PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Nathaniel Bower, Responsible Partner, Bankruptcy & Restructuring, Calderwood & Harkness LLP
FROM: Gabrielle Moss, Lead Associate, Bankruptcy & Restructuring, Calderwood & Harkness LLP
DATE: May 18, 2025
RE: Carve-Out Provisions in the DIP Facility — Structuring Considerations
CLIENT: Greenfield Agricultural Partners LLC
MATTER: Chapter 11 Case No. 25-01147, U.S. Bankruptcy Court, N.D. Iowa (Cedar Rapids Division)
ENGAGEMENT NO.: 1020-00002
CONFIDENTIALITY LEGEND: This memorandum is a privileged and confidential communication prepared by Calderwood & Harkness LLP in its capacity as counsel to Greenfield Agricultural Partners LLC. It is protected by the attorney-client privilege and the work product doctrine. This memorandum reflects the mental impressions, conclusions, and legal theories of counsel and was prepared in anticipation of litigation. It should not be disclosed, disseminated, distributed, or copied to any person or entity without the prior written authorization of the Responsible Partner. Receipt by any person who is not an authorized recipient does not constitute a waiver of any applicable privilege.
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I. Executive Summary
This memorandum analyzes the carve-out provisions negotiated in the proposed $175,000,000 senior secured superpriority debtor-in-possession credit facility (the "DIP Facility") among Greenfield Agricultural Partners LLC ("Greenfield" or the "Debtor"), Ironclad Capital Partners LP, as Administrative Agent (the "DIP Agent"), Ridgeline Opportunity Fund III LP and Bramblewood Credit Advisors LLC, as co-lenders (together with Ironclad, the "DIP Lenders" or the "DIP Lender Group"), and Meridian Trust Company, as Collateral Agent. The purpose of this memorandum is to assess whether the proposed carve-out structure provides adequate protection for estate professionals and the U.S. Trustee, to benchmark the proposed terms against comparable transactions, and to recommend modifications for the upcoming negotiation sessions with counsel to the DIP Lender Group.
Key Conclusion. The proposed carve-out structure — consisting of an uncapped pre-trigger carve-out for all accrued but unpaid professional fees and a post-trigger carve-out of $2,500,000 for estate professionals and $500,000 for U.S. Trustee fees (an aggregate post-trigger carve-out of $3,000,000) — falls within the range of market terms for mid-market agricultural and chemical industry Chapter 11 cases. However, it sits at the lower end of the spectrum. Based on the review of six comparable DIP financing transactions involving facilities ranging from $100,000,000 to $250,000,000, the proposed aggregate post-trigger carve-out of 1.71% of the DIP facility size is below the observed range of 1.86% to 2.35%, with a median of approximately 2.07%.
Recommendation. We recommend that the Debtor accept the proposed carve-out framework with the following modifications, to be raised in final negotiations with Harmon & Keach LLP (counsel to the DIP Lender Group, led by partner Richard Yeung):
(a) Increase the post-trigger professional fee carve-out from $2,500,000 to a range of $3,000,000–$3,500,000, thereby bringing the aggregate post-trigger carve-out to $3,500,000–$4,000,000 and more closely aligning with the market median.
(b) Negotiate a 3-business-day investigation and cure period following delivery of a trigger event notice by the DIP Agent, during which the Debtor may cure the underlying Event of Default before the post-trigger carve-out period formally commences.
(c) Clarify the definition of "Estate Professionals" to ensure comprehensive coverage of all retained professionals under §§ 327, 328, and 1103 of the Bankruptcy Code.
(d) Add notice requirements obligating the DIP Agent to serve copies of any trigger notice on all retained professionals, committee counsel, and the U.S. Trustee simultaneously with service on the Debtor.
It should be noted that the carve-out provisions interact with several other material provisions of the DIP Facility, including the adequate protection package for Prairie State Bank, N.A. (the pre-petition first lien agent), the superpriority administrative expense claim structure under §§ 364(c)(1) and 507(b), the $20,000,000 roll-up of pre-petition ABL obligations, and the budget variance covenant. These interactions are addressed in detail in Sections VI and VII below.
II. Background — The DIP Facility and Professional Fee Context
A. Overview of DIP Facility Terms
On May 15, 2025 (the "Petition Date"), Greenfield Agricultural Partners LLC commenced a voluntary case under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of Iowa, Cedar Rapids Division (the "Court"). The Debtor has negotiated, on a pre-petition basis, the terms of a DIP Facility with the DIP Lender Group. The principal terms of the DIP Facility, as reflected in the draft DIP Credit Agreement dated May 12, 2025, are summarized below.
Facility Type and Size. The DIP Facility is a senior secured superpriority revolving credit facility in an aggregate principal amount of $175,000,000. The facility is structured as a revolving facility to provide the Debtor with flexibility to draw and repay amounts as needed to fund operations, professional fees, and other Chapter 11 administrative expenses during the pendency of the case.
Lender Commitments. The commitments under the DIP Facility are allocated among three lenders as follows:
Interest Rate. The DIP Facility bears interest at SOFR plus 850 basis points, subject to a SOFR floor of 4.00%, resulting in a minimum all-in interest rate of 12.50% per annum. Upon the occurrence and during the continuance of an Event of Default, an additional 200 basis points of default interest will apply, increasing the all-in rate to SOFR plus 1,050 basis points.
Fees. The DIP Facility provides for the following fees: (i) a closing fee of 2.00% of the aggregate commitments ($3,500,000), payable upon entry of the Interim DIP Order; (ii) an exit fee of 1.00% of the aggregate commitments ($1,750,000), payable upon repayment or termination of the DIP Facility; and (iii) an unused line fee of 0.50% per annum on the average daily undrawn portion of the commitments, payable quarterly in arrears.
Availability. The DIP Facility is structured in two tranches of availability. The initial tranche of $80,000,000 will be available for drawing upon entry of the Interim DIP Order, which is currently targeted for May 22, 2025. The remaining $95,000,000 will become available upon entry of the Final DIP Order, currently targeted for June 19, 2025. This phased availability structure is standard for DIP financing of this size and provides comfort to the DIP Lenders that the Court has fully considered and approved the terms of the facility before the full commitment is made available.
