PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT — ATTORNEY-CLIENT PRIVILEGED
CALDERWOOD & HARKNESS LLP
September 5, 2023
MEMORANDUM
FROM: Amy Chesterton and Nathan Ikeda
TO: Colette Whitman, Responsible Partner
CC: Nathaniel Bower, Billing Partner
RE: DIP Financing Structuring Analysis — Priming Lien Authority, Roll-Up Mechanics, and Adequate Protection Framework; In re Cascabel Financial Holdings, Inc., et al., Case No. 23-11487 (KFM), U.S. Bankruptcy Court for the District of Delaware
CLIENT: Driftwood Absolute Return Fund Ltd.
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I. EXECUTIVE SUMMARY
This memorandum provides the internal analysis of the Calderwood & Harkness LLP engagement team regarding the structuring of a proposed $75,000,000 senior secured superpriority debtor-in-possession ("DIP") credit facility to be provided by Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") to Cascabel Financial Holdings, Inc. ("Cascabel" or "CFH") and Cascabel Asset Management LLC ("CAM," and together with CFH, the "Debtors"), in connection with the Debtors' anticipated voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Delaware. This memorandum is prepared solely for the use of Calderwood & Harkness LLP attorneys and is protected by the attorney-client privilege, the work product doctrine, and all other applicable protections.
Driftwood is a Cayman Islands–domiciled credit-focused hedge fund managed by Driftwood Capital Advisors LLC, a registered investment adviser with approximately $4.8 billion in assets under management. Driftwood was co-founded by Marcus Ellison, who serves as its Chief Investment Officer, and Priya Venkatesh, who serves as its Chief Operating Officer. Driftwood currently holds $32,000,000 in face value (representing approximately 26.67%) of Cascabel's $120,000,000 pre-petition first lien term loan, which position was acquired on the secondary market between March and July 2023 at an average purchase price of $0.68 per dollar of face value, resulting in an aggregate cost basis of approximately $21,760,000.
The proposed DIP facility is structured in two tranches: (i) a $43,000,000 new money tranche, which will provide the Debtors with essential liquidity to fund post-petition operations and the costs of administration during the Chapter 11 cases, and (ii) a $32,000,000 roll-up tranche, pursuant to which Driftwood's pre-petition first lien claims will be converted on a dollar-for-dollar basis into post-petition DIP obligations carrying superpriority administrative expense claim status under Section 364(c)(1) of the Bankruptcy Code. The DIP facility will be secured by first priority priming liens on substantially all assets of the Debtors, subject to certain exclusions discussed in detail below.
This memorandum addresses the following issues: (1) the statutory authority for the priming liens under Section 364(d) of the Bankruptcy Code, including the requisite showings of inability to obtain credit otherwise and adequate protection for existing lienholders; (2) the mechanics and legal defensibility of the proposed roll-up of Driftwood's pre-petition first lien claims into the DIP facility; (3) the proposed adequate protection package for the remaining non-Driftwood first lien lenders holding an aggregate of $88,000,000 in claims; (4) an assessment of anticipated litigation risks arising from expected objections by the Ad Hoc Group of First Lien Lenders (comprised of Velthorn National Bank, N.A. and Pinnacle Credit Partners Fund II, LP) and the Official Committee of Unsecured Creditors (the "Committee"), once appointed; and (5) recommended strategies for resolving the anticipated objections through negotiation or, if necessary, litigation before the Court.
The case has been assigned to the Honorable Karen F. McAllister. The Debtors' Chapter 11 petition is anticipated to be filed on September 8, 2023. First-day motions, including the DIP financing motion and proposed interim order, will be filed contemporaneously with the petitions.
II. BACKGROUND
A. The Debtors and Their Business
Cascabel Financial Holdings, Inc. is a Delaware corporation headquartered at 1200 Market Street, Suite 900, Wilmington, Delaware 19801 (EIN: 84-3291057). The company is led by Gerald T. Harmon, its Chief Executive Officer, and Susan K. Nakamura, its Chief Financial Officer, both of whom have been in their respective positions since 2019 and 2020. Cascabel operates as a diversified mid-market financial services platform combining two principal lines of business.
First, Cascabel operates a registered investment advisory business through its wholly owned subsidiary, Cascabel Asset Management LLC ("CAM"). CAM is registered with the Securities and Exchange Commission as an investment adviser and manages approximately $1.2 billion in client assets under management as of the anticipated petition date. CAM's advisory business focuses on institutional fixed-income and credit strategies, serving a client base that includes pension funds, endowments, insurance companies, and family offices. The advisory business generates recurring fee revenue through management fees and, to a lesser extent, performance-based compensation arrangements.
Second, Cascabel owns and operates Ridgeline Community Bank, a Delaware state-chartered commercial bank regulated by the Delaware Office of the State Bank Commissioner and insured by the Federal Deposit Insurance Corporation ("FDIC"). Ridgeline maintains total deposits of approximately $385 million and has historically focused on commercial real estate lending, small business lending, and community banking services within the Mid-Atlantic region. While Ridgeline has been a significant contributor to Cascabel's consolidated balance sheet, it has also been the primary locus of the financial distress that has precipitated the anticipated Chapter 11 filing.
The sources of the Debtors' financial distress are threefold. First, Ridgeline Community Bank suffered concentrated losses in its commercial real estate ("CRE") loan portfolio during 2022 and into 2023, driven by the deterioration of office and retail property values in the bank's lending markets. These losses resulted in significant charge-offs and increased loan loss provisions, which in turn eroded Ridgeline's capital ratios and triggered heightened regulatory scrutiny from both the Delaware Office of the State Bank Commissioner and the FDIC. Second, Cascabel completed the acquisition of a fintech startup, NovaPay Solutions, Inc., in late 2022 for approximately $42 million. The acquisition was financed with a combination of cash and borrowings under the first lien term loan facility. NovaPay's operations failed to meet integration targets, and the business has been written down to a fraction of its acquisition cost, representing a substantial loss of enterprise value. Third, the convergence of CRE losses and the failed fintech acquisition triggered a liquidity crisis at the holding company level, which was exacerbated by significant depositor outflows from Ridgeline Community Bank during the first and second quarters of 2023, as depositors reacted to negative press coverage and broader concerns about regional banking stability.
