JANET L. CHUBB, ESQ.Nevada State Bar No. 176LOUIS M. BUBALA III, ESQ.Nevada State Bar No. 8974ARMSTRONG TEASDALE LLP50 West Liberty, Suite 950Reno, NV 89501Telephone: (775) 322-7400
Facsimile: (775) 322-9049Email: [email protected]@armstrongteasdale.com
Local Counsel for Black Diamond CapitalManagement, L.L.C.
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEVADAIn re
CIRCUS AND ELDORADO JOINTVENTURE, et al.,
Affects this DebtorAffects all DebtorsAffects Silver Legacy Capital Corp.
Debtors.
Case No.: BK-12-51156-BTB
Chapter: 11
Jointly Administered with
BK-N-12-51157-BTB
ORDER GRANTING BLACKDIAMOND CAPITALMANAGEMENT, L.L.C.S MOTIONFOR AN ORDER TERMINATINGTHE EXCLUSIVE PERIODS INWHICH ONLY THE DEBTORS MAYFILE A PLAN AND SOLICITACCEPTANCES THEREOF
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Upon the motion (the Motion)1 of Black Diamond in the above-captioned chapter 11 cases
for entry of an order pursuant to section 1121(d)(1) of the Bankruptcy Code terminating the statutory
periods during which only the Debtors may file and solicit a plan of reorganization; the Court having
jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and
1334; consideration of the Motion and the relief requested therein being a core proceeding pursuant
to 28 U.S.C. 157(b); venue being proper before this court pursuant to 28 U.S.C. 1408 and 1409
due and proper notice of the Motion having been provided, it appearing that no other or further
notice need be provided; upon the arguments presented at the hearing before the Court, and any
objections to the Motion having been withdrawn, resolved or overruled on the merits; and after due
deliberation and sufficient cause appearing therefor, it is ORDERED that:
1. The Motion is granted in its entirety.2. The periods under which only the Debtors have the right to file and solicit
acceptances of a plan of reorganization are hereby terminated for cause shown.
3. Any party in interest may file a chapter 11 plan and solicit acceptances thereof(subject to Court approval of a disclosure statement).
4. The Court retains jurisdiction with respect to all matters arising from or related to theimplementation of this Order.
5. This Order shall be effective and enforceable immediately upon entry.
1 Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Motion.
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SUBMITTED BY:
Patrick J. Nash, P.C. (admittedpro hac vice)Illinois State Bar No. 6237749Ryan Preston Dahl (admittedpro hac vice)Illinois State Bar No. 6292645
Christopher H. Langbein (admittedpro hac vice)Illinois State Bar No. 6300289KIRKLAND & ELLIS LLP300 N. LaSalleChicago, Illinois 60654Telephone:(312) 862-2000Facsimile: (312) 862-2200Email: [email protected]
[email protected]@kirkland.com
Counsel for Black Diamond Capital Management, L.L.C.
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Janet L. Chubb, Nevada State Bar No. 176Louis M. Bubala III, Nevada State Bar No. 8974ARMSTRONG TEASDALE LLP50 West Liberty, Suite 950Reno, NV 89501Telephone:(775) 322-7400Facsimile: (775) 322-9049Email: [email protected]
Local Counsel for Black Diamond Capital Management, L.L.C.
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Exhibit B
Circus and El Dorado Joint Venture/Silver
Legacy Capital Corp. (Form 8-K), dated March 16, 2012
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8-K 1 d317866d8k.htm FORM 8-K
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 16, 2012
CIRCUS AND ELDORADO JOINT VENTURE
SILVER LEGACY CAPITAL CORP.(Exact names of registrants as specified in their charters)
407 North Virginia Street, Reno, Nevada 89501(Address of principal executive offices, including ZIP code)
Registrants telephone number, including area code (800) 687-7733
Not Applicable(Former names or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of theregistrant under any of the following provisions:
NevadaNevada 333-87202
88-031078771-0868362
(State or other jurisdiction ofincorporation)
(Commission File No.)
(IRS EmployerIdentification No.)