Maturity. The DIP Facility will mature on the earliest of: (i) twelve months from the Petition Date (May 15, 2026); (ii) the effective date of a confirmed Chapter 11 plan; (iii) the consummation of a sale of substantially all of the Debtor's assets under § 363; or (iv) the occurrence of an Event of Default that is not cured within any applicable cure period and as to which the DIP Agent has exercised its remedies.
Priority and Security. The DIP Facility will be entitled to superpriority administrative expense claim status under § 364(c)(1) of the Bankruptcy Code, senior to all other administrative expense claims except the carve-out. The DIP Lenders will receive first-priority priming liens on all pre-petition collateral under § 364(d), senior to the existing liens of Prairie State Bank, N.A. (as pre-petition first lien agent under the $310,000,000 term loan facility) and the ABL revolver lenders. The DIP Lenders will also receive first-priority liens on all previously unencumbered assets of the Debtor under § 364(c)(2) and (c)(3).
Financial Covenants. The DIP Credit Agreement contains the following financial covenants, each of which will be tested on a weekly basis:
(i) Minimum Liquidity. The Debtor must maintain minimum liquidity (defined as unrestricted cash plus available undrawn DIP commitments) of not less than $15,000,000 at all times.
(ii) Maximum Budget Variance. The Debtor may not exceed a maximum cumulative variance to the approved DIP Budget of 15% on a rolling 4-week basis, tested weekly as of each Friday.
(iii) Minimum EBITDA. The Debtor must achieve EBITDA of not less than negative $5,000,000 for any rolling 4-week period.
Governing Law. The DIP Credit Agreement is governed by the laws of the State of New York, without giving effect to conflict-of-laws principles. The bankruptcy proceedings are, of course, governed by federal law and are pending before the Court in the Northern District of Iowa.
B. Projected Professional Fee Obligations
An accurate assessment of the adequacy of the proposed carve-out requires a clear understanding of the projected professional fee obligations in this case. The 13-week DIP Budget (the "Budget"), prepared by Claridge Advisory Group LLC in consultation with the Debtor and covering the period from May 15, 2025 through August 13, 2025, projects aggregate restructuring professional fees of $16,100,000, allocated as follows across the 13-week period:
The front-loading of professional fees in Weeks 1–4 reflects the intensive first-day motion practice, preparation for the interim DIP hearing, engagement of professionals, formation and initial meetings of the Official Committee of Unsecured Creditors, and the commencement of the marketing process for a potential § 363 sale or plan sponsor solicitation.
The professionals expected to be retained in this case, along with their anticipated billing rates, include the following:
Debtor's Professionals:
• Calderwood & Harkness LLP — Debtor's counsel. Partner rates: $1,450–$1,750 per hour. Associate rates: $850–$1,150 per hour. Paralegal rates: $425 per hour.
• Claridge Advisory Group LLC — Financial advisor to the Debtor. Engagement led by Nolan Ashworth (Senior Managing Director) and Rebecca Liu (Director). Rates are subject to the terms of Claridge's engagement letter, which provides for monthly advisory fees and a transaction fee upon consummation of a restructuring or sale.
• Holloway & Birch LLP — Auditor and tax advisor to the Debtor. Audit partner Andrew Sorensen. Rates expected to be in the range of $650–$950 per hour for partners and $400–$650 per hour for managers.
• Bellwether Valuation Services Inc. — Appraiser. Senior Managing Director Gregory Pineda will lead the engagement. Fee structure to be determined upon retention.
Committee Professionals (Anticipated):
• Archer Grayson & Cole LLP — Anticipated counsel to the Official Committee of Unsecured Creditors, upon appointment. Lead partner Franklin Desmond; associate Keiko Tanaka. Anticipated partner rates in the range of $1,200–$1,600 per hour; associate rates $750–$1,050 per hour.
• Committee Financial Advisor (TBD) — The Committee has not yet been appointed, and its financial advisor has not yet been identified. We anticipate that the Committee will engage a financial advisory firm with rates and fee structures comparable to those of Claridge.
U.S. Trustee Fees. Quarterly fees payable to the U.S. Trustee under 28 U.S.C. § 1930 are estimated at approximately $325,000 per quarter, based on projected disbursements of the estate. This estimate is consistent with the fee schedule applicable to Region 12 (Northern District of Iowa) cases of this magnitude.
DIP Lender Counsel Fees. It is important to note for purposes of this analysis that the fees and expenses of Harmon & Keach LLP (counsel to the DIP Lender Group, with estimated partner rates of $1,500–$1,800 per hour and associate rates of $900–$1,200 per hour) are paid separately as DIP Facility administrative costs from the proceeds of the DIP Facility itself. Harmon & Keach's fees are not charged against the estate professional carve-out and do not reduce the amount available to estate professionals under the carve-out.
C. The Debtor's Financial Condition
A summary of the Debtor's financial condition as of the Petition Date provides important context for the carve-out analysis, as it bears on the projected duration and complexity of the case and, accordingly, on the adequacy of the proposed carve-out amounts.
Cash Position. As of the Petition Date, the Debtor had cash on hand of approximately $11,800,000. This amount is insufficient, absent DIP financing, to fund ongoing operations and Chapter 11 administrative expenses for more than approximately two to three weeks. The urgency of the DIP financing underscores the importance of obtaining the Interim DIP Order on the targeted date of May 22, 2025.
Pre-Petition Indebtedness. The Debtor's aggregate pre-petition funded indebtedness totals approximately $489,200,000, comprised of the following:
Financial Performance. For fiscal year 2024, the Debtor reported revenue of $612,400,000 and EBITDA of $38,700,000. These figures reflect a significant deterioration from prior-year performance, driven by the confluence of several factors discussed below.
Enterprise Value. Based on preliminary work by Bellwether Valuation Services Inc. and Claridge Advisory Group LLC, the Debtor's estimated enterprise value ranges from approximately $280,000,000 to $340,000,000, with a mid-point of approximately $310,000,000. This valuation range suggests that the Debtor is significantly overleveraged, with total pre-petition debt of $489,200,000 exceeding the high end of the estimated enterprise value range by approximately $149,200,000. This valuation gap indicates that the senior unsecured notes and trade claims are likely to receive significantly impaired recoveries, a factor that will influence the dynamics of plan negotiation and the level of engagement of the Official Committee of Unsecured Creditors.