As of the anticipated petition date, the Debtors' consolidated balance sheet reflects total assets of approximately $620 million and total liabilities of approximately $710 million, resulting in a negative equity position of approximately $90 million. This deeply impaired balance sheet underscores the urgency of the DIP financing request and the Debtors' inability to access conventional sources of post-petition liquidity.
It is important to note that Ridgeline Community Bank will be ring-fenced from the Chapter 11 filing. The bank subsidiary will not be a debtor in the Chapter 11 cases and will continue to operate under the ongoing supervision of its banking regulators. The Chapter 11 debtors will consist solely of Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC. This ring-fencing is necessitated by the provisions of Section 109(b)(2) of the Bankruptcy Code, which excludes domestic banking institutions from eligibility as Chapter 11 debtors, and by the regulatory requirements imposed by the FDIC and the Delaware Office of the State Bank Commissioner.
B. Pre-Petition Capital Structure
The Debtors' pre-petition capital structure consists of three tranches of funded indebtedness, as follows:
First Lien Term Loan. The Debtors are obligors under a $120,000,000 senior secured term loan facility (the "First Lien Term Loan"), evidenced by a Credit Agreement dated as of January 15, 2021, by and among Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC, as borrowers, and the lenders party thereto, with Velthorn National Bank, N.A., located at 500 Boylston Street, Boston, Massachusetts 02116, serving as Administrative Agent (the "Pre-Petition Agent"). The First Lien Term Loan matures on January 15, 2026 and bears interest at Adjusted Term SOFR plus 425 basis points per annum. The facility is secured by first-priority liens on substantially all assets of the Debtors, including but not limited to accounts receivable, deposit accounts, investment property, intellectual property, equipment, and the equity interests in CAM. The equity interests in Ridgeline Community Bank are pledged, but the underlying assets of the bank are not encumbered under the First Lien Term Loan documentation.
The current lender composition of the First Lien Term Loan is as follows:
Driftwood's $32,000,000 position represents 26.67% of the First Lien Term Loan facility. As discussed below, Driftwood acquired this position on the secondary market and is now the second largest holder, behind only Velthorn National Bank, N.A.
Second Lien Notes. The Debtors have outstanding $45,000,000 in aggregate principal amount of 10.50% Senior Secured Second Lien Notes due June 1, 2027 (the "Second Lien Notes"). The Second Lien Notes were issued pursuant to an Indenture dated as of June 1, 2021, with Zynvaro Trust Company, located at 101 Hudson Street, Jersey City, New Jersey 07302, as Indenture Trustee. The Second Lien Notes are secured by second-priority liens on the same collateral as the First Lien Term Loan, subject to an Intercreditor Agreement dated as of June 1, 2021, between Velthorn National Bank, N.A. (as First Lien Agent) and Zynvaro Trust Company (as Second Lien Trustee). The primary holder of the Second Lien Notes is Ashford Mezzanine Capital, LP, which holds approximately $30,000,000 of the $45,000,000 in outstanding principal amount. The remaining $15,000,000 is held by a diffuse group of institutional investors.
Unsecured Notes. The Debtors are also obligors on $18,500,000 in aggregate principal amount of unsecured notes bearing interest at 8.00% per annum, with a maturity date of March 1, 2025 (the "Unsecured Notes"). The Unsecured Notes were issued on a bilateral basis and there is no trustee. The holders consist of a small number of private investors, and the notes are subject to minimal covenants.
Total Pre-Petition Funded Debt. The Debtors' total pre-petition funded indebtedness is as follows:
In addition to funded indebtedness, the Debtors have trade payables, accrued expenses, pension and deferred compensation obligations, and other unsecured liabilities that, together with the funded debt, aggregate to the approximately $710 million in total liabilities reflected on the consolidated balance sheet.
C. Driftwood's Pre-Petition Position and Investment Thesis
Driftwood Absolute Return Fund Ltd. acquired its $32,000,000 face value position in the First Lien Term Loan through a series of secondary market purchases executed between March and July 2023. During this period, the First Lien Term Loan was trading at a significant discount to par, reflecting the market's assessment of the Debtors' deteriorating financial condition and the growing likelihood of a restructuring event. Driftwood purchased its position at an average price of $0.68 per dollar of face value, resulting in an aggregate cost basis of $21,760,000 (calculated as $32,000,000 multiplied by $0.68).
Driftwood's investment thesis is predicated on the opportunity to deploy its pre-petition position as a fulcrum in the restructuring process. Specifically, Driftwood's strategy contemplates providing DIP financing to the Debtors on terms that include priming lien authority under Section 364(d) and a dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims into the DIP facility. Through this structure, Driftwood would effectively convert its pre-petition secured claims — currently pari passu with the claims of the other $88,000,000 of first lien lenders — into superpriority administrative expense claims that are senior to all pre-petition liens, all other administrative expense claims, and all other claims and interests in the Debtors' estates (subject only to the Carve-Out). This elevation in priority substantially improves Driftwood's recovery economics and provides Driftwood with significant influence over the trajectory and outcome of the restructuring process, including the terms of any plan of reorganization or Section 363 sale.
From a pure recovery standpoint, the roll-up enables Driftwood to receive full face value ($32,000,000) on claims acquired at a cost basis of $21,760,000, representing a gain of $10,240,000, or approximately 47.1% return on investment, before accounting for any interest, fees, or other economics of the DIP facility itself.
D. Debtor's Professional Advisors
The Debtors have engaged the following professional advisors in anticipation of the Chapter 11 filing:
Debtor's Counsel: Whitfield, Graves & Sato LLP, located at 1201 North Market Street, Suite 1500, Wilmington, Delaware 19801. The lead partner on the engagement is Jonathan R. Whitfield, a recognized practitioner in the Delaware bankruptcy bar with extensive experience in complex financial services restructurings. The lead associate is Rachel P. Dumont. Whitfield, Graves & Sato will serve as the Debtors' primary bankruptcy counsel and will be responsible for all filings, court appearances, and day-to-day administration of the Chapter 11 cases.
Chief Restructuring Officer: Terrence M. Kowalski of Alderpoint Advisory Partners LLC, located at 399 Park Avenue, 22nd Floor, New York, New York 10022. Mr. Kowalski was appointed as CRO by the Cascabel board of directors on August 25, 2023, pursuant to a consulting agreement between Cascabel and Alderpoint Advisory Partners. Mr. Kowalski has served as CRO in numerous Chapter 11 cases involving financial services companies and will be responsible for overseeing the Debtors' operational and financial restructuring, interfacing with regulators, and providing testimony in support of key motions, including the DIP financing motion.