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange (17 CFR 240.13e-4(c))
Page 1 of 4Form 8-K
8/16/2012http://www.sec.gov/Archives/edgar/data/1171078/000119312512121201/d317866d8k.htm
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On March 16, 2012, Circus and Eldorado Joint Venture (the Partnership), Silver Legacy Capital Corp. (Capital andtogether with the Partnership, the Issuers), Galleon, Inc. (Galleon), Eldorado Limited Liability Company (ELLC andtogether with Galleon, the Partners) and a significant holder (the Consenting Holder), on behalf of holders of asignificant amount of the Issuers 10 / % Mortgage Notes (the Notes), entered into a Restructuring Support Agreement(the Restructuring Support Agreement). In addition, the Consenting Holder has agreed to forbear from exercising remedieswith respect to outstanding defaults and events of default, including the failure to make principal and interest payments on
March 1, 2012, until April 30, 2012 unless specified milestones are met or unless earlier terminated pursuant to the terms ofthe Restructuring Support Agreement.
Pursuant to the terms of the Restructuring Support Agreement, the Consenting Holder has agreed to support and tenderall of its claims in, and the Issuers and the Partners have agreed to use their reasonable best efforts to support and complete, arestructuring of the Issuers obligations under the Notes (the Restructuring) on the terms described in, and subject to theconditions set forth in, the Restructuring Support Agreement attached hereto as Exhibit 99.1. The Restructuring is subject tothe satisfaction of numerous conditions, including (i) the Partnerships entry into a new $70.0 million first lien credit facility,(ii) execution of the Restructuring Support Agreement by holders of at least 66% in principal amount of the Notes and(iii) negotiation of definitive documents that are satisfactory to the Consenting Holder, the Partners and the Issuers. TheRestructuring Support Agreement will terminate upon the occurrence of specified events, including the commencement of aninvoluntary case against the Issuers, a material breach of the Restructuring Support Agreement and the failure of thePartnership to achieve specified milestones. There can be no assurance that the Restructuring will be consummated on theterms described in the Restructuring Support Agreement and the term sheet attached thereto, or at all.
The information contained herein is not intended as, and does not constitute, a solicitation or an offer of securities. Anysuch solicitation or offer will be made pursuant to applicable bankruptcy and securities laws. The information contained inthis Current Report on Form 8-K, including the exhibits referenced herein, shall not be deemed filed for purposes ofSection 18 of the Securities Exchange Act of 1934, as amended, or otherwise incorporated by reference in any filing pursuantto the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expresslyset forth by specific references in such a filing. The furnishing of the information in this report, including the exhibitsfurnished herewith, is not intended to, and does not, constitute a determination or admission as to the materiality orcompleteness of such information.
The Partnership issued a press release, which is being furnished as Exhibit 99.2 hereto and is hereby incorporated byreference to this Item 7.01.
The following material is being furnished as an exhibit to this Current Report on Form 8-K.
(d) Exhibits.
- 2 -
Item 7.01. Regulation FD Disclosure.
Item 9.01. Financial Statements and Exhibits
Exhibit Description
99.1
Restructuring Support Agreement dated as of March 16, 2012 by and among Circus and Eldorado Joint Venture,Silver Legacy Capital Corp., Galleon, Inc., Eldorado Limited Liability Company and the Consenting Holder
99.2
Press Release dated March 19, 2012, announcing execution of Restructuring Support Agreement and extensionof forbearance
18
Page 2 of 4Form 8-K
8/16/2012http://www.sec.gov/Archives/edgar/data/1171078/000119312512121201/d317866d8k.htm
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to besigned on their behalf by the undersigned hereunto duly authorized.
Date: March 19, 2012
- 3 -
CIRCUS AND ELDORADO JOINT VENTURE
By:/s/ Gary L. Carano
Gary L. CaranoChief Executive Officer
SILVER LEGACY CAPITAL CORP.
