1024-00001 · Driftwood Absolute Return Fund Ltd · Court Filings

motion-interim-final-dip-orders.docx DOCUMENT Finance & Banking

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

DEBTORS' MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN SENIOR SECURED SUPERPRIORITY DEBTOR-IN-POSSESSION FINANCING, (II) GRANTING FIRST PRIORITY PRIMING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE CLAIMS, (III) APPROVING THE ROLL-UP OF CERTAIN PRE-PETITION SECURED CLAIMS, (IV) PROVIDING ADEQUATE PROTECTION TO PRE-PETITION SECURED LENDERS, (V) SCHEDULING A FINAL HEARING, AND (VI) GRANTING RELATED RELIEF

PRELIMINARY STATEMENT

The above-captioned debtors and debtors in possession (collectively, the "Debtors") hereby move (the "Motion") this Court, pursuant to sections 105(a), 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), and 507(b) of title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (as amended, the "Bankruptcy Code"), Rules 2002, 4001, 6004, and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and the Local Rules of the United States Bankruptcy Court for the District of Delaware (the "Local Rules"), for entry of an interim order (the "Interim DIP Order") and a final order (the "Final DIP Order," and together with the Interim DIP Order, the "DIP Orders") granting the relief described herein. In support of this Motion, the Debtors respectfully represent as follows:

1. Cascabel Financial Holdings, Inc. ("Cascabel," "CFH," or the "Company"), a Delaware corporation, and Cascabel Asset Management LLC ("CAM"), a Delaware limited liability company and registered investment adviser with the U.S. Securities and Exchange Commission (the "SEC"), filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on September 8, 2023 (the "Petition Date"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.

2. Ridgeline Community Bank ("Ridgeline" or "RCB"), a Delaware state-chartered commercial bank regulated by the Delaware Office of the State Bank Commissioner (the "State Bank Commissioner") and the Federal Deposit Insurance Corporation (the "FDIC"), is a wholly-owned subsidiary of Cascabel. Ridgeline was intentionally and purposefully excluded from the chapter 11 filing and continues to operate in the ordinary course under the ongoing supervision of its banking regulators. The preservation of Ridgeline's operations outside of these bankruptcy proceedings is of critical importance to the Debtors' restructuring efforts, to Ridgeline's depositors and borrowers, and to the broader financial stability of the communities Ridgeline serves.

3. By this Motion, the Debtors seek entry of the DIP Orders authorizing the Debtors to enter into a $75,000,000 Senior Secured Superpriority Debtor-in-Possession Credit Facility (the "DIP Facility") with Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company, as DIP Lender (the "DIP Lender"). The DIP Facility is comprised of two tranches: (a) $43,000,000 of new money financing (the "New Money DIP Tranche"), which will provide the Debtors with the critical liquidity necessary to fund ongoing operations, preserve going-concern value, and pursue a chapter 11 reorganization; and (b) a $32,000,000 dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims (the "Roll-Up Tranche"), which will simplify the Debtors' capital structure and was a critical condition to Driftwood's agreement to provide the DIP Facility.

4. The need for the DIP Facility is immediate and acute. Without the liquidity provided by the DIP Facility, the Debtors will be unable to fund ongoing operations, meet payroll obligations, pay critical vendors, maintain the CAM advisory platform (which manages approximately $1.2 billion in client assets under management), service the administrative costs of these chapter 11 cases, and pursue a value-maximizing restructuring. The Debtors' financial condition — with total assets of approximately $620 million and total liabilities of approximately $710 million, reflecting a negative equity position of approximately $90 million — underscores the urgency of the DIP financing request.

5. The DIP Facility represents the best available financing after an extensive and thorough pre-petition marketing process conducted by Solstice Partners LLC ("Solstice Partners"), the Debtors' investment banker, under the direction of Managing Director David R. Chin. Solstice Partners contacted multiple potential DIP lenders, solicited indications of interest, and evaluated competing proposals. After careful consideration of all available options, including an analysis of pricing, facility size, speed of execution, operational flexibility, and the inclusion of a roll-up structure that facilitates the Debtors' reorganization, the Debtors, in consultation with their financial advisors, determined that the DIP proposal from Driftwood represented the most favorable terms available to the Debtors' estates.

6. The Debtors have been unable to obtain post-petition financing on an unsecured basis, on a basis secured by junior liens, or through the granting of administrative priority claims alone. The Debtors' deeply negative equity position, ongoing operating losses, and the stigma associated with the bankruptcy filing preclude the Debtors from accessing traditional credit markets or obtaining DIP financing on lesser terms. Accordingly, the DIP Facility requires the granting of first priority priming liens on substantially all of the Debtors' assets and superpriority administrative expense claims, as authorized by sections 364(c) and 364(d) of the Bankruptcy Code.

7. In connection with the DIP Facility, the Debtors propose to provide the pre-petition first lien lenders (other than Driftwood, whose claims are being rolled up) with a comprehensive adequate protection package, including replacement liens, section 507(b) superpriority claims, monthly adequate protection payments at the non-default contract rate, a $3,500,000 adequate protection reserve, and reimbursement of counsel fees for the Ad Hoc Group of First Lien Lenders, all as more fully described herein. The Debtors also propose to provide the pre-petition second lien noteholders with replacement liens on the DIP collateral, junior to the DIP liens and the pre-petition first lien replacement liens.