Operations. The Debtor employs approximately 2,300 people across its operations, which include three manufacturing plants located in Cedar Falls, Iowa; Decatur, Illinois; and Jonesboro, Arkansas. The Debtor operates 14 regional distribution centers across the Midwest and Southern United States and maintains a 640-acre research and development farm in Ames, Iowa. The Debtor's business is highly seasonal, with peak revenues occurring during Q2 and Q3 (the spring planting and summer growing seasons). The DIP Budget period captures the tail end of the spring application season and the entirety of the summer season, which is the most critical period for the Debtor's revenue generation.
Causes of Financial Distress. The Debtor's financial distress was driven by a combination of factors: (i) a severe drought in 2024 that depressed demand for the Debtor's agricultural chemical products across the Midwest region; (ii) persistent depression in commodity pricing, which reduced farmers' purchasing power and willingness to invest in crop protection products; and (iii) delays in the U.S. Environmental Protection Agency's re-registration review of ClearGuard XR, the Debtor's flagship herbicide product, which created market uncertainty and disrupted the Debtor's sales pipeline. The confluence of these factors resulted in a liquidity crisis that ultimately necessitated the Chapter 11 filing.
III. The Proposed Carve-Out Structure
The carve-out provision in the draft DIP Credit Agreement (Section 2.11) and the corresponding provisions in the Proposed Interim and Final DIP Orders establish a two-component carve-out: a pre-trigger component and a post-trigger component. Each is described and analyzed below.
A. Pre-Trigger Carve-Out
Description. The pre-trigger carve-out is uncapped and covers all accrued but unpaid professional fees and expenses incurred by estate professionals and the U.S. Trustee prior to the occurrence of a Carve-Out Trigger Event (as defined in Section III.C below). The pre-trigger carve-out includes fees and expenses that have been earned but not yet subject to a fee application or interim payment order, as well as fees and expenses that have been the subject of a fee application but have not yet been paid.
Rationale. The uncapped pre-trigger treatment is consistent with standard practice in DIP financing. The rationale is straightforward: DIP lenders do not, and should not, restrict professional compensation that has already been earned in the ordinary course during the going-concern period of the case, before any default or enforcement scenario has arisen. Professionals undertake their work during this period with the understanding that their fees will be compensated as administrative expenses of the estate, subject to Court approval under §§ 330 and 331. To retroactively cap or subordinate such fees upon the later occurrence of a trigger event would undermine the independence and willingness of professionals to serve in Chapter 11 cases and would be inconsistent with the foundational principles of the Bankruptcy Code's professional compensation framework.
Practical Import. The pre-trigger carve-out protects professionals against retroactive subordination for work performed during the period in which the case is proceeding in the ordinary course. This is of particular importance in a case such as Greenfield's, where the 13-week Budget projects $16,100,000 in professional fees — a substantial amount that reflects the complexity of the case and the scope of work required. If, for example, a trigger event were to occur in Week 10 of the case, the pre-trigger carve-out would protect all fees earned during Weeks 1 through 10, which could aggregate to $12,000,000 or more based on the Budget projections.
Priority. All pre-trigger accrued but unpaid fees and expenses within the carve-out are senior to the DIP Lenders' liens and superpriority claims. This means that in a priority waterfall analysis, the pre-trigger carve-out sits above the DIP obligations, ensuring that professionals are paid for their pre-trigger work ahead of the DIP Lenders' recovery on their facility.
B. Post-Trigger Carve-Out
The post-trigger carve-out establishes a fixed dollar cap on the fees and expenses that may be incurred by estate professionals and the U.S. Trustee after the occurrence of a Carve-Out Trigger Event. The post-trigger carve-out is the more consequential component from a negotiation perspective, as it determines the resources available to professionals in the critical period following a default or enforcement action.
Estate Professionals. The draft DIP Credit Agreement provides a post-trigger carve-out of $2,500,000 in the aggregate for all estate professionals. This amount must cover the post-trigger fees and expenses of all Court-approved professionals, including debtor's counsel (Calderwood & Harkness LLP), the debtor's financial advisor (Claridge Advisory Group LLC), committee counsel (Archer Grayson & Cole LLP, or any other firm retained by the Official Committee of Unsecured Creditors), the committee's financial advisor (to be determined), the appraiser (Bellwether Valuation Services Inc.), and the auditor/tax advisor (Holloway & Birch LLP). The $2,500,000 is a shared cap across all of these firms; it is not allocated among individual professionals.
U.S. Trustee Fees. The draft provides a separate post-trigger carve-out of $500,000 for statutory fees payable to the U.S. Trustee under 28 U.S.C. § 1930 and any applicable clerk's fees. This amount is segregated from the estate professional carve-out and may not be used to pay professional fees, nor may professional fees be charged against the U.S. Trustee allocation.
Aggregate Post-Trigger Carve-Out. The aggregate post-trigger carve-out is therefore $3,000,000 ($2,500,000 for estate professionals plus $500,000 for U.S. Trustee fees).
Hard Cap Nature. The post-trigger carve-out is a hard cap. Once a Carve-Out Trigger Event occurs, all professional work undertaken thereafter is limited to the aggregate post-trigger carve-out amount. When the cap is exhausted, estate professionals have no further entitlement to compensation from the estate that is senior to the DIP Lenders' claims and liens. This creates a practical ceiling on the amount of professional work that can be performed post-trigger, which in turn constrains the estate's ability to prosecute contested matters, negotiate with creditors, or complete a restructuring transaction during the post-trigger period.
Priority. Amounts within the post-trigger carve-out enjoy the same priority as the pre-trigger carve-out: they are senior to all DIP liens and DIP superpriority claims, and senior to the adequate protection replacement liens and § 507(b) claims of Prairie State Bank, N.A. The DIP Lenders may not recover on their claims until the post-trigger carve-out amounts have been satisfied in full.
No Consent to Allowance. The post-trigger carve-out does not constitute the DIP Lenders' consent to the allowance of any professional fees. All fees incurred during the post-trigger period remain subject to Court approval under §§ 330 and 331, and any amounts not allowed by the Court revert to the estate for the benefit of the DIP Lenders and other creditors. This is a standard protective provision for DIP lenders, and it preserves the Court's gatekeeping function over professional compensation.
C. Carve-Out Trigger Events
The draft DIP Credit Agreement defines a "Carve-Out Trigger Event" (or "Trigger Event") as the occurrence of any of the following:
(i) Delivery by the DIP Administrative Agent of written notice to the Debtor and its counsel that an Event of Default (as defined in the DIP Credit Agreement) has occurred and is continuing, and that the DIP Agent is exercising its right to (a) terminate lending commitments under the DIP Facility, (b) declare all obligations under the DIP Facility immediately due and payable, or (c) commence enforcement action with respect to the DIP Lenders' collateral.
