Court File No. CV-16-11274-00CL BETWEEN: INTEGRATED PRIVATE DEBT FUND III L.P.,

Court File No. CV-16-11274-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN:
INTEGRATED PRIVATE DEBT FUND III L.P.,
BY ITS GENERAL PARTNER
AND INTEGRATED PRIVATE DEBT FUND GP INC.
(Applicant)
and
1721027 ONTARIO INC.
(Respondent)
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF 1721027 ONTARIO INC.
FACTUM OF THE APPLICANT
February 29, 2016
Thornton Grout Finnigan LLP
Barristers & Solicitors
Suite 3200, TD West Tower
100 Wellington Street West
P.O. Box 329, Toronto-Dominion Centre
Toronto, ON M5K 1K7
James H. Grout (LSUC#22741H)
Tel: (416) 304-0557
Email: [email protected]
Kyla E.M. Mahar (LSUC# 44182G)
Tel: (416) 304-0594
Fax: (416) 304-1313
Email: [email protected]
Lawyers for the Applicant
2
Court File No. CV-16-11274-00CL
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
BETWEEN:
INTEGRATED PRIVATE DEBT FUND III L.P., BY ITS
GENERAL PARTNER AND INTEGRATED PRIVATE
DEBT FUND GP INC.
(Applicant)
and
1721027 ONTARIO INC.
(Respondent)
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR
ARRANGEMENT OF 1721027 ONTARIO INC.
FACTUM OF THE APPLICANT
PART I - NATURE OF THE MOTION
1.
The Applicant has brought a motion returnable on March 2, 2016 seeking, among other
relief, an Order authorizing the 1721027 Ontario Inc., operating as Becker Co-generation
Plant (“Becker” or the “Respondent”) to enter into a non-revolving debtor-in-possession
credit facility of up to $3,000,000.00 plus interest and fees accrued in accordance with
the DIP Term Sheet (the “DIP Facility”) negotiated with Integrated Asset Management
3
Corp (the “DIP Lender”) and granting the DIP Lender’s Charge in the amount of
$3,300,000.00 over the Respondent’s assets in priority to all security interests, trusts,
liens, charges and encumbrances, claims of secured creditors, statutory or otherwise other
than the Administration Charge and the Restructuring Advisor’s Charge (the “DIP
Lender’s Charge”) pursuant to section 11.2 of the Companies’ Creditors Arrangement
Act, RSC 1985, c. C-36 (the “CCAA”).
2.
The Respondent was granted protection under the CCAA pursuant to the Initial Order of
Justice Newbould dated February 2, 2016 (the “Initial Order”) to provide stability to the
Respondent, allow its business (the “Business”) to continue to operate during the CCAA
proceedings (the “CCAA Proceedings”) and to allow the Respondent’s Business to be
marketed and sold on as a going concern thereby maximizing value for all the
stakeholders of the Respondent.
3.
The DIP Facility is necessary to allow the Respondent’s Business to continue to operate
during these CCAA Proceedings to allow PricewaterhouseCoopers Inc. (“PwC”), in its
capacity as Monitor of the Respondent (the “Monitor”) to undertake a sale process (the
“Sale Process”) as detailed in the Affidavit of Todd Ambachtsheer sworn on February
25, 2016 (the “Ambachtsheer Affidavit”) sworn in support of the Applicant’s Motion
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PART II - THE FACTS
4.
The facts with respect to this Motion are more fully set out in Ambachtsheer Affidavit.
Capitalized terms not defined herein shall have the meanings ascribed to them in
Ambachtsheer Affidavit.
The CCAA Proceedings and Becker Co-generation Plant
5.
Integrated Private Debt Fund III L.P., by its general partner Integrated Private Debt Fund
GP Inc. (the “Applicant”) obtained protection for Becker under the CCAA pursuant to
the Initial Order. Pursuant to the Initial Order, PwC was appointed Monitor and KPMG
Inc. (“KPMG”), using the services of Randy Benson and others at KPMG, was appointed
as the Chief Restructuring Advisor (the “Restructuring Advisor”) of Becker.
Ambachtsheer Affidavit at paras. 1-3.
6.