8. This Motion is filed by the Debtors' counsel, Whitfield, Graves & Sato LLP (Jonathan R. Whitfield, lead partner; Rachel P. Dumont, lead associate), in coordination with Calderwood & Harkness LLP (Colette Whitman, responsible partner; Amy Chesterton, lead associate), counsel to Driftwood, the DIP Lender. The factual statements set forth herein are supported by the Declaration of Terrence M. Kowalski, Chief Restructuring Officer of Cascabel Financial Holdings, Inc. (the "Kowalski Declaration"), filed contemporaneously herewith.

I. JURISDICTION AND VENUE

9. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference of the United States District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (D), and (M). The Debtors confirm their consent, pursuant to Local Rule 9013-1(f), to the entry of a final order by this Court to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution.

10. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. Cascabel Financial Holdings, Inc. is incorporated in the State of Delaware, and both Debtors maintain their principal offices within this District.

11. The statutory predicates for the relief requested herein are sections 105(a), 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), and 507(b) of the Bankruptcy Code, Bankruptcy Rules 2002, 4001, 6004, and 9014, and the Local Rules of this Court.

II. BACKGROUND

A. The Debtors' Business

12. Cascabel Financial Holdings, Inc. is a Delaware corporation with its principal office located at 1200 Market Street, Suite 900, Wilmington, Delaware 19801. Cascabel's federal employer identification number is 84-3291057. Cascabel serves as a holding company for a mid-market financial services platform combining two principal business lines: (a) investment advisory services, conducted through Cascabel Asset Management LLC; and (b) community banking, conducted through Ridgeline Community Bank.

13. Cascabel Asset Management LLC. CAM is a Delaware limited liability company and wholly-owned subsidiary of Cascabel. CAM is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended. As of the Petition Date, CAM managed approximately $1.2 billion in client assets under management ("AUM") across a range of investment strategies, including fixed income, equity, and multi-asset portfolios, on behalf of institutional and high-net-worth clients. CAM generates revenue primarily through management fees based on AUM and, to a lesser extent, performance-based fees. CAM's advisory platform represents a significant going-concern asset of the Debtors' estates, and the preservation of CAM's client relationships and investment management infrastructure is essential to the Debtors' restructuring efforts.

14. Ridgeline Community Bank. Ridgeline is a Delaware state-chartered commercial bank and wholly-owned subsidiary of Cascabel. Ridgeline is regulated by the State Bank Commissioner and the FDIC. As of the Petition Date, Ridgeline held total deposits of approximately $385 million and maintained a network of branch offices serving communities throughout northern Delaware and southeastern Pennsylvania. Ridgeline was intentionally excluded from the chapter 11 filing and continues to operate under regulatory supervision. The Debtors' restructuring strategy contemplates that Ridgeline will continue to operate outside of the bankruptcy estate, subject to ongoing regulatory oversight by the State Bank Commissioner and the FDIC. Ridgeline's assets are ring-fenced from these chapter 11 cases and are excluded from the DIP collateral package, as more fully described below.

15. The Debtors' management team includes Gerald T. Harmon, Chief Executive Officer, and Susan K. Nakamura, Chief Financial Officer. In anticipation of the chapter 11 filing, Cascabel's board of directors engaged Alderpoint Advisory Partners LLC ("Alderpoint") as the Debtors' financial advisor and, on August 25, 2023, appointed Terrence M. Kowalski, a managing director of Alderpoint, as Chief Restructuring Officer ("CRO") of Cascabel. Mr. Kowalski brings extensive experience in financial services restructurings and is overseeing the Debtors' day-to-day restructuring activities.

B. Events Leading to the Chapter 11 Filing

16. Cascabel's financial distress stemmed from three principal causes that, in combination, eroded the Company's liquidity and capital position and ultimately necessitated the commencement of these chapter 11 cases.

17. Concentrated Commercial Real Estate Loan Losses at Ridgeline Community Bank. Ridgeline's commercial real estate ("CRE") loan portfolio experienced significant deterioration beginning in mid-2022, driven by declining property values in the office and retail sectors within Ridgeline's primary lending markets. As interest rates rose through 2022 and into 2023, a number of Ridgeline's CRE borrowers experienced difficulty refinancing maturing loans and meeting debt service obligations. Ridgeline was compelled to increase its provision for loan losses substantially and to recognize significant charge-offs against its CRE portfolio. These losses impaired Ridgeline's capital ratios and triggered heightened regulatory scrutiny from the State Bank Commissioner and the FDIC. As Ridgeline's parent company, Cascabel was called upon to downstream capital to Ridgeline to support the bank's capital adequacy, which further depleted the holding company's cash resources.

18. Failed Acquisition of a Fintech Lender. In late 2022, Cascabel entered into a definitive agreement to acquire a fintech lending platform for an aggregate purchase price of approximately $55 million. The transaction was expected to diversify Cascabel's revenue base and provide a technology-enabled origination channel for consumer and small business loans. However, the acquisition was terminated in early 2023 after regulatory approvals were delayed and market conditions deteriorated. Cascabel incurred approximately $8.5 million in non-recoverable transaction costs, including breakup fees, advisory fees, and due diligence expenses, which further strained the Company's financial position.