By:/s/ Gary L. Carano
Gary L. CaranoChief Executive Officer
Page 3 of 4Form 8-K
8/16/2012http://www.sec.gov/Archives/edgar/data/1171078/000119312512121201/d317866d8k.htm
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Index to Exhibits
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Exhibit No. Description
99.1
Restructuring Support Agreement dated as of March 16, 2012 by and among Circus and Eldorado JointVenture, Silver Legacy Capital Corp., Galleon, Inc., Eldorado Limited Liability Company and theConsenting Holder
99.2 Press Release dated March 19, 2012, announcing execution of Restructuring Support Agreement andextension of forbearance
Page 4 of 4Form 8-K
8/16/2012http://www.sec.gov/Archives/edgar/data/1171078/000119312512121201/d317866d8k.htm
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EX-99.1 2 d317866dex991.htm RESTRUCTURING SUPPORT AGREEMENTExhibit 99.1
RESTRUCTURING SUPPORT AGREEMENT
This RESTRUCTURING SUPPORT AGREEMENT (this Agreement) is entered into as of March 15, 2012, by andamong (i) Circus and Eldorado Joint Venture and each of its direct or indirect subsidiaries (Circus) and Silver LegacyCapital Corp. (collectively with Circus, the Company), (ii)(A) Capital Research and Management Company, for and onbehalf of certain funds set forth on the signature pages hereto (the Cap Re Holders) as holders of 10 /8% senior securednotes due March 1, 2012 (the Notes) issued pursuant to that certain Indenture dated March 5, 2002, as amended,supplemented or otherwise modified from time to time, by and among Circus and Eldorado Joint Venture, Silver LegacyCapital Corp., and The Bank of New York, as trustee (the Indenture) and the various other loan and collateral documentsexecuted in connection therewith (collectively, the Loan Documents) and (B) other holders of the Notes who may becomesignatories hereto as set forth on the signature page(s) to this Agreement (collectively with the Cap Re Holders, theConsenting Noteholders), and (iii) Galleon, Inc. and Eldorado Limited Liability Company (together, the Partners). TheCompany and the Consenting Noteholders are each referred to as a Party and collectively referred to as the Parties. ThePartners obligations hereunder are limited solely to Section 4 of this Agreement.
WHEREAS, prior to the date hereof, the Parties have discussed the possibility of consummating a financial restructuringof the Companys indebtedness and other obligations as set forth in this Agreement and the accompanying RestructuringTerm Sheet (as defined herein) (the Restructuring).
WHEREAS, it is anticipated that the Restructuring will be implemented through either an out-of-court consent
solicitation and exchange offer or a solicitation of votes for a chapter 11 plan of reorganization of the Company, pursuant tosections 1125, 1126 and 1145 of the Bankruptcy Code, which in either case shall contain in all material respects the sameterms and conditions set forth in the Restructuring Term Sheet.
WHEREAS, this Agreement and the Restructuring Term Sheet, which is incorporated herein by reference and is madepart of this Agreement, set forth the agreement among the Parties concerning their commitment, subject to the terms andconditions hereof and thereof, to implement the Restructuring. In the event the terms and conditions as set forth in theRestructuring Term Sheet and this Agreement are inconsistent, the terms and conditions in this Agreement shall govern andcontrol, except to the extent the inconsistency concerns the economics of the Restructuring, in which case the terms andconditions of the Restructuring Term Sheet shall govern and control.
NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements set forth herein, and forother good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Party agrees asfollows:
1. Definitions. The following terms shall have the following definitions:
Agreement has the meaning set forth in the preamble hereto.
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Alternative Plan has the meaning set forth in Section 2(f) hereto.
Bankruptcy Code means title 11 of the United States Code, 11 U.S.C. 101 et seq.
Bankruptcy Court means the United States Bankruptcy Court for the District of Nevada.
Business Day means any day other than Saturday, Sunday and any day that is a legal holiday or a day on whichbanking institutions in New York, New York are authorized by law or governmental action to close.
Cap Re Holders has the meaning set forth in the preamble hereto.
Chapter 11 Cases means any voluntary chapter 11 case(s) commenced by the Company.
Confirmation Order means an order entered by the Bankruptcy Court confirming the Plan, including all exhibits,appendices and related documents, each consistent in all material respects with the Restructuring Term Sheet andotherwise in form and substance reasonably acceptable to the Company and the Required Consenting Noteholders.
Consenting Noteholders has the meaning set forth in the preamble hereto.
Disclosure Statement means the disclosure statement in respect of the Plan which shall be consistent in allmaterial respects with the Restructuring Term Sheet and otherwise in form and substance reasonably acceptable to theCompany and the Required Consenting Noteholders.