Investment Banker: Solstice Partners LLC, located at 650 Fifth Avenue, 18th Floor, New York, New York 10019. Managing Director David R. Chin leads the engagement. Solstice Partners was retained by the Debtors on a pre-petition basis on August 10, 2023, pursuant to an engagement letter approved by the Cascabel board. Solstice's mandate includes marketing the DIP financing opportunity to a broad universe of potential lenders, evaluating proposals received, and advising the Debtors on strategic alternatives, including potential Section 363 sales or plan transactions. Mr. Chin's declaration regarding the DIP marketing process will be a critical element of the Debtors' evidentiary showing at the DIP hearing.
E. Anticipated Parties in Interest
The following parties are expected to be significant participants in the Chapter 11 cases and, in particular, in the proceedings relating to the DIP financing motion:
Ad Hoc Group of First Lien Lenders. Velthorn National Bank, N.A. (holding $38,000,000) and Pinnacle Credit Partners Fund II, LP (holding $28,000,000) have formed an ad hoc group (the "Ad Hoc Group") holding, in the aggregate, $66,000,000 of the First Lien Term Loan, representing approximately 55% of the facility. The Ad Hoc Group has retained Hartwell & Crane LLP as counsel, with Monica L. Hartwell serving as lead partner. Hartwell & Crane is located at 51 JFK Parkway, Suite 200, Short Hills, New Jersey 07078. Monica Hartwell is a well-known creditor-side practitioner with a track record of aggressively litigating DIP objections, including priming and roll-up challenges, in the District of Delaware.
Brindoval Institutional Lending, LLC, which holds $22,000,000 of the First Lien Term Loan, has not yet indicated whether it will join the Ad Hoc Group. If Brindoval joins, the Ad Hoc Group would collectively hold $88,000,000, representing approximately 73.33% of the facility and constituting the entirety of the non-Driftwood first lien lender base. We should monitor Brindoval's position closely, as its alignment with the Ad Hoc Group would increase the political and litigation pressure on Driftwood's DIP proposal.
Official Committee of Unsecured Creditors. The U.S. Trustee for the District of Delaware is expected to appoint an Official Committee of Unsecured Creditors (the "Committee") shortly after the petition date, likely within approximately 14 days (anticipated around September 22, 2023). Likely members of the Committee include trade creditors such as Vendara Technology Solutions, Inc. (owed approximately $3.2 million for software licensing and related services) and Cornerpoint Consulting Group LLC (owed approximately $1.8 million for consulting services), as well as former executives of Cascabel with deferred compensation claims aggregating approximately $2.4 million. Based on our preliminary assessment, we anticipate that the Committee will retain Breckenridge McCoy LLP as counsel. Breckenridge McCoy is located at 919 North Market Street, Suite 700, Wilmington, Delaware 19801, and the anticipated lead partner is Thomas A. Breckenridge, who has represented creditors' committees in numerous Delaware Chapter 11 cases.
III. DIP FACILITY — PROPOSED TERMS
This Section sets forth the material terms of the proposed DIP credit facility, as negotiated between Driftwood and the Debtors (through their CRO and investment banker) and reflected in the DIP Term Sheet currently under finalization by Calderwood & Harkness LLP.
A. Facility Structure
The DIP facility has a total commitment of $75,000,000, consisting of two tranches:
New Money DIP Tranche: $43,000,000. The New Money DIP Tranche provides fresh capital to fund the Debtors' post-petition operations, costs of administration, and restructuring expenses. The tranche is drawn in two installments:
(i) Draw 1 (Interim): $18,000,000, available upon entry of the Interim DIP Order by the Court. These funds are intended to address the Debtors' immediate liquidity needs, including payroll, critical vendor payments, professional fee retainers, and the funding of the adequate protection reserve described below.
(ii) Draw 2 (Final): $25,000,000, available upon entry of the Final DIP Order. This second draw provides the balance of the new money commitment and funds the Debtors' ongoing operational needs and restructuring costs through the anticipated confirmation and consummation of a plan of reorganization.
The aggregate of Draw 1 and Draw 2 equals the full $43,000,000 New Money DIP Tranche commitment ($18,000,000 plus $25,000,000).
Roll-Up Tranche: $32,000,000. The Roll-Up Tranche effects a dollar-for-dollar conversion of Driftwood's $32,000,000 pre-petition first lien claims into post-petition DIP obligations. The roll-up becomes effective upon entry of the Final DIP Order. Following the roll-up, Driftwood's pre-petition claims will be treated as obligations under the DIP Credit Agreement and will receive the same superpriority administrative expense claim status and DIP lien priority as the New Money DIP Tranche. The roll-up is structured as a deemed refinancing: Driftwood's pre-petition claims are deemed satisfied and replaced with corresponding DIP claims, without any cash changing hands.
B. Interest Rate and Fees
Interest Rate. The DIP facility bears interest at a rate of Adjusted Term SOFR plus 900 basis points per annum, subject to a SOFR floor of 4.00%. Accordingly, the minimum all-in interest rate is 13.00% per annum (calculated as the 4.00% SOFR floor plus the 9.00% spread). As of the date of this memorandum, the three-month Adjusted Term SOFR rate is approximately 5.33%, which would result in an all-in rate of approximately 14.33% per annum. Interest is computed on the basis of a 360-day year and actual days elapsed, payable monthly in arrears.
Default Rate. Upon the occurrence and during the continuance of an Event of Default, the interest rate increases by an additional 200 basis points, resulting in a rate of Adjusted Term SOFR plus 1,100 basis points, with a minimum default all-in rate of 15.00% per annum.
Commitment Fee. A commitment fee of 2.00% on the total $75,000,000 commitment, equal to $1,500,000, is payable upon entry of the Interim DIP Order. The commitment fee is fully earned upon execution of the DIP Credit Agreement and is non-refundable.
Exit Fee. An exit fee of 1.50% on all amounts drawn under the DIP facility is payable upon the earlier of (a) the stated maturity date, (b) the date of repayment in full, or (c) acceleration of the DIP obligations following an Event of Default. Assuming full draw of the $75,000,000 commitment (inclusive of the Roll-Up Tranche), the exit fee equals $1,125,000.