19. Liquidity Crisis Triggered by Depositor Outflows. During the first and second quarters of 2023, Ridgeline experienced significant depositor outflows as regional banking concerns intensified in the wake of several high-profile bank failures nationally. Uninsured depositors, in particular, accelerated withdrawals from Ridgeline, reducing the bank's deposit base by approximately $75 million over a six-month period. These outflows required Ridgeline to access higher-cost wholesale funding sources and, ultimately, required Cascabel to provide additional liquidity support to the bank. The combination of depositor outflows, increased wholesale funding costs, and the need to downstream capital to Ridgeline placed extreme pressure on Cascabel's consolidated liquidity position.

20. As of the Petition Date, Cascabel had consolidated total assets of approximately $620 million and consolidated total liabilities of approximately $710 million, reflecting a negative equity position of approximately $90 million. The Debtors' available unrestricted cash at the holding company level was insufficient to fund ongoing operations, pay employees, maintain the CAM advisory platform, and service the administrative costs of a chapter 11 case without post-petition financing.

C. The Chapter 11 Cases

21. On September 8, 2023 (the "Petition Date"), Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in this Court. The cases are being jointly administered under Case No. 23-11487 (KFM) for procedural purposes pursuant to Bankruptcy Rule 1015(b).

22. Ridgeline Community Bank was excluded from the chapter 11 filing and continues to operate in the ordinary course under the ongoing regulatory supervision of the State Bank Commissioner and the FDIC. The exclusion of Ridgeline from the chapter 11 cases was a deliberate and essential element of the Debtors' restructuring strategy, designed to preserve the stability of the banking subsidiary, protect depositors, and avoid the potential adverse consequences of subjecting a regulated bank to bankruptcy proceedings.

23. The Debtors filed their schedules of assets and liabilities and statements of financial affairs on September 22, 2023. On the same date, the United States Trustee for the District of Delaware (the "U.S. Trustee") appointed the Official Committee of Unsecured Creditors (the "Committee") pursuant to section 1102 of the Bankruptcy Code. The Committee retained Breckenridge McCoy LLP (Thomas A. Breckenridge, lead partner) as its counsel.

24. The Debtors continue to operate their businesses and manage their properties as debtors in possession. No trustee, examiner, or patient care ombudsman has been appointed in these cases. The Debtors have filed, or intend to file, various "first day" motions seeking authority to, among other things, pay employee wages and benefits, maintain existing cash management systems, pay certain pre-petition claims of critical vendors, and obtain post-petition financing.

D. Pre-Petition Capital Structure

25. As of the Petition Date, the Debtors' pre-petition funded debt totaled approximately $183,500,000, structured in three tranches as follows:

26. First Lien Term Loan. On January 15, 2021, Cascabel entered into a $120,000,000 senior secured term loan (the "First Lien Term Loan") pursuant to that certain Credit Agreement, dated as of January 15, 2021 (as amended, restated, supplemented, or otherwise modified from time to time, the "First Lien Credit Agreement"), among Cascabel, as borrower, the lenders party thereto from time to time (collectively, the "First Lien Lenders"), and Velthorn National Bank, N.A. ("Velthorn"), located at 500 Boylston Street, Boston, Massachusetts 02116, as administrative agent and collateral agent (in such capacity, the "Pre-Petition Agent"). The First Lien Term Loan bears interest at Adjusted Term SOFR plus 425 basis points per annum and matures on January 15, 2026. The First Lien Term Loan is secured by first priority liens on substantially all assets of the Debtors (excluding assets of Ridgeline Community Bank that are subject to regulatory restrictions).

27. As of the Petition Date, the aggregate outstanding principal balance under the First Lien Term Loan was $120,000,000, plus accrued and unpaid interest and fees. The First Lien Lenders and their respective holdings are as follows:

28. Driftwood holds $32,000,000 in face amount of the First Lien Term Loan, representing approximately 26.67% of the total first lien facility. Driftwood acquired its position on the secondary market through a series of trades executed between March and July 2023 at a weighted average price of approximately $0.68 per dollar of face value, resulting in an aggregate cost basis of approximately $21,760,000. The Debtors understand that Driftwood's acquisition of its first lien position was conducted through standard secondary market trading channels and in compliance with the assignment provisions of the First Lien Credit Agreement.

29. Second Lien Notes. On or about June 1, 2020, Cascabel issued $45,000,000 in aggregate principal amount of 10.50% Senior Secured Second Lien Notes due June 1, 2027 (the "Second Lien Notes") pursuant to that certain Indenture, dated as of June 1, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the "Second Lien Indenture"), between Cascabel, as issuer, and Zynvaro Trust Company ("Zynvaro Trust"), located at 101 Hudson Street, Jersey City, New Jersey 07302, as indenture trustee (in such capacity, the "Second Lien Trustee"). The Second Lien Notes are secured by second priority liens on substantially all assets of the Debtors (excluding assets of Ridgeline Community Bank), subordinate to the liens securing the First Lien Term Loan pursuant to an intercreditor agreement. As of the Petition Date, the aggregate outstanding principal balance of the Second Lien Notes was $45,000,000, plus accrued and unpaid interest. The Debtors understand that Ashford Mezzanine Capital, LP ("Ashford Mezzanine") holds approximately $30,000,000 of the $45,000,000 in outstanding Second Lien Notes, with the remaining $15,000,000 held by various institutional investors.