Disclosure Statement Order means the order entered by the Bankruptcy Court approving the DisclosureStatement and authorizing the solicitation of votes on the Plan, which shall be consistent in all material respects with theRestructuring Term Sheet and otherwise in form and substance reasonably acceptable to the Company and the Required
Consenting Noteholders.Effective Date means the date on which all conditions to consummation of the Plan have been satisfied (or
waived) and the Plan becomes effective.
Forbearance Agreement means that certain forbearance agreement dated as of March 1, 2012 entered into by theCap Re Holders, the Company and Silver Legacy Capital Corp., in their capacity as issuers under the Indenture, and thePartners, in their capacity as pledgors under that certain Pledge Agreement dated September 4, 2002.
New Secured Notes Indenture shall mean that certain Indenture, to be dated as of the Effective Date, governingthe Companys New Secured Notes to be issued under the Restructuring, which shall be consistent in all materialrespects with the Restructuring Term Sheet and otherwise in form and substance reasonably acceptable to the Companyand the Required Consenting Noteholders.
Noteholder Claims means all claims arising under or relating to the Notes and/or the Indenture and allagreements and instruments relating to the foregoing that remain unpaid and outstanding as of the Effective Date.
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Notes means the 10 /8% senior secured notes due March 1, 2012 issued by Circus and Silver Legacy CapitalCorp. under the Indenture.
Outside Date has the meaning set forth in Section 5 herein.
Partners has the meaning set forth in the preamble hereto.
Person means an individual, a partnership, a joint venture, a limited liability company, a corporation, a trust, anunincorporated organization, a group or any legal entity or association.
Petition Date means the date the Chapter 11 Cases of the Company are commenced.
Plan means the chapter 11 plan of reorganization of the Company implementing the Restructuring and theRestructuring Term Sheet, which shall be consistent in all material respects with the Restructuring Term Sheet andotherwise in form and substance reasonably acceptable to the Company and the Required Consenting Noteholders.
Plan Related Documents means the Plan, the Disclosure Statement, the Solicitation Materials, the ConfirmationOrder, and the New Secured Notes Indenture (and the related security documents), along with any other documents oragreements, whether or not filed with the Bankruptcy Court by the Company, that are necessary to implement the Plan,the Restructuring and the Restructuring Term Sheet pursuant to an out-of-court restructuring or the Chapter 11 Cases;provided that each of the foregoing documents shall be consistent in all material respects with the Restructuring TermSheet and otherwise in form and substance reasonably acceptable to the Company and the Required ConsentingNoteholders.
Required Consenting Noteholders means the Consenting Noteholders holding a majority of the aggregate
principal amount of the Noteholder Claims held by all Consenting Noteholders as set forth on the signature page(s)hereto (as of the date of any applicable action or consent).
Restructuring Term Sheet means that certain term sheet containing the material terms and provisions of theRestructuring agreed upon by the Parties hereto that are to be incorporated into the Plan and Plan Related Documents, acopy of which is attached hereto as Exhibit A.
Solicitation Materials means the Disclosure Statement and other solicitation materials in respect of the Plan asapproved by the Bankruptcy Court pursuant to Section 1125(b) of the Bankruptcy Code.
Transfer has the meaning set forth in Section 6 hereto.
Termination Date has the meaning set forth in Section 5 hereto.
Termination Event has the meaning set forth in Section 5 hereto.