Unused Line Fee. An unused line fee of 0.50% per annum is payable on the undrawn and uncommitted portion of the New Money DIP Tranche, calculated on a daily basis and payable monthly in arrears.
C. Maturity
The DIP facility matures on the earliest to occur of: (i) twelve (12) months from the Petition Date (i.e., September 8, 2024, assuming a Petition Date of September 8, 2023); (ii) the Effective Date of a confirmed Chapter 11 plan of reorganization; (iii) the consummation of a sale of substantially all of the Debtors' assets pursuant to Section 363 of the Bankruptcy Code; or (iv) the occurrence of an Event of Default that has not been waived by the DIP Lender. The twelve-month outside maturity provides ample runway for the restructuring process, although the milestones described in Section III.F below are designed to ensure that the case progresses on an expedited timeline.
D. Security and Priority
The DIP facility is secured by first priority priming liens on substantially all assets of the Debtors, including but not limited to: accounts receivable; deposit accounts and securities accounts; investment property; general intangibles (including the Debtors' advisory contracts and fee streams); intellectual property; equipment and fixtures; real property interests; and the equity interests in subsidiaries of the Debtors (excluding the equity interests in Ridgeline Community Bank to the extent subject to regulatory restrictions on transfer or encumbrance). The DIP liens are also granted on avoidance action proceeds arising under Sections 544, 545, 547, 548, 549, and 550 of the Bankruptcy Code. The exclusion of Ridgeline Community Bank assets is addressed in Section IV.D below.
In addition to the priming liens, the DIP facility is entitled to superpriority administrative expense claim status under Section 364(c)(1) of the Bankruptcy Code, which provides that DIP claims are senior to all other claims and expenses of the kind specified in Sections 503(b) or 507(b) of the Bankruptcy Code, subject only to the Carve-Out.
E. Budget and Covenants
The DIP Credit Agreement requires the Debtors to operate in accordance with a 13-week rolling cash flow budget (the "DIP Budget"), which is attached as Exhibit B to the DIP Credit Agreement. The DIP Budget is prepared in coordination with Alderpoint Advisory Partners LLC (the CRO firm) and is subject to the approval of the DIP Lender prior to the initial draw and upon each subsequent update. The DIP Budget is to be updated every four (4) weeks, with each update extending the budget horizon by an additional four weeks to maintain the 13-week rolling window.
The Debtors are required to comply with the following variance testing covenants:
(a) Revenue Variance: Actual revenue may not deviate from budgeted revenue by more than ±10%, tested on a cumulative bi-weekly basis.
(b) Disbursement Variance: Actual disbursements may not exceed budgeted disbursements by more than 15%, tested on a cumulative bi-weekly basis.
A failure to comply with the variance covenants constitutes an Event of Default under the DIP Credit Agreement, subject to any applicable cure periods. The DIP Credit Agreement also contains customary affirmative and negative covenants, including reporting obligations, restrictions on asset dispositions outside the ordinary course, limitations on incurrence of additional indebtedness, and restrictions on the use of cash collateral.
F. Milestones
The DIP Credit Agreement includes the following milestones (each, a "Milestone"), failure to achieve which constitutes an Event of Default:
These milestones establish an aggressive but achievable timeline for the Chapter 11 cases. The 180-day outside date for the Plan Effective Date reflects Driftwood's objective of a swift restructuring process that minimizes value erosion and administrative costs.
G. Carve-Out
The DIP liens and superpriority claims are subject to a professional fee carve-out (the "Carve-Out") in the aggregate amount of $2,750,000, allocated as follows:
(a) $2,500,000 for the reasonable fees and expenses of professionals retained by the Debtors and professionals retained by the Committee, of which no more than $750,000 may be allocated to Committee professionals.
(b) $250,000 for fees payable to the Clerk of the United States Bankruptcy Court for the District of Delaware and quarterly fees payable to the United States Trustee pursuant to 28 U.S.C. § 1930(a)(6).
The Carve-Out is structured as a hard cap, meaning that it does not increase based on actual fee applications or Court approval of higher amounts. Amounts in excess of the Carve-Out are subordinate to the DIP liens and DIP superpriority claims. As discussed in Section VIII.B below, the Committee is likely to challenge the Carve-Out as insufficient, particularly the $750,000 allocation for Committee professionals.
H. Challenge Period
The DIP Orders provide for a limited period (the "Challenge Period") during which certain parties may investigate and, if warranted, commence adversary proceedings or contested matters challenging the validity, perfection, priority, or extent of the pre-petition liens or the propriety of the roll-up. The Challenge Period is as follows:
(a) Committee: 75 days from entry of the Final DIP Order.
(b) Other Parties in Interest: 60 days from entry of the Final DIP Order.
If no challenge is commenced within the applicable Challenge Period, the pre-petition liens and the roll-up are deemed valid, binding, and enforceable against all parties in interest, and no party may thereafter challenge or contest the same. The Challenge Period is a critical protective mechanism, both for the estate and for Driftwood, as it provides a defined window for investigation while also ensuring that, once the window closes, the roll-up and the underlying pre-petition liens are immunized from further attack. The proposed durations of 75 and 60 days, respectively, are consistent with market practice in the District of Delaware and reflect a balance between the need for adequate investigation time and Driftwood's interest in certainty.
I. Lender's Professional Fees
Section 11.04 of the DIP Credit Agreement provides that all reasonable fees and expenses of Calderwood & Harkness LLP, as counsel to the DIP Lender, incurred in connection with the negotiation, documentation, administration, and enforcement of the DIP Credit Agreement and related documents, shall be reimbursed by the Debtors' estates as an administrative expense of the Chapter 11 cases. This reimbursement obligation is in addition to, and not limited by, the Carve-Out. Accordingly, Driftwood's legal fees are borne by the estate as a cost of obtaining DIP financing.
IV. LEGAL ANALYSIS: PRIMING LIEN AUTHORITY UNDER § 364(d)
A. Statutory Framework
Section 364(d)(1) of the Bankruptcy Code authorizes a court, after notice and a hearing, to approve post-petition financing secured by a senior or equal lien on property of the estate that is already subject to a lien, commonly referred to as a "priming lien." The statute provides:
"The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if — (A) the trustee is unable to obtain such credit otherwise; and (B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted."