30. Unsecured Notes. Cascabel has outstanding $18,500,000 in aggregate principal amount of bilateral unsecured notes bearing interest at 8.00% per annum, maturing on March 1, 2025 (the "Unsecured Notes"). The Unsecured Notes are not secured by any liens on the Debtors' assets.

31. The Debtors' total pre-petition funded debt is summarized as follows:

E. Pre-Petition Marketing Process

32. In anticipation of a potential chapter 11 filing, the Debtors retained Solstice Partners LLC ("Solstice Partners") on August 10, 2023, to market DIP financing opportunities and explore strategic alternatives for the Debtors' businesses. Solstice Partners is a nationally recognized investment bank with significant experience advising distressed companies and facilitating DIP financings. David R. Chin, a Managing Director at Solstice Partners' offices at 650 Fifth Avenue, 18th Floor, New York, New York 10019, served as the lead banker on the engagement.

33. Under Mr. Chin's direction, Solstice Partners conducted an expedited but thorough pre-petition marketing process. Solstice Partners prepared a confidential information memorandum describing the Debtors' business, financial condition, and DIP financing needs, and distributed the memorandum to a broad universe of potential DIP lenders, including commercial banks, specialty finance companies, private credit funds, and distressed debt investors. Solstice Partners received multiple indications of interest from potential DIP lenders.

34. After evaluating all received proposals, the Debtors, in consultation with Solstice Partners, Alderpoint, and CRO Kowalski, determined that the DIP proposal submitted by Driftwood represented the best available terms for the Debtors' estates. The Driftwood proposal was selected based on a comprehensive evaluation of the following factors: (a) pricing and overall cost of capital; (b) facility size and the adequacy of the new money commitment to fund the Debtors' projected liquidity needs throughout the chapter 11 cases; (c) speed of execution and certainty of closing; (d) operational flexibility, including the structure of financial covenants, milestones, and reporting requirements; and (e) the inclusion of the roll-up structure, which provides critical liquidity benefits and simplifies the Debtors' capital structure for purposes of a plan of reorganization. The Debtors negotiated the terms of the DIP Facility with Driftwood at arm's length, with the active participation of the Debtors' financial advisors.

III. THE DIP FACILITY

35. The material terms of the DIP Facility, as set forth in the DIP Credit Agreement (the "DIP Credit Agreement"), are summarized below. This summary is qualified in its entirety by reference to the DIP Credit Agreement, a copy of which is attached hereto as Exhibit C, and the DIP Term Sheet, a copy of which is attached hereto as Exhibit E. To the extent of any inconsistency between this summary and the DIP Credit Agreement, the DIP Credit Agreement shall control.

A. Summary of Material Terms

36. Parties. Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC, as borrowers (collectively, the "Borrowers"); Driftwood Absolute Return Fund Ltd., as DIP Lender.

37. Facility Size. The DIP Facility provides for a total commitment of $75,000,000, comprised of the following two tranches:

(a) New Money DIP Tranche: $43,000,000 in new money financing, available in two draws:

(i) Draw 1 (Interim): $18,000,000, available upon entry of the Interim DIP Order; and

(ii) Draw 2 (Final): $25,000,000, available upon entry of the Final DIP Order.

(b) Roll-Up Tranche: $32,000,000, representing a dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims, effective upon entry of the Final DIP Order.

38. Interest Rate. The DIP Facility bears interest at a rate per annum equal to Adjusted Term SOFR plus 900 basis points, with a SOFR floor of 4.00%. The minimum all-in interest rate on the DIP Facility is 13.00% per annum. Interest is payable monthly in arrears in cash.

39. Default Rate. Upon the occurrence and during the continuance of an Event of Default (as defined in the DIP Credit Agreement), the outstanding obligations under the DIP Facility shall bear interest at an additional 200 basis points above the otherwise applicable rate (i.e., Adjusted Term SOFR plus 1,100 basis points), with a minimum default rate of 15.00% per annum.

40. Maturity. The DIP Facility will mature on the earliest of: (i) twelve (12) months from the Petition Date (i.e., September 8, 2024); (ii) the effective date of a confirmed chapter 11 plan of reorganization or liquidation (the "Effective Date"); (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.

B. Fees.

41. Commitment Fee. A commitment fee equal to 2.00% of the total $75,000,000 commitment (the "Commitment Fee"), in the amount of $1,500,000, shall be fully earned upon entry of the Interim DIP Order and shall be payable to the DIP Lender from the proceeds of Draw 1. The Commitment Fee shall be non-refundable and shall not be subject to disgorgement.

42. Exit Fee. An exit fee equal to 1.50% of all amounts drawn under the DIP Facility (the "Exit Fee"), shall be payable to the DIP Lender upon the earlier of maturity, repayment in full, or acceleration of the DIP Facility. Based on the full $75,000,000 commitment, the Exit Fee would total $1,125,000.

43. Unused Line Fee. An unused line fee equal to 0.50% per annum on the daily average undrawn portion of the New Money DIP Tranche (the "Unused Line Fee"), accruing from the date of entry of the Interim DIP Order and payable quarterly in arrears. The Unused Line Fee shall cease to accrue upon the earlier of the full draw-down of the New Money DIP Tranche or the maturity of the DIP Facility.