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2. Commitment of Consenting Noteholders. Subject to the terms and conditions of this Agreement and the terms andconditions set forth in the Restructuring Term Sheet and for so long as no Termination Event has occurred, each ConsentingNoteholder (severally and not jointly), on its behalf and on behalf of its controlled affiliates, agrees that:
(a) to the extent the Company pursues the Restructuring through an out-of-court consent solicitation and exchange offer,each Consenting Noteholder shall timely vote and tender all Noteholder Claims, now or hereafter beneficially owned by suchConsenting Noteholder or for which it now or hereafter serves as the nominee, investment manager or advisor for beneficial
holders thereof, in favor of such solicitation and exchange in accordance with the applicable procedures set forth in thepertinent solicitation materials;
(b) to the extent the Company pursues the Restructuring through Chapter 11 Cases, so long as its vote has been properlysolicited pursuant to sections 1125 and 1126 of the Bankruptcy Code, each Consenting Noteholder shall vote all NoteholderClaims, now or hereafter beneficially owned by such Consenting Noteholder or for which it now or hereafter serves as thenominee, investment manager or advisor for beneficial holders thereof, in favor of the Plan in accordance with the applicableprocedures set forth in the Solicitation Materials, and timely return a duly executed ballot in connection therewith;
(c) it shall not withdraw or revoke its tender, consent or vote with respect to any consent solicitation and exchange offeror the Plan (as applicable), except as otherwise expressly permitted pursuant to this Agreement; and
(d) it shall negotiate in good faith the definitive documentation contemplated by this Agreement or otherwise necessaryto effectuate the Restructuring, including, but not limited to the Plan, Disclosure Statement and Plan Related Documents,which shall be in form and substance reasonably acceptable to the Required Consenting Noteholders, on the terms and
subject to the conditions as substantially set forth in this Agreement;
(e) the Forbearance Agreement shall continue to remain in full force and effect notwithstanding any earlier terminationdate stated therein as long as this Agreement does not terminate; in addition, the Forbearance is hereby amended to providethat the term Acknowledged Default is amended to include any Default or Event of Default arising from the failure to filereports required pursuant to Section 4.03 with the Securities and Exchange Commission;
(f) following the commencement of the Chapter 11 Cases, it shall not (i) object to the Plan, Disclosure Statement or theconsummation of the Restructuring Term Sheet or Plan, or any efforts to obtain acceptance of, and to confirm and implement,the Plan; (ii) initiate any legal proceedings that are inconsistent with or that would delay, prevent, frustrate or impede theapproval, confirmation or consummation of the Restructuring, the Disclosure Statement or the Plan or the transactionsoutlined therein or in the Restructuring Term Sheet or otherwise commence any proceedings to oppose any of the PlanRelated Documents, or take any other action that is barred by this Agreement; (iii) vote for, consent to, support or participatein the formulation of any other restructuring or settlement of the Companys claims, any other transaction involving the
Company or its assets, or any plan of reorganization (with the sole exception of the Plan) or liquidation under applicablebankruptcy or insolvency laws, whether domestic or foreign, in respect of the Company; (iv) directly or indirectly seek,solicit, support, formulate, entertain, encourage or engage in discussions, or enter into any agreements relating to, anyrestructuring, plan of reorganization, proposal or offer of dissolution, winding up, liquidation, reorganization, merger,transaction, sale, disposition or restructuring of the Company
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(or any of its assets or stock) other than the Plan or as otherwise set forth in the Restructuring Term Sheet (collectively,(iii) and (iv), an Alternative Plan); (v) engage in or otherwise participate in any negotiations regarding any AlternativePlan, enter into any letter of intent, memorandum of understanding, agreement in principle or other agreement relating to anyAlternative Plan; (vi) solicit, encourage, or direct any Person, including, without limitation the indenture trustee of theIndenture, to undertake any action set forth in clauses (i) through (v) of this subsection (f); or (vii) permit any of its, or itscontrolled affiliates, officers, directors, managers, employees, partners, representatives and agents to undertake any actionset forth in clauses (i) through (vi) of this subsection (f).
Notwithstanding the foregoing, nothing in this Agreement shall be construed to prohibit any Consenting Noteholder fromappearing as a party-in-interest in any matter to be adjudicated in the Chapter 11 Cases so long as such appearance and thepositions advocated in connection therewith are consistent with this Agreement and otherwise in furtherance of theRestructuring and are not for the purpose of, and could not reasonably be expected to have the effect of, hindering, delayingor preventing the consummation of the Restructuring.