(ii) Entry of an order by the Court converting the case to a case under Chapter 7 of the Bankruptcy Code or dismissing the Chapter 11 case.
(iii) Appointment of a Chapter 11 trustee pursuant to § 1104 of the Bankruptcy Code.
Notice-Based vs. Automatic Trigger. The current draft employs a "soft" or notice-based trigger mechanism for the DIP Agent-initiated trigger (clause (i) above). The trigger does not occur automatically upon the occurrence of an Event of Default; rather, it requires the affirmative act of the DIP Agent in delivering written notice. This distinction is significant because it provides the DIP Agent with discretion as to when (and whether) to trigger the carve-out. The DIP Agent could, in its discretion, choose to forbear from delivering a trigger notice even after an Event of Default has occurred, thereby preserving the pre-trigger carve-out regime and allowing professionals to continue working without the constraint of the post-trigger cap. Conversely, the conversion, dismissal, and trustee appointment triggers (clauses (ii) and (iii)) are "hard" or automatic triggers — they occur by operation of the defined term upon the relevant event, without any action required by the DIP Agent.
Practical Timing. Once a trigger event notice is delivered by the DIP Agent (or a conversion, dismissal, or trustee appointment occurs), estate professionals are immediately constrained by the post-trigger carve-out cap. All professional work from that point forward — including wind-down activities, prosecution of contested matters, preparation and filing of final fee applications, and any remaining plan or sale activities — must be funded within the $2,500,000 cap. Given the number of firms that must share this cap, the practical runway is limited.
Recommendation — Cure Period. We recommend negotiating for a 3-business-day "investigation and cure period" following delivery of a trigger notice by the DIP Agent. During this period, the Debtor would have the opportunity to cure the underlying Event of Default before the post-trigger carve-out period formally commences. The rationale is to avoid premature triggering in scenarios involving technical or curable defaults — for example, a temporary breach of the minimum liquidity covenant that is rectified within days, or a minor delay in the delivery of a budget variance report. If the Debtor cures the Event of Default within the cure period, the trigger notice would be deemed withdrawn and the pre-trigger carve-out regime would continue. The cure period would not apply to non-curable Events of Default, such as conversion to Chapter 7, dismissal of the case, or appointment of a Chapter 11 trustee; for those events, the trigger would remain automatic and immediate.
D. Carve-Out Reserves and Mechanics
Segregated Escrow Account. The draft DIP Credit Agreement requires the Debtor to maintain a segregated professional fee escrow account (the "Professional Fee Account") at Meridian Trust Company, in its capacity as Collateral Agent, upon entry of the Final DIP Order. The Professional Fee Account is intended to hold funds designated for the payment of post-trigger carve-out amounts.
Funding Timing. A significant open question in the current draft concerns whether the Professional Fee Account should be funded prospectively (i.e., at or promptly after the closing of the DIP Facility) or only upon the occurrence of a trigger event. The current draft does not require pre-funding; instead, it provides that upon the occurrence of a Carve-Out Trigger Event, the DIP Agent will fund the $3,000,000 post-trigger carve-out amount from available DIP Facility proceeds (or from existing cash of the estate) into the Professional Fee Account. From that point forward, all post-trigger professional fees and U.S. Trustee fees would be paid exclusively from the Professional Fee Account, subject to Court approval.
Alternative Considered — Pre-Funding. During preliminary negotiations, the Debtor's team considered proposing a pre-funding mechanism under which a portion of the initial DIP draw would be deposited into the Professional Fee Account at the interim closing. This approach would have the advantage of ensuring that funds are immediately available upon a trigger event and are not subject to any dispute about the DIP Agent's obligation to advance funds post-default. However, Ironclad Capital Partners rejected this proposal on the basis that pre-funding the escrow would reduce available liquidity under the DIP Facility and could interfere with the Debtor's working capital needs during the critical early weeks of the case. Given Ironclad's position and the Debtor's immediate liquidity needs, the pre-funding approach was not pursued further. We believe the post-trigger funding mechanism is acceptable provided that the DIP Credit Agreement contains clear, unconditional language obligating the DIP Agent to fund the Professional Fee Account promptly upon a trigger event.
Interaction with Minimum Liquidity Covenant. An important drafting consideration relates to the treatment of amounts held in the Professional Fee Account for purposes of the $15,000,000 minimum liquidity covenant. If amounts held in the escrow are counted toward the minimum liquidity calculation, it could create an artificial liquidity cushion that masks the Debtor's true cash position. Conversely, if amounts are excluded, the effective liquidity requirement is higher. We recommend that amounts held in the Professional Fee Account be excluded from the minimum liquidity calculation, to provide an accurate picture of the Debtor's available working capital. We should confirm that the current draft achieves this result.
IV. Legal Framework — Carve-Outs in DIP Financing
A. Statutory and Case Law Basis
No provision of the Bankruptcy Code expressly mandates that a carve-out for professional fees be included in a DIP financing order. The carve-out is a creature of negotiation and judicial practice, developed over decades of Chapter 11 precedent as a mechanism to balance the interests of DIP lenders (who seek the broadest possible collateral protection and priority) against the estate's need for independent, adequately compensated professional services.
Despite the absence of a statutory mandate, courts have consistently required carve-outs as a condition of approving DIP financing under § 364. The rationale is grounded in several foundational principles of the Chapter 11 process. First, the Bankruptcy Code's system of professional retention and compensation under §§ 327, 328, 330, and 331 presupposes that professionals will be compensated for their services to the estate. A DIP financing order that grants a lender superpriority status and priming liens over all estate assets, without preserving a meaningful carve-out, would effectively subordinate professional fees to the DIP lender's claims, rendering the compensation provisions of the Code a nullity.
Second, and relatedly, courts have recognized that without an adequate carve-out, the DIP lender effectively controls the bankruptcy process by holding the power to starve estate professionals of compensation. If professionals cannot be assured of payment, they may decline to serve or may be unable to devote sufficient resources to the case. This would undermine the Court's oversight function and the debtor's ability to reorganize or conduct an orderly liquidation. The carve-out thus serves a structural function: it preserves the independence of estate professionals and ensures meaningful judicial and professional oversight of the Chapter 11 process.