The Respondent operates a co-generation plant known as the Becker Cogeneration Plant
(the “Plant”). The Plant is a wood biomass fuel-fired co-generation facility located in
Hornepayne, Ontario and is adjacent to the lumber mill manufacturing facilities (the
“Sawmill”) of Olav Haavaldsrud Timber Company Ltd. (“Olav”), the Respondent’s
parent company. Hornepayne is a rural, northern Ontario community with a population
of approximately 1000.
Ambachtsheer Affidavit at para. 5.
7.
The Plant produces electricity and has operated for approximately two (2) years. Under
the Power Purchase Agreement, the Respondent contracted with the OPA (now IESO) to
sell up to ten (10) mega-watts of electricity to the Province of Ontario’s power grid for a
5
10-year period. The Facility achieved commercial operation under the Power Purchase
Agreement on February 15, 2014.
Ambachtsheer Affidavit at para. 6.
The Proposed DIP Facility
8.
The Initial Order authorized the Restructuring Advisor to seek out DIP Financing in an
amount not to exceed $5 million and to negotiate the terms of DIP financing documents
for and on behalf of the Respondent, which would be subject to Court approval.
Ambachtsheer Affidavit at para. 11.
9.
A copy of the DIP Term Sheet setting out the terms of the DIP Facility which the
Restructuring Advisor has negotiated with the DIP Lender is attached as Exhibit “C”
to the Ambachtsheer Affidavit. The DIP Lender is an Affiliate of the Applicant..
Ambachtsheer Affidavit at para. 12.
10.
As set out in the Initial Affidavit, the Applicant is the Agent and a Lender (defined
below) under a Credit Agreement dated as of the 26th day of August, 2011, as amended
on July 27, 2012 and December 13, 2013 (the “Credit Agreement”) pursuant to which
certain credit facilities were granted to Becker by certain lenders from time to time
parties thereto.
Ambachtsheer Affidavit at para. 12.
11.
Pursuant to the DIP Term Sheet, a facility in the amount of $3,000,000.00 plus
interest and fees accrued in accordance with the DIP Term Sheet will be made
available to the Respondent. The DIP Facility’s term is initially for six months, and it
may be extended for up to an additional 6 months if not in default for no additional
6
fee should an extension be required. Draws may be made in increments of $100,000
after requesting same from the DIP Lender.
Ambachtsheer Affidavit at para. 13.
12.
The DIP Facility bears interest at 8.00% per annum on the total amount drawn, which
shall accrue monthly in arrears and be added to the principal amount outstanding under
the DIP Facility on the first Business Day of each month. The DIP Lender will earn a
standby fee of 1.00% of the undrawn portion of the principal amount of the DIP Facility,
which amount shall accrue monthly in arrears and be added to the principal amount
outstanding. No interest or fees (except the legal fees of the DIP Lender) will be paid in
cash until such time as the DIP Facility is repaid.
Ambachtsheer Affidavit at para. 14.
13.
Advanced under the DIP Facility may be used by the Respondent to: (i) provide working
capital and for other general corporate purposes of the Borrower; (ii) make payments
necessary to comply with the Initial Order (as it may be amended and restated from time
to time); and (iii) pay the fees and expenses of the beneficiaries of the Administration
Charge, the DIP Lender’s legal counsel, and such other agents, advisors and consultants
of the Respondent as provided for in and consistent with the cash flow budget in all
material respects to the extent reasonably practicable in the circumstances.
Ambachtsheer Affidavit at para. 15.
14.
Advances under the DIP Facility are conditional upon the DIP Lender obtaining a
Court ordered priority charge over the assets of the Respondent in priority to all
security interests, trusts, liens, charges and encumbrances, claims of secured creditors,
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statutory or otherwise other than the Administration Charge and the Restructuring
Advisor’s Charge.
Ambachtsheer Affidavit at paras. 16.
15.
Given the Restructuring Advisor’s knowledge of DIP financing terms granted in other
CCAA proceedings and having consideration to the assets of the Respondent, the
Restructuring Advisor is of the view that the terms set out in the DIP Term Sheet are
reasonable.
Ambachtsheer Affidavit at para. 16.
16.
Given the terms and conditions of the DIP Term Sheet, the Monitor is of the view that it
is unlikely that a superior DIP proposal would be achievable for the following reasons:
(a)
the specialized nature and remote location of the Assets are such that market
interest rates to fund operations for this type of asset could be in the range of 14%
to 18%, or nearly double the interest rate contemplated by the DIP Lender; and
(b)
there are a limited number of lenders willing to provide secured financing,
including DIP Financing, for these type of assets.