C. Security — Priming Liens

44. The DIP Facility will be secured by first priority priming liens (the "DIP Liens") on substantially all assets of the Debtors, whether now owned or hereafter acquired, including, without limitation, all accounts, inventory, equipment, general intangibles, intellectual property, contract rights, deposit accounts, securities accounts, investment property, instruments, documents, chattel paper, letter-of-credit rights, commercial tort claims, and all proceeds and products of the foregoing (collectively, the "DIP Collateral").

45. The DIP Liens include a lien on the proceeds of avoidance actions arising under chapter 5 of the Bankruptcy Code, including sections 544, 545, 547, 548, 549, 550, and 553 of the Bankruptcy Code (collectively, "Avoidance Action Proceeds"), subject to entry of the Final DIP Order.

46. Excluded Collateral. The DIP Collateral expressly excludes any and all assets of Ridgeline Community Bank that are subject to regulatory restrictions imposed by the State Bank Commissioner and the FDIC. The Debtors and the DIP Lender acknowledge that Ridgeline operates as a regulated banking subsidiary outside of these chapter 11 cases and that its assets are not available to secure the DIP Facility.

47. Priming of Pre-Petition Liens. The DIP Liens are senior and prior to all existing liens on the DIP Collateral, including the first priority liens securing the First Lien Term Loan and the second priority liens securing the Second Lien Notes. The DIP Facility primes the existing pre-petition first lien term loan, as authorized by section 364(d)(1) of the Bankruptcy Code, subject to the adequate protection provisions described in Section IV below.

D. Superpriority Administrative Expense Claims

48. All obligations arising under the DIP Facility, including all principal, interest, fees, costs, expenses, and other amounts owing thereunder (collectively, the "DIP Obligations"), shall constitute allowed superpriority administrative expense claims against each of the Debtors' estates (the "DIP Superpriority Claims") pursuant to sections 364(c)(1) and 507(b) of the Bankruptcy Code. The DIP Superpriority Claims shall have priority over all other administrative expense claims and unsecured claims against the Debtors' estates, now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, administrative expenses arising under sections 503(b) and 507(b) of the Bankruptcy Code, and shall at all times be senior to the rights of the Debtors and any successor trustee, examiner, or any other estate representative, subject only to the Carve-Out (as defined below).

E. Roll-Up Mechanics

49. Upon entry of the Final DIP Order, $32,000,000 in face amount of Driftwood's pre-petition first lien claims under the First Lien Credit Agreement shall be deemed rolled up into the DIP Facility on a dollar-for-dollar basis (the "Roll-Up"). The Roll-Up Tranche shall constitute DIP Obligations under the DIP Credit Agreement and shall be entitled to the same DIP Liens and DIP Superpriority Claims as the New Money DIP Tranche, on a pari passu basis.

50. Upon the effectiveness of the Roll-Up, Driftwood's pre-petition secured claims in the amount of $32,000,000 under the First Lien Credit Agreement shall be extinguished and deemed satisfied in full, and such claims shall be replaced with DIP claims of equal face amount under the DIP Credit Agreement. Following the Roll-Up, Driftwood shall no longer hold any claims under the First Lien Credit Agreement, and the aggregate outstanding balance under the First Lien Term Loan shall be reduced from $120,000,000 to $88,000,000.

51. The Roll-Up is conditioned on entry of the Final DIP Order and is subject to the Challenge Period described in Section V below.

F. Budget and Financial Reporting

52. The Debtors shall operate in accordance with a 13-week rolling cash flow budget (the "Budget"), which is attached to the DIP Credit Agreement as Exhibit B and a copy of which is attached hereto as Exhibit D. The Budget sets forth the Debtors' projected receipts and disbursements on a weekly basis for the initial 13-week period following the Petition Date.

53. The Budget shall be updated every four (4) weeks on a rolling basis, subject to the approval of the DIP Lender (such approval not to be unreasonably withheld, conditioned, or delayed). Each updated Budget shall extend the projection period by an additional four weeks, maintaining a rolling 13-week forecast at all times.

54. The DIP Credit Agreement establishes permitted variances from the Budget. Specifically, the Debtors' actual results shall not deviate from the Budget by more than the following thresholds: (a) revenue: plus or minus 10%; and (b) disbursements: plus or minus 15%. Variance testing shall be conducted on a cumulative bi-weekly basis, with the first variance test occurring at the end of the second full week following the Petition Date.

55. In addition to the Budget, the Debtors shall provide the DIP Lender with weekly cash flow reports, monthly financial statements, and such other financial information as the DIP Lender may reasonably request from time to time. The Debtors shall also provide the DIP Lender with prompt notice of any material adverse change in the Debtors' business, operations, assets, or financial condition.

G. Milestones.

56. The DIP Credit Agreement contains the following milestone provisions (the "Milestones"), which require the Debtors to achieve specified restructuring benchmarks within established time frames:

(a) Interim DIP Order: The Court shall have entered the Interim DIP Order within five (5) business days of the Petition Date (target date: September 15, 2023).

(b) Final DIP Order: The Court shall have entered the Final DIP Order within thirty-five (35) days of the Petition Date (target date: October 13, 2023).

(c) Filing of Plan and Disclosure Statement: The Debtors shall have filed a chapter 11 plan of reorganization and related disclosure statement within ninety (90) days of the Petition Date (target date: December 7, 2023).

(d) Confirmation Order: The Court shall have entered an order confirming the Debtors' chapter 11 plan within one hundred fifty (150) days of the Petition Date (target date: February 5, 2024).