3. Commitment of the Company. Subject to the Companys fiduciary duties under applicable law and for so long as noTermination Event has occurred, the Company agrees to use its reasonable best efforts to (i) support and complete theRestructuring and all transactions contemplated under the Restructuring Term Sheet, the Plan and all other Plan RelatedDocuments; (ii) take any and all necessary and appropriate actions in furtherance of the Restructuring and the transactionscontemplated under the Restructuring Term Sheet, the Plan and all other Plan Related Documents; (iii) complete theRestructuring and all transactions contemplated under the Restructuring Term Sheet, the Plan and all other Plan RelatedDocuments within any time-frames outlined in this Agreement, (iv) obtain any and all required governmental, regulatory
and/or third-party approvals for the Restructuring; and (v) take no actions inconsistent with this Agreement, the RestructuringTerm Sheet, or the confirmation and consummation of the Plan.
4. Commitment of the Partners. For so long as no Termination Event has occurred, each Partner (severally and notointly) agrees to (i) negotiate in good faith the definitive documentation contemplated by this Agreement or otherwise
necessary to effectuate the Restructuring and to which such Partner will be a party, which shall be in form and substancereasonably acceptable to such Partner, on the terms and subject to the conditions as substantially set forth in this Agreement,and (ii) take any and all commercially reasonable and appropriate actions in furtherance of the Restructuring as set forth inthe Restructuring Term Sheet; provided, however, that each Partner shall have no obligation to provide the cash contributiondescribed in the Restructuring Term Sheet unless and until definitive documentation therefor has been entered into in formand substance acceptable to each Partner it being understood that the Partners will negotiate such documentation in goodfaith. Notwithstanding anything herein to the contrary, and for the avoidance of doubt, no affiliate of either Partner other thanthe Company (each a Partner Affiliate) shall be responsible for any obligation of a Partner or the Company herein or sufferany liability as a result of the non-compliance of a Partner or the Company with any covenant herein, and each Consenting
Holder agrees not to initiate any action against, or seek any recovery from, any Partner Affiliate as a result of any such non-compliance.
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termination based on this provision shall specify what actions the Company or its advisors would need to take to reasonablycooperate and that taking such actions within five (5) Business Days would be deemed to cure this Termination Event
(h) the Company fails to launch the out-of-court solicitation of votes for the Restructuring on or before April 30, 2012;
(i) the Company fails to consummate the Restructuring on an out-of-court basis by 45 days after launch and fails tosatisfy the applicable deadline in Section 5(n)(I) below;
(j) holders of at least 66% in principal amount of outstanding Noteholder Claims fail to execute and deliver to theCompany counterpart signature pages of this Agreement by April 30, 2012;
(k) the Company fails to obtain an irrevocable commitment letter for the provision of the New Credit Facility (asdefined in the Restructuring Term Sheet) by April 30, 2012;
(l) the occurrence of a material deterioration in the Companys available cash on the balance sheet beyond anticipatedcash usage for ordinary course operations and reasonable restructuring expenses pending consummation of the Restructuring;
(m) the acquisition of any ownership interests in the Company, directly or indirectly, beneficially or of record, by anyperson, entity or group, other than the Partners;
(n) If the Company is pursuing the Restructuring through the filing of the Chapter 11 Cases:
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(I) the Company fails to commence the Chapter 11 Cases on or before (i) April 30, 2012 if the Company does
not launch the solicitation of votes, or (ii) June 1, 2012 if the Company launches the solicitation of votes, butdoes not consummate the Restructuring on an out-of-court basis;
(II) the Bankruptcy Court shall have failed to enter the Disclosure Statement Order by 45 days after the date theCompany commences the Chapter 11 Cases;
(III) the Bankruptcy Court shall have failed to enter the Confirmation Order by 60 days after the date of entry ofthe Disclosure Statement Order;
(IV) the Effective Date has not occurred by 25 days after entry of Confirmation Order, subject to any regulatoryapprovals (the Outside Date);
(V) the amendment, modification, or filing of a pleading by the Company seeking to amend or modify the Plan,Disclosure Statement, Disclosure Statement Order, Plan Related Documents, or any documents related to theforegoing, including motions, notices, exhibits, appendices, and orders, in a manner not reasonablyacceptable to counsel for the Cap Re Holders or a single counsel representing Required Consenting Lenders;
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The date on which this Agreement is terminated in accordance with the provisions of this Section 5 shall be referred to as theTermination Date and the provisions of this Agreement and the Restructuring Term Sheet shall terminate, except asotherwise provided in this Agreement, unless, in the case of this Section 5, within five (5) Business Days the Company andthe Required Consenting Noteholders waive, in writing, the occurrence of or amend or modify any of the events set forth inclauses (a) through (h) of this Section 5. In the event of the termination of this Agreement pursuant to this Section 5, writtennotice thereof shall forthwith be given to the other party specifying the provision hereof pursuant to which such terminationis made, and this Agreement shall be terminated and become void and have no effect and there shall be no liability hereunderon the part of any Party, except that Sections 13 and 19-26 shall survive any termination of this Agreement. Nothing in thisSection 5 shall relieve any Party of liability for any breach of this Agreement that occurred prior to the occurrence of theTermination Date.