11 U.S.C. § 364(d)(1).
The statute thus imposes two conjunctive requirements before a priming lien may be authorized: first, the debtor (or trustee) must demonstrate an inability to obtain credit on terms that do not require priming; and second, the debtor must provide adequate protection to the holders of the existing liens that are being primed. Both elements must be satisfied for the court to enter an order approving the priming DIP facility.
The burden of proof on both elements rests on the party seeking to prime. See 11 U.S.C. § 364(d)(2) ("In any hearing under this subsection, the trustee has the burden of proof on the issue of adequate protection."). In practice, the Debtors, with Driftwood's support, will bear the burden of demonstrating both the inability to obtain credit otherwise and the adequacy of the proposed adequate protection package. This burden is met through declarations, testimony, and documentary evidence presented at the Interim and Final DIP Order hearings.
B. Inability to Obtain Credit Otherwise
The first prong of the Section 364(d)(1) analysis requires the Debtors to demonstrate that they are "unable to obtain such credit otherwise" — that is, that they cannot obtain post-petition financing on an administrative expense, secured, or unsecured basis without granting a priming lien. Courts have interpreted this requirement as demanding a showing that the debtor has made reasonable efforts to explore alternative financing sources and that those efforts have either failed or yielded only proposals that are inferior to the proposed priming facility.
The Debtors' evidentiary showing on this point will rest primarily on the declaration of David R. Chin, the Managing Director of Solstice Partners LLC, the Debtors' investment banker. Mr. Chin was retained on a pre-petition basis on August 10, 2023, with a mandate that specifically included marketing DIP financing to a broad universe of potential lenders. We expect Mr. Chin's declaration to establish the following:
(i) Solstice Partners contacted a comprehensive list of potential DIP financing sources, including specialty finance lenders, distressed debt funds, commercial banks with DIP lending desks, and other institutional credit providers.
(ii) The marketing process generated limited interest, reflecting the challenging profile of the Debtors' credit — particularly the complexity introduced by the ring-fenced bank subsidiary, the regulatory overhang, the concentrated CRE losses, and the negative equity position.
(iii) To the extent alternative proposals were received, they required more onerous terms than the Driftwood proposal, including higher interest rates, more restrictive milestones, smaller commitment sizes, or more burdensome covenants.
(iv) No alternative DIP lender was willing to provide financing on terms as favorable as Driftwood's proposal, taking into account the totality of the economic and non-economic terms, including commitment size, pricing, covenants, milestones, and the overall structure of the facility.
The Debtors' financial condition strongly supports the showing of inability to obtain credit otherwise. The negative equity position of approximately $90 million, the ongoing depositor outflows at Ridgeline Community Bank, the substantial CRE loan losses, and the failed NovaPay acquisition collectively present an extremely challenging credit profile for any prospective DIP lender. The ring-fencing of Ridgeline from the Chapter 11 cases further constrains the available collateral, as the bank's $385 million in deposits and related assets are not available to support the DIP facility. These factors limit the pool of willing DIP lenders and support the Debtors' assertion that priming is a necessary condition of any viable DIP financing.
Courts in the District of Delaware and elsewhere have applied a "best available terms" standard, recognizing that debtors are not required to exhaust every conceivable alternative or demonstrate absolute impossibility of obtaining non-priming credit. Rather, the debtor must demonstrate a reasonable and good-faith effort to explore alternatives, and that the proposed priming facility represents the best available financing option under the circumstances. See, e.g., In re Ajax Integrated LLC, No. 20-11462 (BLS) (Bankr. D. Del. 2020) (approving priming DIP facility where debtor's investment banker testified that marketing process yielded no superior alternatives); In re Saybrook Manufacturing Co., 963 F.2d 1490, 1493 (11th Cir. 1992) (noting that debtors must demonstrate "reasonable efforts" to obtain alternative financing). We are confident that the Solstice Partners marketing process, combined with the Debtors' manifestly distressed financial profile, will satisfy this standard.
Additionally, the CRO, Terrence M. Kowalski, will provide a declaration supporting the DIP financing, attesting to the Debtors' urgent liquidity needs, the absence of alternative sources of capital, and the business justification for the priming structure.
C. Application to the Proposed DIP Facility
As noted above, the First Lien Term Loan is secured by first-priority liens on substantially all assets of Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC. The proposed DIP priming lien will be senior to these existing first lien security interests, thereby "priming" the claims of the entire $120,000,000 first lien lender group, including Driftwood's own $32,000,000 position.
The fact that Driftwood is simultaneously the DIP lender and a pre-petition secured creditor whose liens will be primed introduces a layer of complexity to the Section 364(d) analysis. On one hand, Driftwood's willingness to prime its own pre-petition position — effectively subordinating its own first lien claims to the DIP facility — mitigates certain concerns, as it demonstrates Driftwood's alignment with the restructuring process and its confidence in the adequacy of the underlying collateral. On the other hand, the dual role raises questions about whether Driftwood's proposal is truly the "best available" offer, or whether Driftwood's unique incentives (including the roll-up and the economic benefits discussed in Section IX below) make its proposal incomparable to those of arm's-length DIP lenders.
Delaware courts have addressed this issue in prior cases and have generally approved DIP facilities proposed by pre-petition secured creditors, provided that the debtor can demonstrate through the marketing process that the pre-petition creditor's proposal represents the best available terms and that the interests of other constituencies are adequately protected. We expect that the Solstice Partners marketing process will establish that Driftwood's proposal is the most favorable available financing, thereby satisfying the heightened scrutiny applicable to "insider" or conflicted DIP proposals.
Key analytical considerations include the following:
(a) The total value of Debtor assets available as DIP collateral (excluding Ridgeline Community Bank assets) must be sufficient to support the combined DIP claims ($75,000,000) and the residual first lien claims ($88,000,000), taking into account the adequate protection package. We discuss this collateral coverage analysis in detail in Section VI.C below.
(b) The all-in cost of the DIP facility — including interest, fees, and the economic benefit of the roll-up to Driftwood — must be demonstrated to be consistent with market terms for comparable DIP facilities, taking into account the risk profile of the Debtors. While the SOFR + 900 bps interest rate and the fee structure are at the higher end of the DIP market, they are not unreasonable given the Debtors' distressed profile, the complexity of the capital structure, and the regulatory overlay.
(c) The interplay between the priming and the roll-up must be analyzed holistically: the roll-up is an integral component of Driftwood's DIP proposal, and its removal would likely render the facility uneconomic from Driftwood's perspective, thereby eliminating the only available DIP financing option.