Leading decisions in this area have consistently emphasized these principles. Courts have held that an adequate carve-out is essential to maintaining the integrity of the Chapter 11 system and have, in certain cases, declined to approve DIP financing orders where the proposed carve-out was deemed insufficient. The analysis is necessarily fact-specific, taking into account the size and complexity of the case, the number of professionals likely to be retained, the projected duration of the case, and the billing rates of the relevant professionals.
The carve-out protects the § 330 compensation right and the structural integrity of the Chapter 11 process. It ensures that the Court, the U.S. Trustee, and estate professionals can fulfill their respective roles — adjudicating disputes, monitoring the case, and advising the debtor and creditors — without being rendered ineffective by the absence of funding.
U.S. Trustee Guidelines. The U.S. Trustee guidelines applicable in Region 12 (Northern District of Iowa) typically require a separate U.S. Trustee fee carve-out as a condition of the U.S. Trustee's non-objection to DIP financing orders. The proposed $500,000 U.S. Trustee carve-out is consistent with the U.S. Trustee's expectations for cases of this size and complexity. The U.S. Trustee will review the carve-out provisions at both the interim and final hearings and may file a statement or limited objection if the provisions are deemed inadequate.
B. Interaction with Superpriority Claims and Priming Liens
The carve-out occupies the apex of the priority waterfall in the DIP Facility structure. This means that carved-out amounts — both pre-trigger and post-trigger — are senior in priority even to the DIP Lenders' superpriority administrative expense claim under § 364(c)(1) and to the DIP Lenders' priming liens under § 364(d). This structure is essential because, without it, the DIP Lenders' superpriority claim and priming liens would effectively subordinate all other claims, including professional fee claims, leaving professionals with no assurance of payment.
The full priority waterfall, as contemplated by the draft DIP Credit Agreement and Proposed Orders, is as follows:
1. Carve-Out (pre-trigger: uncapped accrued but unpaid professional fees; post-trigger: $3,000,000 aggregate)
2. DIP Facility Obligations (superpriority administrative expense claim under § 364(c)(1); priming liens under § 364(d); first-priority liens on unencumbered assets under § 364(c)(2) and (c)(3))
3. Adequate Protection Obligations for Prairie State Bank, N.A. (replacement liens junior to DIP liens and carve-out; § 507(b) superpriority claim junior to DIP superpriority claim)
4. Other Administrative Expense Claims under § 503(b)
5. Pre-Petition Unsecured Claims
The adequate protection package for Prairie State Bank, N.A. — which includes replacement liens on all estate assets (junior to the DIP liens and the carve-out) and a § 507(b) superpriority administrative expense claim (junior to the DIP Lenders' superpriority claim) — is structured to be subordinate to the carve-out at every level. It is critical that this subordination be expressly reflected in three separate documents: (i) the DIP Credit Agreement, (ii) the Adequate Protection Stipulation between the Debtor and Prairie State Bank (which is expected to be finalized on or about May 20, 2025), and (iii) the Proposed Interim and Final DIP Orders entered by the Court.
Additionally, the Intercreditor Agreement between Ironclad Capital Partners LP (as DIP Agent) and Prairie State Bank, N.A. (as pre-petition first lien agent) should expressly acknowledge the senior status of the carve-out. This cross-reference is important to avoid any ambiguity in the event of a dispute between the DIP Lenders and the pre-petition secured lender regarding the application of estate proceeds.
C. Judicial Scrutiny in the Northern District of Iowa
The Chapter 11 case has been assigned to the Honorable Margaret R. Dunleavy of the United States Bankruptcy Court for the Northern District of Iowa, Cedar Rapids Division. Considerations specific to Judge Dunleavy's practices and precedent are relevant to our analysis of the proposed carve-out.
Judge Dunleavy has historically required adequate carve-outs in DIP financing orders and has demonstrated willingness to scrutinize post-trigger amounts for sufficiency. In prior cases before Judge Dunleavy involving mid-market debtors, the Court has inquired at interim and final hearings whether the proposed post-trigger carve-out is sufficient to permit estate professionals to complete their work in an orderly fashion in the event of a default or enforcement scenario. In at least one prior case, Judge Dunleavy required an increase to the proposed post-trigger carve-out as a condition of entry of the final DIP order, over the objection of the DIP lender group.
In light of these precedents, we should be prepared to address any questions at the interim hearing (May 22, 2025) regarding whether the proposed $2,500,000 post-trigger professional fee carve-out is sufficient given the projected complexity and duration of the Greenfield case, the number of professionals likely to be retained, and the prevailing billing rates. If the Court expresses concern about the adequacy of the carve-out at the interim hearing, it could delay entry of the Interim DIP Order — which would itself constitute a failure to meet the May 22 milestone, potentially triggering an Event of Default under the DIP Credit Agreement.
We should also anticipate that Archer Grayson & Cole LLP, as anticipated counsel to the Official Committee of Unsecured Creditors (once appointed), may object to the carve-out as insufficient at the final hearing on June 19, 2025. The Committee's interests are aligned with a larger carve-out, as a more substantial post-trigger cap would provide the Committee's professionals with greater resources to protect unsecured creditor interests in a default or enforcement scenario. We should prepare responsive arguments in advance of both hearings. These considerations further support our recommendation to negotiate for an increase in the post-trigger cap before the interim hearing, so that any potential objection can be preempted.
V. Market Comparison — Agricultural and Chemical Industry Chapter 11 Carve-Outs
A. Methodology. To assess whether the proposed carve-out structure is within the range of market terms, we reviewed publicly available DIP financing orders in agricultural, specialty chemical, and industrial manufacturing Chapter 11 cases filed between 2020 and 2025. Our review focused on cases involving DIP facilities in the $100,000,000 to $300,000,000 range with characteristics similar to the Greenfield case, including multi-plant operations, seasonal business dynamics, and secured creditor priming structures.
We identified six comparable transactions that provide a useful benchmark for evaluating the Greenfield carve-out. These comparables were selected based on several criteria: (i) industry relevance (agricultural products, crop sciences, specialty chemicals, or closely related sectors); (ii) DIP facility size within the target range; (iii) comparable complexity of the Chapter 11 case (multiple operating facilities, significant secured debt, active committee participation); and (iv) availability of sufficient public information regarding the carve-out terms.