6. Transfer of Noteholder Claims. Notwithstanding anything to the contrary in this Agreement, each of the ConsentingNoteholders agrees that until the occurrence of the Termination Date, it shall not sell, assign, transfer, convey, pledge,hypothecate or otherwise dispose of, directly or indirectly (each such transfer, a Transfer), all or any of its NoteholderClaims (or any right related thereto and including any voting rights associated with such Noteholder Claims) unless thetransferee thereof (i) is a Consenting Noteholder or (ii)(a) agrees in writing by executing a joinder in the form ofExhibit B toassume and be bound by this Agreement and the Restructuring Term Sheet, and to assume the rights and obligations of theConsenting Noteholder under this Agreement and (b) promptly delivers such writing to the Company (each such transfereebecoming, upon the Transfer, a Consenting Noteholder hereunder). The Company shall promptly acknowledge any suchTransfer in writing and provide a copy of that acknowledgement to the transferor. By its acknowledgement of the relevantTransfer, the Company shall be deemed to have acknowledged that its obligations to the Consenting Noteholder hereundershall be deemed to constitute obligations in favor of the relevant transferee. Any Transfer of any Noteholder Claim by aConsenting Noteholder that does not comply with the procedure set forth in the first sentence of this Section 6 shall bedeemed void ab initio. This Agreement shall in no way be construed to preclude the Consenting Noteholders from acquiringadditional Noteholder Claims, provided that any such additional Noteholder Claims shall automatically be deemed to besubject to the terms of this Agreement, and provided further that the Consenting Noteholders agree to furnish to the Companyprompt notice within five (5) Business Days of the acquisition of any additional Notes.
7. Reporting Requirements. The Company agrees that it shall (i) make its chief financial officer or its financial advisoravailable via teleconference on a quarterly basis to provide the Consenting Noteholders with regular updates regarding theoperation of the Companys business and financial condition and (ii) provide to each Consenting Noteholder quarterlyfinancial reports until the consummation of the Restructuring.
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(VI) the appointment of a trustee, receiver, examiner with expanded powers, responsible person or responsibleofficer in the Chapter 11 Cases;
(VII) the class of creditors in which the Noteholder Claims are classified votes to reject the Plan; or
(VIII) the conversion of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code.
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8. No Solicitation. This Agreement is not and shall not be deemed to be a solicitation of votes for the acceptance of thePlan (or any other plan of reorganization) for the purposes of sections 1125 and 1126 of the Bankruptcy Code or otherwise.
9. Ownership of Claims. Each of the Consenting Noteholder represents and warrants (severally and not jointly) that:
10. Representations.
(a) Each Party represents to each other Party that, as of the date of this Agreement:
(i) It has all requisite corporate, partnership, limited liability company or similar authority to enter into this
Agreement and carry out the transactions contemplated hereby and perform its obligations hereunder, and the execution,delivery and performance of such Partys obligations hereunder have been duly authorized by all necessary corporate,partnership, limited liability, or similar action on its part;
(ii) The execution, delivery and performance of this Agreement by such Party does not and shall not (x) violate anyprovision of law, rule or regulation applicable to it or any of its subsidiaries or its organizational documents or those of any ofits subsidiaries or (y) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default underany material contractual obligations to which it or any of its subsidiaries is a party or under its organizational documents;
(iii) The execution, delivery and performance by it of this Agreement does not and shall not require any registrationor filing with, consent or approval of, or notice to, or other action to, with or by, any fe