D. Exclusion of Ridgeline Community Bank Assets
As noted above, Ridgeline Community Bank is ring-fenced from the Chapter 11 filing and will continue operating under the supervision of the Delaware Office of the State Bank Commissioner and the FDIC. Ridgeline's assets — including its loan portfolio, deposit accounts, cash and cash equivalents, investment securities, and real property — are not available as DIP collateral. The DIP lien expressly excludes all assets of Ridgeline Community Bank, and the DIP Orders will contain appropriate language confirming this exclusion.
The regulatory basis for this exclusion is twofold. First, as a state-chartered banking institution regulated by the Delaware Office of the State Bank Commissioner and insured by the FDIC, Ridgeline is subject to extensive regulatory restrictions on the encumbrance, transfer, and disposition of its assets. The creation of a DIP lien on Ridgeline's assets would require regulatory approval that is unlikely to be granted and could trigger adverse regulatory action, including the appointment of a receiver. Second, as previously noted, Ridgeline is not eligible to be a debtor under Chapter 11, and the imposition of DIP liens on a non-debtor regulated bank subsidiary would raise serious questions under both the Bankruptcy Code and applicable banking law.
The exclusion of Ridgeline's assets has a meaningful impact on the collateral coverage analysis for the DIP facility. Of the Debtors' approximately $620 million in consolidated total assets, a substantial portion is attributable to Ridgeline Community Bank. The assets of the Debtor entities (CFH and CAM, exclusive of Ridgeline) are estimated at approximately $235 million, consisting primarily of: the advisory business and related fee-generating contracts of CAM; the equity interests in Ridgeline (which, while pledged under the First Lien Term Loan, are subject to regulatory restrictions on foreclosure and transfer); the NovaPay investment (significantly written down); corporate cash and investment accounts; and various intangible assets. This narrower collateral base must be considered in evaluating the sufficiency of the DIP security package and the adequacy of protection for the existing lienholders.
V. LEGAL ANALYSIS: ROLL-UP MECHANICS
A. Structure of the Roll-Up
Upon entry of the Final DIP Order, the $32,000,000 in pre-petition first lien claims held by Driftwood will be deemed "rolled up" into the DIP facility. Mechanically, the roll-up operates as follows: Driftwood's pre-petition claims under the First Lien Term Loan Credit Agreement are deemed satisfied, and in their place, Driftwood receives a $32,000,000 claim under the DIP Credit Agreement (the "Roll-Up Tranche"). The Roll-Up Tranche is treated as a DIP obligation for all purposes, including priority, security, and repayment. It receives superpriority administrative expense claim status under Section 364(c)(1) of the Bankruptcy Code and is secured by the same first priority priming liens that secure the $43,000,000 New Money DIP Tranche. The Roll-Up Tranche is pari passu in all respects with the New Money DIP Tranche.
The economic effect of the roll-up is significant. Prior to the roll-up, Driftwood's $32,000,000 in pre-petition first lien claims are pari passu with the $88,000,000 in first lien claims held by Velthorn, Pinnacle, and Brindoval. All first lien lenders share ratably in the first lien collateral, and each lender's recovery is a function of the aggregate value of the collateral relative to the aggregate first lien claims. Following the roll-up, Driftwood's claims are elevated above the first lien and are entitled to payment in full (including accrued interest and fees under the DIP Credit Agreement) before any distribution is made to the remaining first lien lenders, subject only to the Carve-Out. In essence, the roll-up breaks the parity among the first lien lenders and grants Driftwood a preferential recovery position.
B. Legal Basis and Judicial Scrutiny
Roll-ups of pre-petition claims into DIP facilities are not expressly authorized by any provision of the Bankruptcy Code. There is no statutory section that specifically addresses the conversion of pre-petition secured claims into post-petition DIP obligations. Rather, courts have approved roll-ups under their general equitable powers and as incident to the authority granted under Section 364 of the Bankruptcy Code to approve post-petition financing on terms that the court deems appropriate under the circumstances. The theoretical justification is that a roll-up, when necessary to induce a lender to provide essential new money financing, serves the estate's interest in securing the liquidity needed to preserve going-concern value and fund the Chapter 11 process.
Notwithstanding the general acceptance of roll-ups in large Chapter 11 cases, courts in the District of Delaware and elsewhere have applied heightened scrutiny to roll-up provisions, particularly where the DIP lender is a pre-petition secured creditor and the roll-up results in differential treatment of otherwise similarly situated creditors. The key factors that courts consider in evaluating the propriety of a roll-up include:
(i) Necessity: Whether the roll-up is a genuine condition of the DIP lender's willingness to provide new money financing, or merely an opportunistic enhancement of the DIP lender's pre-petition position. Courts are skeptical of roll-ups that appear to be gratuitous windfalls for the DIP lender. Here, Driftwood should be prepared to testify (through Marcus Ellison or another authorized representative) that the roll-up is a material inducement for Driftwood's participation in the DIP facility, and that Driftwood would not be willing to commit the $43,000,000 in new money without the roll-up.
(ii) Ratio of New Money to Rolled-Up Debt: Courts examine the proportion of the DIP facility that constitutes genuine new money relative to the rolled-up amount. A facility that is overwhelmingly composed of rolled-up pre-petition debt, with only minimal new money, is more vulnerable to challenge than one in which new money predominates. Here, the ratio of new money ($43,000,000) to roll-up ($32,000,000) is approximately 1.34:1, meaning that new money exceeds the rolled-up amount. This ratio is favorable and supports approval, as it demonstrates that the facility is primarily a vehicle for providing fresh capital to the estate rather than merely a mechanism for elevating pre-petition claims.
(iii) Prejudice to Other Constituencies: Courts consider whether the roll-up unfairly prejudices other stakeholders, including other secured creditors, unsecured creditors, and equity holders. The roll-up must not be so structured as to deplete estate value or eliminate the prospects for recovery by junior creditors without adequate justification. Here, the adequate protection package described in Section VI is designed to mitigate the prejudice to the remaining first lien lenders, and the Challenge Period provides a mechanism for investigation and potential redress.
(iv) Challenge Period: The inclusion of a Challenge Period — during which parties can investigate the validity, perfection, and extent of the DIP lender's pre-petition liens and the propriety of the roll-up — is a critical factor in securing judicial approval. Courts view the Challenge Period as a safeguard against the potential that a roll-up is based on defective or unperfected pre-petition liens.