The results of our analysis are summarized in the table below and discussed in Section V.C.
B. Comparable Transactions Summary Table
C. Analysis of Greenfield's Position
The data from the comparable transactions reveal that Greenfield's proposed aggregate post-trigger carve-out of $3,000,000, representing 1.71% of the DIP Facility size, is at the lower end of the observed range. The six comparable transactions exhibit post-trigger carve-outs ranging from 1.86% to 2.35% of DIP facility size, with a median of approximately 2.07% and a mean of approximately 2.11%. Greenfield's proposed 1.71% falls below both the median and the minimum observed value of 1.86%.
In absolute dollar terms, the $2,500,000 post-trigger professional fee component must cover the post-trigger fees and expenses of potentially six or more firms: Calderwood & Harkness LLP (debtor's counsel), Claridge Advisory Group LLC (debtor's financial advisor), Archer Grayson & Cole LLP (committee counsel), the committee's financial advisor (to be determined), Bellwether Valuation Services Inc. (appraiser), and Holloway & Birch LLP (auditor/tax advisor). At the prevailing billing rates for large-firm restructuring practices — with partners at $1,450 to $1,800 per hour and associates at $850 to $1,200 per hour — the $2,500,000 cap could be exhausted in approximately two to four weeks of active professional work across all firms in a post-trigger scenario.
This timeline is concerning. If a trigger event occurs during a contested plan confirmation hearing, a competitive § 363 sale process, or a disputed valuation proceeding, $2,500,000 may be insufficient to permit the orderly completion of that process. The professionals would be forced to triage their work, potentially leaving critical issues unresolved or inadequately addressed. This outcome would be detrimental not only to the estate and its creditors but also to the DIP Lenders themselves, as it could result in lower recoveries on the DIP facility due to a suboptimal restructuring outcome.
By contrast, an increase to $3,000,000–$3,500,000 for estate professionals would bring the total post-trigger carve-out to $3,500,000–$4,000,000 (2.00%–2.29% of the DIP Facility), squarely within the observed market range. This incremental amount — $500,000 to $1,000,000 — is modest relative to the $175,000,000 facility and would substantially enhance the Court's comfort with the adequacy of the carve-out.
The U.S. Trustee carve-out of $500,000 appears adequate based on projected quarterly fees of approximately $325,000 per quarter. Even in a scenario where the case extends beyond its projected timeline, the $500,000 post-trigger amount would cover approximately one and a half quarters of U.S. Trustee fees, which should be sufficient for the wind-down period following a trigger event. Pre-trigger U.S. Trustee fees, of course, are uncapped.
VI. Key Negotiation Points and Recommendations
Based on the foregoing analysis, we recommend pursuing the following modifications to the proposed carve-out provisions in the upcoming negotiation sessions with Harmon & Keach LLP. Each recommendation is accompanied by supporting rationale and, where applicable, a fallback position.
A. Increase Post-Trigger Professional Fee Carve-Out
Recommendation. The post-trigger professional fee carve-out should be increased from $2,500,000 to a range of $3,000,000–$3,500,000. This would bring the aggregate post-trigger carve-out to $3,500,000–$4,000,000, which is within the market range observed in comparable transactions and would address the sufficiency concerns identified in Section V.C above.
Argument to DIP Lenders. A sufficient carve-out benefits the DIP Lenders by ensuring that professional resources are available to maximize estate value in all scenarios, including enforcement and wind-down scenarios. If a trigger event occurs and estate professionals lack the resources to complete their work, the result is likely to be a disorderly liquidation or a suboptimal restructuring outcome, which reduces recoveries for all stakeholders — including the DIP Lenders. An adequately funded carve-out aligns the interests of the DIP Lenders with those of the estate, as it provides the professional infrastructure necessary to preserve and maximize the going-concern value of the Debtor's business.
Additionally, an inadequate carve-out creates litigation risk. If the Court or the Official Committee of Unsecured Creditors raises objections to the carve-out at the interim or final hearing, the resulting delays could jeopardize the DIP timeline. Specifically, a delay in entry of the Interim DIP Order beyond the May 22 target date would constitute a failure to satisfy the first milestone under the DIP Credit Agreement, which could itself constitute an Event of Default. The DIP Lenders have a strong incentive to avoid this scenario.
Fallback Position. If the DIP Lenders resist a straight increase to the aggregate professional fee cap, we propose a tiered or bifurcated carve-out structure as a fallback: $2,500,000 for debtor's professionals and $1,000,000 for committee professionals, for a total of $3,500,000 for estate professionals. Combined with the $500,000 U.S. Trustee carve-out, the aggregate post-trigger carve-out would be $4,000,000. This bifurcated approach may be more palatable to the DIP Lenders, as it preserves the debtor's professional cap at the originally proposed level while separately providing for the committee's professionals. The committee counsel may also prefer this approach, as it ensures a dedicated allocation for committee work that cannot be consumed by the debtor's professionals.
B. Trigger Event Definition — Request Cure Period
Current Draft. Under the current draft, the Carve-Out Trigger Event occurs upon delivery of written notice by the DIP Agent to the Debtor and its counsel. There is no cure period and no opportunity for the Debtor to address the underlying Event of Default before the post-trigger carve-out period commences.
Recommendation. We recommend negotiating for a 3-business-day cure period after delivery of a trigger notice by the DIP Agent. During this period, the Debtor would have the opportunity to investigate the alleged Event of Default and, if feasible, cure it. If the Event of Default is cured within the 3-business-day period, the trigger notice would be deemed withdrawn, and the pre-trigger carve-out regime would continue in effect. The cure period would not apply to non-curable Events of Default, including conversion to Chapter 7, dismissal of the case, or appointment of a Chapter 11 trustee.
Rationale. The absence of a cure period creates a risk of premature or inadvertent triggering. Many of the Events of Default under the DIP Credit Agreement are technical in nature and may be curable with prompt action. For example:
• A temporary breach of the minimum liquidity covenant — for instance, if liquidity dips below $15,000,000 for one or two days due to the timing of customer receipts — could be cured by accelerating collections or adjusting the timing of operating disbursements.
• A minor delay in the delivery of a budget variance report could be cured by providing the report promptly.
• A budget variance in excess of 15% for a single testing period could be curable if the variance is attributable to timing differences that self-correct in subsequent periods.