First Report of the Monitor dated February 26, 2016 (the “Monitor’s First Report”)
at para. 45.
17.
The Monitor supports the DIP Financing terms set out in the DIP Term Sheet for the
following reasons:
(a)
the DIP Term Sheet provides that DIP Advances would bear an interest rate of 8%
per annum, which is reasonable in the circumstances as it is in the range of the
default interest rate of applicable to the Company’s Indebtedness under the Credit
Agreement subsequent to its default on November 30, 2015;
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(b)
the Standby Fee is reasonable and generally in line with market. The Extended
Cash Flow Forecast predicts that approximately $1,300,000 will be outstanding
under the DIP Facility at the end of the requested extension of the Stay Period.
Accordingly the accrued Standby Fee during the Extended Cash Flow Forecast
Period is expected to be less than approximately $7,000, which is de minimis;
(c)
the size of the DIP Facility (maximum of $3,000,000) and the type of Assets are
such that there is a limited number of lenders that would consider providing DIP
Financing secured by Becker’s Assets; and
(d)
the Applicant supports the DIP Financing.
Monitor’s First Report at para. 46.
18.
All the secured creditors of the Respondent have been given notice of this Motion.
Ambachtsheer Affidavit at para. 18.
PART III - THE ISSUE
19.
The issue on this Motion is whether this Court should approve the DIP Facility and grant
the DIP Lender’s Charge on a priority basis over the Respondent’s Property (as defined
in the Initial Order) other than the Administration Charge and the Restructuring
Advisor’s Charge?
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PART IV - THE LAW
ISSUE 1:
20.
Should this Court approve the DIP Facility and grant the DIP Lender’s
Charge on a priority basis over the Respondent’s Property other than the
Administration Charge and the Restructuring Advisor’s Charge?
Yes, this Court should approve the DIP Facility and grant the DIP Lender’s Charge on a
priority basis, subject to the Administration Charge and the Restructuring Advisor’s
Charge granted pursuant to the Initial Order.
21.
The Applicant is seeking approval of the non- revolving DIP Facility in the maximum
principal amount of $3,000,000.00 plus interest and fees accrued in accordance with the
DIP Term Sheet will be made available to the Respondent.
The DIP Facility is
conditional upon a Court ordered charge over the assets of the Applicants in the amount
of $3,300,000.00 in priority to all security interests, trusts, liens, charges and
encumbrances, claims of secured creditors, statutory or otherwise, other than the
Administration Charge and the Restructuring Advisor’s Charge.
Ambachtsheer Affidavit at paras. 13 and 16.
22.
Section 11.2 of the CCAA sets out the jurisdiction of this Court to grant the DIP Lender’s
Charge as follows:
11.2 (1) On application by a debtor company and on notice to the
secured creditors who are likely to be affected by the security or
charge, a court may make an order declaring that all or part of the
company’s property is subject to a security or charge – in an
amount that the court considers appropriate – in favour of a person
specified in the order who agrees to lend to the company an
amount approved by the court as being required by the company,
having regard to its cash-flow statement. The security or charge
may not secure an obligation that exists before the order is made.
(2) The court may order that the security or charge rank in priority
over the claim of any secured creditor of the company.
10
...
(4) In deciding whether to make an order, the court is to consider,
among other things,
(a) the period during which the company is expected to be
subject to proceedings under this Act;
(b) how the company’s business and financial affairs are to
be managed during the proceedings;
(c) whether the company’s management has the confidence
of its major creditors;
(d) whether the loan would enhance the prospects of a
viable compromise or arrangement being made in respect
of the company;
(e) the nature and value of the company’s property;
(f) whether any creditor would be materially prejudiced as
a result of the security or charge; and
(g) the monitor’s report referred to in paragraph 23(1)(b), if
any.
CCAA, section 11.2.
23.
In Canwest Global, this Court stressed the importance of meeting the following factors in
section 11.2(1) when granting DIP financing and a DIP lender’s charge:
(a)
the DIP Lender’s Charge does not purport to prime any secured party who has not
received notice of this Application;
(b)
the amount to be advanced under the DIP facility is appropriate and required,
having regard to the debtor’s cash-flow statement; and
(c)
the charge does not secure an obligation that existed before the Order was made.