Recent Delaware cases have continued to approve roll-ups in significant cases, but the trend has been toward greater scrutiny and a demand for more robust protective provisions. We should be prepared for Judge McAllister to examine the roll-up closely and to require the Debtors and Driftwood to make a strong evidentiary showing on the necessity and fairness of the provision.
C. Impact on Pre-Petition Lender Group
The roll-up has a direct and material impact on the remaining pre-petition first lien lender group. Driftwood's $32,000,000 is effectively separated from the remaining $88,000,000 in first lien claims held by Velthorn ($38,000,000), Pinnacle ($28,000,000), and Brindoval ($22,000,000) and elevated to superpriority DIP status. The consequence is that the remaining first lien lenders are subordinated not only to the $43,000,000 in new money DIP claims but also to the $32,000,000 in rolled-up DIP claims.
This differential treatment of otherwise pari passu pre-petition secured creditors is the primary basis for anticipated objections from the Ad Hoc Group. The Ad Hoc Group will argue that Driftwood is exploiting its position as the DIP lender to obtain preferential treatment at the expense of the other first lien lenders, all of whom entered into the First Lien Term Loan on the understanding that they would share ratably in the collateral. The Ad Hoc Group will contend that the roll-up violates the fundamental principle of equal treatment among identically situated creditors and that it is not justified by the economics of the DIP facility.
In response, we will argue that the roll-up is a necessary component of the DIP financing that benefits the estate as a whole by securing essential liquidity, and that the adequate protection package — including replacement liens, superpriority claims, monthly cash interest payments, the adequate protection reserve, and the reimbursement of the Ad Hoc Group's professional fees — fully compensates the remaining first lien lenders for the subordination resulting from the roll-up. We will also emphasize that the Challenge Period provides the remaining lenders with a meaningful opportunity to investigate and challenge the roll-up if warranted.
D. Challenge Period as Protective Mechanism
As described in Section III.H above, the proposed Challenge Period is 75 days from entry of the Final DIP Order for the Committee and 60 days from entry of the Final DIP Order for all other parties in interest. The Challenge Period serves multiple protective functions in the context of the roll-up:
(a) Investigation of Pre-Petition Liens: The Challenge Period provides parties with the opportunity to investigate the validity, perfection, priority, and extent of Driftwood's pre-petition security interests. Because Driftwood acquired its position on the secondary market through a series of purchases between March and July 2023, there is a particular need to confirm that all assignments and transfers were properly documented, that the UCC financing statements were properly amended to reflect Driftwood's interest, and that the security interests were continuously perfected throughout the transfer process. Any deficiency in perfection could render the pre-petition liens avoidable, which would in turn undermine the basis for the roll-up.
(b) Scrutiny of Roll-Up Propriety: The Challenge Period also permits investigation into whether the roll-up was negotiated on arm's-length terms, whether it was necessary to induce Driftwood's new money commitment, and whether it prejudices other constituencies to an extent that renders it inequitable.
(c) Finality and Certainty: Once the Challenge Period expires without a timely challenge being filed, the pre-petition liens and the roll-up are deemed valid and binding on all parties. This finality is critical to Driftwood's investment thesis, as it ensures that the superpriority DIP status of the rolled-up claims cannot be subsequently unwound.
The proposed durations of 75 days (Committee) and 60 days (other parties) are consistent with current market practice in the District of Delaware. We note, however, that the Committee may argue for a longer Challenge Period, particularly given that the Committee will not be appointed until approximately 14 days after filing and may need additional time to retain counsel, obtain discovery, and conduct its investigation. As discussed in Section VIII.B, we recommend that the engagement team be prepared to extend the Committee's Challenge Period to 75 days as a negotiating concession, which we have already incorporated into the proposed term sheet.
VI. ADEQUATE PROTECTION FRAMEWORK
A. Statutory Requirements
Section 361 of the Bankruptcy Code establishes the framework for adequate protection, setting forth three permissible forms:
(1) Periodic Cash Payments: The debtor may make periodic cash payments to the secured creditor to the extent that the automatic stay, the use, sale, or lease of property, or the granting of a priming lien results in a decrease in the value of the creditor's interest in the property.
(2) Additional or Replacement Liens: The debtor may provide an additional or replacement lien on other property of the estate to the extent of the decrease in value.
(3) Indubitable Equivalent: The debtor may provide such other relief as will result in the realization by the secured creditor of the "indubitable equivalent" of its interest in the property.
See 11 U.S.C. § 361.
Section 364(d)(1)(B) specifically requires adequate protection "of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted" as a condition to the approval of a priming DIP facility. The adequate protection obligation runs to all holders of liens that are being primed — in this case, the holders of the $120,000,000 First Lien Term Loan (including Driftwood itself, although Driftwood, as the DIP lender, has consented to the priming of its own pre-petition liens). As a practical matter, the adequate protection analysis focuses on the $88,000,000 in first lien claims held by the non-Driftwood lenders: Velthorn ($38,000,000), Pinnacle ($28,000,000), and Brindoval ($22,000,000).
The standard for adequate protection is not susceptible to a precise formula; rather, it requires a case-by-case analysis of whether the proposed package is sufficient to protect the secured creditor's interest in its collateral from diminution in value resulting from the priming. Courts consider the totality of the circumstances, including the value of the collateral, the existence and size of any equity cushion, the debtor's financial condition and prospects, and the risk of further deterioration during the pendency of the case.
B. Proposed Adequate Protection Package for Pre-Petition First Lien Lenders
The proposed adequate protection package applies to the non-Driftwood first lien lenders holding an aggregate of $88,000,000 in pre-petition claims. The package consists of the following components:
1. Replacement Liens. The non-Driftwood first lien lenders shall receive replacement liens on substantially all assets of the Debtors, junior only to the DIP liens and the Carve-Out. These replacement liens are granted to the extent of any diminution in the value of the pre-petition collateral resulting from the priming, the use of cash collateral, or the imposition of the automatic stay. The replacement liens attach to the same property as the pre-petition first liens and provide a secondary layer of security for the first lien claims.