In each of these scenarios, an immediate trigger event — without any opportunity for cure — would collapse the professional fee structure and impose the hard post-trigger cap, even though the underlying default may be resolved within days. The 3-business-day cure period provides a reasonable buffer that protects against this risk.
Distinction Between Curable and Non-Curable Defaults. The cure period should be limited to curable Events of Default. For non-curable Events of Default — such as conversion to Chapter 7, dismissal of the case, or appointment of a Chapter 11 trustee — the trigger should remain automatic and immediate, as these events represent fundamental changes in the nature of the case that cannot be "cured" in the traditional sense.
C. Scope of "Estate Professionals" — Clarify Definition
The definition of "Estate Professionals" in the carve-out provision should be reviewed to ensure that it encompasses all professionals retained under §§ 327, 328, and 1103 of the Bankruptcy Code, and not merely "primary" counsel and financial advisors. In particular, we should confirm that the following professionals are covered:
• Bellwether Valuation Services Inc. (appraiser to the Debtor)
• Holloway & Birch LLP (auditor and tax advisor to the Debtor)
• Any local Iowa counsel engaged by the Official Committee of Unsecured Creditors
• Any claims agent, noticing agent, or other administrative professional retained under § 327 or § 156(c)
• Any special counsel retained for discrete matters (e.g., environmental, regulatory, or intellectual property matters)
Additionally, we should confirm that the fees and expenses of Harmon & Keach LLP, as counsel to the DIP Lender Group, are expressly excluded from the definition of "Estate Professionals" and are not counted against the estate professional carve-out. The Harmon & Keach fees are DIP Facility administrative costs, payable directly from the DIP Facility proceeds as lender expenses, and should be treated as such in the definitional provisions.
D. Carve-Out and the Roll-Up
The DIP Facility includes a roll-up of $20,000,000 of pre-petition ABL revolver obligations as a condition of obtaining the consent and support of Prairie State Bank, N.A., Hawthorn National Bank, and Northland Savings Bank, F.S.B. (the ABL revolver participants) for the priming of their pre-petition liens. Under the roll-up, $20,000,000 of the pre-petition ABL obligations will be deemed repaid and simultaneously re-advanced as DIP obligations, effectively converting that portion of the pre-petition debt into post-petition DIP debt with superpriority and priming lien status.
The roll-up raises a specific concern with respect to the carve-out. The carve-out must be expressly senior to the rolled-up obligations. The rolled-up amount should not reduce availability under the DIP Facility for purposes of funding the carve-out, and in the event of a priority dispute, the carve-out must take priority over the rolled-up obligations in the same manner as it takes priority over all other DIP obligations.
Recommendation. The carve-out provision in the DIP Credit Agreement should include specific language providing that carve-out amounts are "first-out" ahead of all DIP obligations, including specifically the rolled-up pre-petition ABL amounts. This can be accomplished by including the roll-up obligations within the definition of "DIP Obligations" for purposes of the carve-out priority waterfall, and by including an express statement that the carve-out is senior to the roll-up. This drafting approach is consistent with market practice in DIP facilities that include roll-up features.
E. Preservation of Pre-Trigger Professional Fees
Uncapped Treatment. We should confirm that the "uncapped" pre-trigger carve-out is truly uncapped — that is, that there is no aggregate dollar limit on professional fees and expenses incurred and allowed by the Court before a Carve-Out Trigger Event occurs. The absence of a cap on pre-trigger fees is consistent with market practice and is essential to ensuring that professionals are willing to undertake the substantial work required during the going-concern period of the case.
Interim Fee Applications. We should also confirm that interim fee applications under § 331 are payable in the ordinary course before any trigger event occurs, without being counted toward the post-trigger cap. The distinction is important: pre-trigger fees should be payable as they are allowed, and the post-trigger cap should only apply to fees incurred after the trigger event. Any ambiguity in the drafting on this point should be eliminated.
Budget Variance Interaction. We should anticipate that the DIP Lenders may argue that pre-trigger professional fees should be subject to budgetary controls — specifically, that the 15% maximum variance covenant on a rolling 4-week basis covers professional fees as a line item in the DIP Budget. If professional fees are tested as part of the aggregate budget variance calculation, budget overruns on professional fees could trigger an Event of Default and, consequently, a Carve-Out Trigger Event, even if operating disbursements are on track. This interaction is analyzed further in Section VII.C below. We should cross-reference the Budget Variance Methodology memorandum being prepared by Amy Chesterton (expected May 19, 2025) for a detailed analysis of how professional fee line items are treated in the variance test.
F. Notice and Information Rights
The effectiveness of the carve-out depends in part on the estate professionals' ability to receive timely information about the occurrence of Events of Default and the delivery of trigger notices. If estate professionals do not learn of a trigger event until days after it occurs, they may inadvertently incur fees in excess of the post-trigger cap, or they may be unable to take protective action in a timely manner.
Simultaneous Notice Requirement. We recommend that the Proposed Interim and Final DIP Orders include notice provisions requiring the DIP Agent to serve copies of any trigger notice on the following parties simultaneously with delivery to the Debtor:
(i) All retained professionals of the Debtor;
(ii) Counsel to the Official Committee of Unsecured Creditors;
(iii) The United States Trustee for Region 12.
This simultaneous notice requirement ensures that all affected parties are aware of the trigger event at the earliest possible moment and can adjust their activities accordingly.
Exhaustion Notice. We further recommend including a provision that the DIP Agent may not assert that the post-trigger carve-out has been exhausted without first filing a notice with the Court and providing a period of not less than 5 business days for any affected party to review the DIP Agent's accounting of post-trigger expenditures and to object if they believe the DIP Agent's calculation is incorrect. This procedural safeguard prevents the DIP Agent from unilaterally cutting off professional funding without judicial oversight.
Post-Trigger Information Rights. In addition, estate professionals should have the right, during the post-trigger period, to receive a weekly accounting from the DIP Agent (or the Debtor) of the remaining balance in the Professional Fee Account, so that professionals can manage their post-trigger activities within the available budget.
VII. Interaction with Other DIP Facility Provisions
The carve-out provisions do not operate in isolation. They interact with several other material provisions of the DIP Credit Agreement and the broader case structure. This section analyzes the most significant interactions.