Canwest Global Communications Corp., Re, 2009 CarswellOnt 6184 at paras. 31 to
35 ( S.C.J. [Comm. List]) [“Canwest Global”], Book of Authorities at Tab 1.
Canwest Publishing Inc. Re, 2010 ONSC 222 at paras. 42 to 45 (Comm. List)
[“Canwest Publishing”], Book of Authorities at Tab 2.
Timminco Ltd., Re, 2012 ONSC 948 at para. 33 (Ont. S.C.J. [Comm. List]), Book of
Authorities at Tab 3.
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24.
In the present case, all of the secured creditors of the Respondent have been given notice
of this Motion. The Respondent’s Cash Flow Forecast indicates that the amount of the
DIP Facility is appropriate and that DIP Financing is required to continue to allow the
Respondent’s Business to operate while the Sale Process is undertaken. Further, the DIP
Lender’s Charge does not purport to secure any pre-existing obligation.
25.
For the reasons set out below, the Applicant submits that the factors under section 11.2(4)
in favour of granting the DIP Facility and DIP Lender’s Charge are satisfied in the
present case:
(a)
the period during which the Respondent is expected to be subject to CCAA
proceedings – The CCAA Proceedings were commenced for the purpose of
allowing the Respondent’s Business to be marketed and sold on as a going
concern in order to maximize value for all the stakeholders of the Respondent.
The Applicant is seeking approval of the Sale Process at the same time as the DIP
Facility. The Sale Process is expected to take approximately four months to
market the Assets to Prospective Purchasers, to support the due diligence of
Qualified Phase 1 Bidders, to negotiate a Binding APA, to seek Court approval of
the Binding APA and close a sale transaction;
Ambachtsheer Affidavit at paras. 19 – 35 and Exhibit A”, being the Affidavit of
Andrew Shannon sworn on February 1, 2016 (“Initial Affidavit”) at para. 40.
Monitor’s First Report at paras. 27 - 32.
(b)
how the Respondent’s business and financial affairs are to be managed during the
proceedings – Upon the granting of the Initial Order, the officers and directors of
12
Becker resigned their positions and the Restructuring Advisor was appointed to
oversee the operations of Becker during the CCAA Proceedings;
Ambachtsheer Affidavit at para. 8.
(c)
whether the Respondent’s management has the confidence of its major creditors –
As set out above, the officers and directors have resigned and the Restructuring
Advisor has been appointed to oversee the operations. The Restructuring Advisor
negotiated the DIP Term Sheet with the DIP Lender as contemplated in the Initial
Order and has taken over control of the operations;
Ambachtsheer Affidavit at paras. 8 - 10.
(d)
whether the DIP Facility would enhance the prospects of a viable compromise or
arrangement being made in respect of the Respondent – The DIP Facility will
enhance the prospects of a viable compromise since it will provide the liquidity
necessary to undertake the Sale Process. The DIP Facility may be used by the
Respondent to: (i) provide working capital and for other general corporate
purposes of the Respondent; (ii) make payments necessary to comply with the
Initial Order (as it may be amended and restated from time to time); and (iii) pay
the fees and expenses of the beneficiaries of the Administration Charge, the DIP
Lender’s legal counsel, and such other agents, advisors and consultants of the
Respondent as provided for in and consistent with the cash flow budget in all
material respects to the extent reasonably practicable in the circumstances;
Ambachtsheer Affidavit, at para. 15.
(e)
the nature and value of the Respondent’s property – The Respondent’s property is
comprised of the Plant being a wood biomass fuel-fired co-generation facility
13
located in Hornepayne, Ontario and associated contracts. The Cash Flow Forecast
prepared by the Restructuring Advisor, with the assistance of the Monitor,
indicates that the amount of the DIP Facility is necessary and appropriate;
Ambachtsheer Affidavit at paras. 5 - 7.
Monitor’s First Report at Appendix “D”.
(f)
whether any creditor would be materially prejudiced as a result of the security or
DIP Lender’s Charge – The Applicant is the Agent and a lender under the Credit
Agreement pursuant to which the Respondent is indebted to the lenders in the
amount of $38,720,071.20 as at December 29, 2015. The Applicant supports the
DIP Facility being granted. The Applicant submits that no secured creditor would
be materially prejudiced as a result of the DIP Lender’s Charge; and
Ambachtsheer Affidavit at para. 1 and Exhibit A, being the Initial Affidavit at para.
29.
Monitor’s First Report at para. 46.