(e) Plan Effective Date: The Effective Date of the confirmed plan shall have occurred within one hundred eighty (180) days of the Petition Date (target date: March 6, 2024).

57. Failure to satisfy any Milestone by the applicable deadline shall constitute an Event of Default under the DIP Credit Agreement, unless such Milestone is extended by the DIP Lender in its sole discretion.

H. Carve-Out.

58. Notwithstanding any other provision of the DIP Credit Agreement or the DIP Orders, the DIP Liens and DIP Superpriority Claims shall be subject to a carve-out (the "Carve-Out") in the aggregate amount of $2,750,000, allocated as follows:

(a) $2,500,000 for allowed professional fees and expenses of professionals retained by the Debtors and the Committee pursuant to sections 327, 328, or 1103 of the Bankruptcy Code, incurred at any time during these chapter 11 cases; provided, however, that of the $2,500,000 allocated to professional fees, no more than $750,000 shall be available for the fees and expenses of professionals retained by the Committee; and

(b) $250,000 for fees payable to the Clerk of the Bankruptcy Court and to the U.S. Trustee pursuant to 28 U.S.C. § 1930(a)(6).

59. The Carve-Out shall be available regardless of whether an Event of Default has occurred and is continuing under the DIP Credit Agreement. The Carve-Out is designed to ensure that the Debtors' estates have sufficient resources to fund essential professional services and court fees, thereby protecting the integrity of the chapter 11 process.

I. DIP Lender's Professional Fees

60. Pursuant to Section 11.04 of the DIP Credit Agreement, all reasonable and documented fees and out-of-pocket expenses of Calderwood & Harkness LLP, as counsel to the DIP Lender, and any other advisors retained by the DIP Lender in connection with the DIP Facility and these chapter 11 cases, shall be paid by the Debtors' estates promptly upon presentation of reasonably detailed invoices, without the need for further Court approval or compliance with sections 327, 328, 330, or 331 of the Bankruptcy Code. Such fees and expenses shall constitute DIP Obligations and shall be entitled to the protections afforded to all DIP Obligations under the DIP Orders, including the DIP Liens and DIP Superpriority Claims.

IV. ADEQUATE PROTECTION FOR PRE-PETITION SECURED LENDERS

A. Adequate Protection for Pre-Petition First Lien Lenders

61. The pre-petition First Lien Lenders (other than Driftwood, whose first lien claims are being rolled up into the DIP Facility) hold an aggregate of $88,000,000 in outstanding first lien claims under the First Lien Credit Agreement. The remaining First Lien Lenders and their respective holdings are as follows:

62. In connection with the granting of the DIP Liens, which prime the existing first priority liens securing the First Lien Term Loan, the Debtors propose to provide the remaining First Lien Lenders with a comprehensive adequate protection package (the "First Lien Adequate Protection Package") to protect against any diminution in value of the First Lien Lenders' interests in the DIP Collateral resulting from the granting of the DIP Liens, the Debtors' use of cash collateral, and the imposition of the automatic stay. The First Lien Adequate Protection Package consists of the following elements:

(a) Replacement Liens. Pursuant to sections 361(2) and 364(d)(1) of the Bankruptcy Code, the remaining First Lien Lenders shall receive replacement liens (the "First Lien Replacement Liens") on the DIP Collateral, which First Lien Replacement Liens shall be junior only to the DIP Liens and the Carve-Out, and senior to all other liens on the DIP Collateral, including any replacement liens granted to the Second Lien Noteholders. The First Lien Replacement Liens shall secure the remaining First Lien Lenders' claims in the aggregate amount of $88,000,000, plus accrued and unpaid interest and other amounts owing under the First Lien Credit Agreement.

(b) Superpriority Administrative Expense Claims. Pursuant to section 507(b) of the Bankruptcy Code, the remaining First Lien Lenders shall receive allowed superpriority administrative expense claims (the "First Lien Adequate Protection Claims") to the extent the adequate protection provided herein proves insufficient to compensate for any diminution in value of the First Lien Lenders' interests in the DIP Collateral. The First Lien Adequate Protection Claims shall be junior to the DIP Superpriority Claims but senior to all other administrative expense claims against the Debtors' estates.

(c) Adequate Protection Payments. The Debtors shall make monthly current-pay interest payments (the "Adequate Protection Payments") to the remaining First Lien Lenders on the outstanding principal amount of $88,000,000 at the non-default contract rate of Adjusted Term SOFR plus 425 basis points per annum. Based on an assumed Adjusted Term SOFR rate of 5.33% (resulting in an all-in rate of approximately 9.58% per annum), the estimated monthly Adequate Protection Payment is approximately $702,133, payable in cash on the first business day of each calendar month, commencing on October 2, 2023. The Adequate Protection Payments shall be allocated among the remaining First Lien Lenders on a pro rata basis in accordance with their respective outstanding principal balances.

(d) Adequate Protection Reserve. The Debtors shall establish and fund an adequate protection reserve (the "Adequate Protection Reserve") in the amount of $3,500,000, to be funded from the proceeds of Draw 1. The Adequate Protection Reserve shall be held in a segregated interest-bearing deposit account at a financial institution acceptable to the Pre-Petition Agent and shall be available to fund Adequate Protection Payments in the event the Debtors' cash flow is insufficient to make such payments from operating revenues. The Adequate Protection Reserve shall be replenished by the Debtors from operating cash flow to the extent drawn upon, subject to the Budget.