A. Events of Default
The Events of Default in the DIP Credit Agreement determine the circumstances under which the DIP Agent may deliver a trigger notice and activate the post-trigger carve-out. The key Events of Default that could give rise to a Carve-Out Trigger Event include the following:
(i) Milestone Defaults. Failure to comply with the case milestones set forth in the DIP Credit Agreement:
• Entry of Interim DIP Order by May 22, 2025
• Entry of Final DIP Order by June 19, 2025
• Filing of Chapter 11 plan or § 363 sale motion by October 12, 2025
• Entry of confirmation order or closing of § 363 sale by February 8, 2026
(ii) Financial Covenant Defaults. Breach of any financial covenant:
• Minimum liquidity of $15,000,000 at all times
• Maximum cumulative budget variance of 15% on a rolling 4-week basis (tested weekly)
• Minimum EBITDA of negative $5,000,000 for any rolling 4-week period
(iii) Payment Defaults. Failure to make any payment of principal, interest, fees, or other amounts when due under the DIP Facility.
(iv) Conversion or Dismissal. Conversion of the case to Chapter 7 or dismissal of the Chapter 11 case.
(v) Trustee or Examiner Appointment. Appointment of a Chapter 11 trustee or an examiner with expanded powers.
(vi) Loss of Exclusivity. Termination of the Debtor's exclusive period under § 1121 without the prior written consent of the DIP Agent.
(vii) Material Adverse Change. Occurrence of a material adverse change in the business, financial condition, operations, or assets of the Debtor.
Trigger Risk Assessment. In the context of Greenfield's seasonal business and financial projections, certain Events of Default pose a higher trigger risk than others. The budget variance covenant — which requires compliance within a 15% maximum cumulative variance on a rolling 4-week basis, tested weekly — presents the greatest trigger risk during the early weeks of the case. The DIP Budget projects negative operating cash flow of $5,900,000 during Weeks 1 through 4, reflecting the seasonal working capital build and the payment of first-day expenses. If receipts from seasonal sales are delayed — a realistic possibility given the disruption caused by the Chapter 11 filing and potential customer uncertainty — the Debtor could breach the 15% budget variance threshold.
Similarly, the minimum liquidity covenant of $15,000,000 could be tested during periods of peak operating disbursements, particularly if seasonal revenue receipts are delayed. The Financial Covenant Compliance Sensitivity Analysis being prepared by Amy Chesterton should be cross-referenced to identify the specific weeks during which covenant compliance is most at risk.
B. Adequate Protection Package
The carve-out is senior in priority to the adequate protection replacement liens and § 507(b) superpriority administrative expense claim granted to Prairie State Bank, N.A. (the pre-petition first lien agent, acting through Senior Vice President Thomas Whitaker). This priority structure is essential and must be clearly established in the operative documents.
Prairie State Bank's consent to the priming of its pre-petition first lien (which is expected to be delivered on or about May 20, 2025) should expressly acknowledge and accept the carve-out's priority position. The consent should include language confirming that Prairie State Bank's replacement liens and § 507(b) claim are junior to the carve-out in all respects, and that Prairie State Bank will not contest the payment of professional fees from carve-out amounts.
We should review the draft Adequate Protection Stipulation, once finalized, to confirm that there is no conflict between the stipulation language and the carve-out mechanics in the DIP Credit Agreement. Any inconsistency between these documents could create ambiguity regarding the relative priority of the carve-out and the adequate protection obligations, which could in turn give rise to disputes in a post-default scenario. The Proposed Interim and Final DIP Orders should contain belt-and-suspenders language incorporating the priority waterfall by reference and expressly confirming the carve-out's seniority.
C. DIP Budget Treatment of Professional Fees
The 13-week DIP Budget allocates $16,100,000 to restructuring professional fees as a separate line item from operating disbursements (including cost of goods sold, payroll, rent, utilities, insurance, and other ongoing operating expenses). An important structural question is whether the budget variance covenant — which tests total disbursements against budget on a rolling 4-week basis with a maximum 15% cumulative variance — applies to total disbursements inclusive of professional fees or whether professional fees are tested separately.
If professional fees are included in the aggregate variance test, then budget overruns on professional fees could trigger an Event of Default even if operating disbursements are on track. This is a significant concern because professional fees in Chapter 11 cases are inherently difficult to predict with precision. Unexpected litigation, accelerated plan negotiations, or committee discovery requests can cause professional fees to exceed budget in ways that are not indicative of any deterioration in the Debtor's operating performance. Treating professional fee overruns in the same manner as operating disbursement overruns would conflate two fundamentally different categories of expenditure and could result in a premature trigger event.
Recommendation. We recommend negotiating one of the following modifications to the budget variance testing methodology:
(a) Exclusion Approach: Negotiate a separate professional fee line item exclusion from the aggregate budget variance test. Under this approach, professional fees would be excluded entirely from the variance calculation, and the 15% maximum variance would apply only to operating disbursements. This is the strongest position for the Debtor but may face resistance from the DIP Lenders.
(b) Broader Tolerance Approach: If a full exclusion is not achievable, negotiate a broader variance tolerance for the professional fee line item alone — for example, 20% or 25% — while maintaining the 15% threshold for operating disbursements. This approach acknowledges the DIP Lenders' legitimate interest in monitoring professional fee spending while recognizing the inherent variability of such fees.
(c) True-Up Approach: As an alternative or supplement, negotiate a monthly or quarterly true-up mechanism for professional fees, under which variances within a testing period are reconciled against actual fee applications and Court-approved payments, with the variance test applied to the reconciled figures rather than the raw budget projections.
The Budget Variance Methodology memorandum being prepared by Amy Chesterton (expected May 19, 2025) should be reviewed to confirm the treatment of professional fee line items and to identify any additional issues.
VIII. Proposed Carve-Out Language — Drafting Considerations
This section identifies the key definitions, priority waterfall language, and protective provisions that should be included in the carve-out section of the DIP Credit Agreement and the Proposed Interim and Final DIP Orders.
A. Key Definitions to Include
The following defined terms should be included in the DIP Credit Agreement (or, if already present, should be reviewed for accuracy and completeness):
"Carve-Out." This defined term should encompass both the pre-trigger and post-trigger components of the carve-out. The definition should clearly state that the Carve-Out includes (i) all accrued but unpaid professional fees and expenses of Estate Professionals and fees payable to the U.S. Trustee, in each case incurred prior to a Carve-Out Trigger Event (without dollar limitation), and (ii) the Post-Trigger Amount incurred after a Carve-Out Trigg