(g)
the Monitor’s Report – The Monitor supports the DIP Financing as contemplated
in the DIP Term Sheet for the following reasons: (i) the DIP Term Sheet provides
that DIP Advances would bear an interest rate of 8% per annum, which is
reasonable in the circumstances as it is in the range of the default interest rate of
applicable to the Company’s Indebtedness under the Credit Agreement
subsequent to its default on November 30, 2015; (ii) the Standby Fee is
reasonable and generally in line with market. The Extended Cash Flow Forecast
predicts that approximately $1,300,000 will be outstanding under the DIP Facility
at the end of the requested extension of the Stay Period. Accordingly the accrued
Standby Fee during the Extended Cash Flow Forecast Period is expected to be
14
less than approximately $7,000, which is de minimis; (iii) the size of the DIP
Facility (maximum of $3,000,000) and the type of Assets are such that there is a
limited number of lenders that would consider providing DIP Financing secured
by Becker’s Assets; and (iv) the Applicant supports the DIP Financing. The
Monitor recommends approval of the DIP Facility and the granting of the DIP
Lender’s Charge.
Monitor’s First Report at paras. 46 and 49.
26.
Accordingly, the Applicant respectfully requests that this Court grant an Order approving
the DIP Facility as contemplated by the DIP Term Sheet and granting the DIP Lender’s
Charge.
PART V - RELIEF REQUESTED
27.
The Applicant requests that this Court approved the DIP Facility, amend the Initial Order
and grant an Order substantially in the form of First Amended and Restated Order at Tab
4 of the Applicant’s Motion Record.
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SCHEDULE “A”
LIST OF AUTHORITIES
1.
Canwest Global Communications Corp., Re, 2009 CarswellOnt 6184 (S.C.J.
[Commercial List]).
2.
Canwest Publishing Inc. Re, 2010 ONSC 222 (Commercial List).
3.
Timminco Ltd., Re, 2012 ONSC 948 (Commercial List).
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SCHEDULE “B”
RELEVANT STATUTES
Companies’ Creditors Arrangement Act, R.S.C., 1985, c. C-36
Interim Financing
11.2 (1) On application by a debtor company and on notice to the secured creditors who are
likely to be affected by the security or charge, a court may make an order declaring that all or
part of the company’s property is subject to a security or charge — in an amount that the court
considers appropriate — in favour of a person specified in the order who agrees to lend to the
company an amount approved by the court as being required by the company, having regard to
its cash-flow statement. The security or charge may not secure an obligation that exists before
the order is made.
Priority — secured creditors
(2) The court may order that the security or charge rank in priority over the claim of any secured
creditor of the company.
Priority — other orders
(3) The court may order that the security or charge rank in priority over any security or charge
arising from a previous order made under subsection (1) only with the consent of the person in
whose favour the previous order was made.
Factors to be considered
(4)In deciding whether to make an order, the court is to consider, among other things,
(a) the period during which the company is expected to be subject to proceedings under this
Act;
(b) how the company’s business and financial affairs are to be managed during the
proceedings;
(c) whether the company’s management has the confidence of its major creditors;
(d) whether the loan would enhance the prospects of a viable compromise or arrangement
being made in respect of the company;
(e) the nature and value of the company’s property;
(f) whether any creditor would be materially prejudiced as a result of the security or charge;
and
(g) the monitor’s report referred to in paragraph 23(1)(b), if any.
Applicants
INTEGRATED PRIVATE DEBT FUND III L.P., BY ITS GENERAL
PARTNER INTEGRATED PRIVATE DEBT FUND GP INC.
and
Respondent(s)
Lawyers for the Applicant
Kyla E.M. Mahar (LSUC# 44182G)
Tel: (416) 304-0594
Fax: (416) 304-1313
Email: [email protected]
James H. Grout (LSUC#22741H)
Tel: (416) 304-0557
Email: [email protected]
Thornton Grout Finnigan LLP
Barristers & Solicitors
Suite 3200, TD West Tower
100 Wellington Street West
P.O. Box 329, Toronto-Dominion Centre
Toronto, ON M5K 1K7
(Returnable on March 2, 2016)
FACTUM OF THE APPLICANT
Proceedings commenced at Toronto
ONTARIO
SUPERIOR COURT OF JUSTICE
(COMMERCIAL LIST)
Court File No.:
1721027 ONTARIO INC.