(e) Professional Fee Reimbursement. The Debtors shall reimburse the reasonable and documented fees and out-of-pocket expenses of counsel to the Ad Hoc Group of First Lien Lenders, Hartwell & Crane LLP (Monica L. Hartwell, lead partner), located at 51 JFK Parkway, Suite 200, Short Hills, New Jersey 07078, in an aggregate amount not to exceed $1,200,000 (the "Ad Hoc Group Fee Cap"). Such fees and expenses shall constitute administrative expense claims against the Debtors' estates and shall be payable upon presentation of reasonably detailed invoices.

63. The Debtors submit that the First Lien Adequate Protection Package, taken as a whole, provides the remaining First Lien Lenders with the "indubitable equivalent" of their interests in the DIP Collateral and satisfies the requirements of sections 361 and 364(d)(1) of the Bankruptcy Code.

B. Adequate Protection for Pre-Petition Second Lien Noteholders

64. The holders of the Second Lien Notes (the "Second Lien Noteholders") hold an aggregate of $45,000,000 in claims secured by second priority liens on substantially all of the Debtors' assets, junior to the first priority liens securing the First Lien Term Loan, pursuant to the Second Lien Indenture and the intercreditor agreement between the First Lien Lenders and the Second Lien Trustee.

65. In connection with the DIP Facility, the Debtors propose to provide the Second Lien Noteholders with the following adequate protection:

(a) Replacement Liens. The Second Lien Noteholders shall receive replacement liens (the "Second Lien Replacement Liens") on the DIP Collateral, which Second Lien Replacement Liens shall be junior to (i) the DIP Liens, (ii) the Carve-Out, (iii) the First Lien Replacement Liens, and (iv) any other adequate protection liens granted to the First Lien Lenders. The Second Lien Replacement Liens shall maintain the same relative priority as the Second Lien Noteholders' pre-petition liens vis-à-vis the First Lien Lenders' liens.

66. The Debtors note that the Second Lien Noteholders' existing liens are not being directly primed by the DIP Facility in a manner that alters their relative priority vis-à-vis the First Lien Lenders. The DIP priming lien is senior to the first lien, and the second lien was already contractually and structurally junior to the first lien under the intercreditor agreement. Accordingly, the relative position of the Second Lien Noteholders is not materially altered by the DIP Facility. The Second Lien Replacement Liens provide additional protection against any diminution in value of the Second Lien Noteholders' interests resulting from the Debtors' use of cash collateral and the imposition of the automatic stay.

V. CHALLENGE PERIOD

67. The proposed Final DIP Order establishes a challenge period (the "Challenge Period") during which parties in interest may investigate and, if warranted, commence an adversary proceeding or contested matter challenging the validity, extent, priority, or perfection of the pre-petition liens securing the First Lien Term Loan and/or the Second Lien Notes, and/or the appropriateness of the Roll-Up. The Challenge Period is structured as follows:

(a) The Official Committee of Unsecured Creditors shall have seventy-five (75) days from entry of the Final DIP Order to investigate and commence any challenge (the "Committee Challenge Deadline").

(b) Any other party in interest shall have sixty (60) days from entry of the Final DIP Order to investigate and commence any challenge (the "General Challenge Deadline").

68. If no challenge is properly commenced within the applicable Challenge Period by a party with standing to assert such challenge, then (a) the pre-petition liens securing the First Lien Term Loan and the Second Lien Notes shall be deemed valid, properly perfected, enforceable, and not subject to avoidance, subordination, recharacterization, or disallowance under any applicable law or provision of the Bankruptcy Code, and (b) the Roll-Up shall be deemed valid and not subject to challenge, avoidance, or modification.

69. The Challenge Period is an important safeguard that protects the rights of the Committee and other parties in interest to investigate the pre-petition liens and the Roll-Up, while providing certainty and finality to the DIP Lender and the pre-petition secured lenders within a reasonable time frame. The Debtors submit that the proposed Challenge Period is consistent with the periods approved in comparable DIP financing orders in this District.

VI. THE DEBTORS' NEED FOR DIP FINANCING

A. Immediate Liquidity Needs

70. The Debtors' need for DIP financing is immediate, critical, and beyond reasonable dispute. Absent the liquidity provided by the DIP Facility, the Debtors will be unable to fund their ongoing operations, preserve the going-concern value of their businesses, or pursue a chapter 11 restructuring.

71. As described above, the Debtors' consolidated financial position reflects total assets of approximately $620 million and total liabilities of approximately $710 million, resulting in a negative equity position of approximately $90 million. The Debtors' available unrestricted cash at the holding company level is insufficient to fund the Debtors' anticipated near-term obligations, including payroll, critical vendor payments, insurance premiums, regulatory compliance costs, professional fees associated with these chapter 11 cases, and the U.S. Trustee's quarterly fees.

72. The Debtors' ongoing operations — including the preservation of the CAM advisory platform, which manages approximately $1.2 billion in client AUM — require continuous liquidity to fund day-to-day operations, retain key employees, and maintain the confidence of CAM's institutional and high-net-worth advisory clients. Any disruption in CAM's operations or any suggestion that CAM may be unable to meet its obligations could trigger a flight of client assets, which would permanently and irreversibly destroy going-concern value.