2. Section 507(b) Superpriority Administrative Expense Claims. The non-Driftwood first lien lenders shall receive allowed superpriority administrative expense claims under Section 507(b) of the Bankruptcy Code, to the extent that the adequate protection provided proves insufficient to compensate them for the diminution in value of their interests. These superpriority claims are junior to the DIP superpriority claims (including the claims arising from both the New Money DIP Tranche and the Roll-Up Tranche) but senior to all other administrative expense claims in the Chapter 11 cases, including claims arising under Sections 503(b), 507(a)(2), and 726(b) of the Bankruptcy Code.
3. Monthly Adequate Protection Payments. The Debtors shall make monthly cash adequate protection payments to the non-Driftwood first lien lenders in the amount of current-pay interest on $88,000,000 at the non-default contract rate of Adjusted Term SOFR plus 425 basis points. Based on the current Adjusted Term SOFR rate of approximately 5.33%, the all-in adequate protection interest rate is approximately 9.58% per annum. The estimated monthly adequate protection payment is calculated as follows:
$88,000,000 × 9.58% ÷ 12 = approximately $702,133 per month.
These monthly payments are designed to compensate the first lien lenders for the time value of money and to provide current-pay return on their pre-petition claims during the pendency of the Chapter 11 cases. The payments are funded from the Debtors' cash flow and, to the extent necessary, from the adequate protection reserve described below.
4. Adequate Protection Reserve. A reserve of $3,500,000 (the "Adequate Protection Reserve") shall be funded from Draw 1 proceeds (the $18,000,000 Interim draw) and held in a segregated account for the exclusive purpose of backstopping the monthly adequate protection payments. The Adequate Protection Reserve provides approximately five months of adequate protection payment coverage, calculated as follows:
$3,500,000 ÷ $702,133/month ≈ 4.99 months.
This reserve provides a significant buffer to ensure the continuity of adequate protection payments even if the Debtors' operating cash flow is insufficient in any given month. The reserve is subject to replenishment provisions set forth in the DIP Credit Agreement.
5. Reimbursement of Ad Hoc Group Counsel Fees. The Debtors shall pay the reasonable fees and expenses of Hartwell & Crane LLP, as counsel to the Ad Hoc Group of First Lien Lenders (consisting of Velthorn and Pinnacle), subject to a cap of $1,200,000. This provision is designed to facilitate the Ad Hoc Group's ability to participate meaningfully in the Chapter 11 cases, including the review and negotiation of the DIP financing, the adequate protection package, and the plan of reorganization. The fee cap of $1,200,000 is intended to cover the anticipated duration of the Chapter 11 cases (approximately five to six months) and is subject to adjustment by the Court.
C. Sufficiency Analysis
The adequacy of the proposed adequate protection package must be evaluated in light of the totality of the circumstances, including the collateral coverage, the equity cushion (if any), the Debtors' cash flow, and the risk of further asset deterioration during the pendency of the case.
Equity Cushion Analysis. The equity cushion is the difference between the value of the collateral and the aggregate claims senior to and pari passu with the first lien claims, expressed as a percentage of the collateral value. Courts in the District of Delaware have recognized that a meaningful equity cushion can serve as adequate protection, either alone or in combination with other forms of protection. The analysis here, however, is nuanced:
• Total Debtor assets (consolidated): approximately $620 million.
• Less: Ridgeline Community Bank assets (ring-fenced, not available as DIP collateral): estimated approximately $385 million in deposits, plus loan portfolio, cash, and other bank assets. Net Debtor-only assets (CFH and CAM): estimated approximately $235 million.
• DIP facility claims: $75,000,000 (senior to all).
• Non-Driftwood first lien claims: $88,000,000 (junior to DIP, senior to all other).
• Aggregate senior secured claims: $75,000,000 + $88,000,000 = $163,000,000.
• Estimated equity cushion on Debtor-only assets: $235,000,000 − $163,000,000 = approximately $72,000,000, or approximately 30.6% of the Debtor-only asset value.
On its face, the equity cushion of approximately $72 million provides meaningful protection. However, this analysis must be tempered by several risk factors: (i) the Debtors' total liabilities of approximately $710 million (on a consolidated basis) substantially exceed total assets, indicating a deeply impaired enterprise; (ii) the Debtor-only asset valuations are uncertain and subject to significant downside risk, particularly given the write-down of the NovaPay acquisition, the potential for further deterioration in the CRE portfolio held by Ridgeline (which affects the value of CFH's equity interest in the bank), and the inherent uncertainty in valuing an advisory business during a restructuring; and (iii) the negative equity position of approximately $90 million on a consolidated basis suggests that junior creditors face significant shortfalls, increasing the likelihood of aggressive litigation and value disputes.
Notwithstanding these risks, the combination of the equity cushion, the replacement liens, the Section 507(b) superpriority claims, the monthly cash payments, and the adequate protection reserve provides a robust package that should satisfy the Court's requirements under Section 361 and Section 364(d)(1)(B). The monthly cash payments alone, at approximately $702,133 per month, provide meaningful current compensation. The adequate protection reserve of $3,500,000 ensures continuity of payments for approximately five months, which is sufficient to cover the anticipated duration of the Chapter 11 cases through plan consummation.
D. Adequate Protection for Second Lien Holders
The Second Lien Notes, with an aggregate outstanding principal amount of $45,000,000, are secured by second-priority liens on the same collateral as the First Lien Term Loan, subject to the Intercreditor Agreement between the First Lien Agent and the Second Lien Trustee. The primary holder of the Second Lien Notes is Ashford Mezzanine Capital, LP, holding approximately $30,000,000 of the $45,000,000 outstanding.
The second lien holders are also primed by the DIP facility, as the DIP liens are senior to all existing liens, including both first lien and second lien security interests. Accordingly, the second lien holders are technically entitled to adequate protection under Section 364(d)(1)(B). However, the viability of any adequate protection claim by the second lien holders depends on whether they have an equity cushion — that is, whether the value of the collateral exceeds the aggregate claims senior to the second lien.
On the Debtor-only asset base of approximately $235 million:
• DIP facility claims: $75,000,000.
• First lien claims (total, including Driftwood's rolled-up claims which are now DIP claims): the non-Driftwood first lien claims remain at $88,000,000. Driftwood's $32,000,000 has been rolled up and is captured within the DIP facility claims.
• Total claims senior to second lien: $75,000,000 + $88,000,000 = $163,000,000.
• Available for second lien: $235,000,000 − $163,000,000 = approximately $72,000,000.
• Second lien claims: $45,000,000.
On this analysis, the second lien holders appear to retain an equ