73. Draw 1 of $18,000,000 under the New Money DIP Tranche is immediately necessary upon entry of the Interim DIP Order to fund the following essential obligations and expenditures:

(a) Payroll and employee benefit obligations for the Debtors' workforce, including key personnel at CAM whose continued employment is essential to the preservation of client relationships and AUM;

(b) Critical vendor payments necessary to maintain the Debtors' operations, information technology systems, and regulatory compliance infrastructure;

(d) Funding of the $3,500,000 Adequate Protection Reserve for the benefit of the remaining First Lien Lenders;

(e) Payment of insurance premiums and other essential operating expenses; and

(f) Preservation of the going-concern value of the Debtors' businesses pending the final hearing on this Motion.

74. In the absence of prompt approval of the Interim DIP Order and Draw 1, the Debtors will face an immediate liquidity shortfall that will jeopardize their ability to maintain operations, meet payroll, retain employees, and preserve the going-concern value of their estates for the benefit of all stakeholders.

B. Inability to Obtain Unsecured or Junior Credit

75. The Debtors are unable to obtain unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense, or credit secured by liens junior to the existing pre-petition liens, or credit with priority over existing administrative expense claims under sections 364(a) or 364(b) of the Bankruptcy Code. The Debtors' deeply negative equity position, ongoing operating losses, and the stigma and uncertainty associated with the chapter 11 filing render the Debtors unable to access traditional credit markets or to borrow on an unsecured or junior secured basis.

76. The pre-petition marketing process conducted by Solstice Partners LLC confirmed that no lender was willing to provide DIP financing to the Debtors on an unsecured basis, on a basis secured by junior liens, or through the granting of administrative priority claims alone. Every DIP proposal received by Solstice Partners required the granting of priming liens and superpriority administrative expense claims as conditions to providing post-petition financing. The DIP Facility, with its priming liens and superpriority claims, represents the only financing available to the Debtors on commercially reasonable terms.

77. Accordingly, the Debtors have satisfied the threshold requirement of sections 364(c) and 364(d) of the Bankruptcy Code — namely, that the Debtors are unable to obtain credit on lesser terms — and the Court is authorized to approve the DIP Facility with priming liens and superpriority administrative expense claims.

VII. LEGAL BASIS FOR THE RELIEF REQUESTED

A. Authority to Obtain Post-Petition Financing Under § 364

78. Section 364 of the Bankruptcy Code provides a graduated framework for post-petition financing, authorizing the Court to approve credit on increasingly senior terms based on the debtor's demonstrated inability to obtain credit on lesser terms. Section 364(a) permits a debtor to obtain unsecured credit in the ordinary course of business as an administrative expense. Section 364(b) permits the Court to authorize a debtor to obtain unsecured credit outside the ordinary course of business. Section 364(c) permits the Court, upon notice and a hearing, to authorize a debtor to obtain credit:

(1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy Code;

(2) secured by a lien on property of the estate that is not otherwise subject to a lien; or

(3) secured by a junior lien on property of the estate that is subject to a lien;

provided that the debtor demonstrates that it is unable to obtain credit otherwise. 11 U.S.C. § 364(c).

79. Section 364(d)(1) authorizes the Court, upon 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 (a "priming lien"), provided that (i) the debtor is unable to obtain credit otherwise, and (ii) there is adequate protection of the interest of the holder of the existing lien on the property to be primed. 11 U.S.C. § 364(d)(1).

80. To determine whether proposed DIP financing should be approved, courts in this District and elsewhere apply a well-established standard that considers: (a) whether the proposed financing is in the best interests of the estate; (b) whether the debtor is unable to obtain financing on lesser terms; (c) whether the proposed terms are fair and reasonable; and (d) whether the proposed financing was negotiated in good faith and at arm's length. See, e.g., In re Ames Dep't Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990); In re Crouse Group, Inc., 71 B.R. 544, 549 (Bankr. E.D. Pa. 1987). Courts generally give considerable deference to the debtor's business judgment in selecting DIP financing, particularly where the debtor has conducted a meaningful marketing process. See In re Lyondell Chem. Co., 402 B.R. 571, 588 (Bankr. S.D.N.Y. 2009).

81. Here, the DIP Facility satisfies each of these requirements. The DIP Facility is in the best interests of the Debtors' estates because it provides the critical liquidity necessary to fund operations, preserve going-concern value, and pursue a chapter 11 restructuring. The Debtors are unable to obtain financing on lesser terms, as confirmed by the Solstice Partners marketing process. The DIP terms are fair and reasonable in light of the Debtors' financial condition and the risks assumed by the DIP Lender. And the DIP Facility was negotiated at arm's length, as described in Section VII.E below.

B. Priming Lien Authorization Under § 364(d)

82. The Debtors satisfy both requirements of section 364(d)(1) of the Bankruptcy Code, warranting the Court's approval of the priming liens in favor of the DIP Lender.

83. Inability to Obtain Credit Otherwise. As described in detail in Section VI above, the Debtors are unable to obtain DIP financing without granting priming liens. The pre-petition marketing process conducted by Solstice Partners confirmed that no potential DIP lender was willing to provide financing secured by liens junior to the existing first priority liens or on an unsecured basis. The DIP Facility, with priming liens on substantially all of the Debtors' assets, represents the only financing available to the Debtors. The Debtors have thus satisfied the first prong of the section 364(d)(1) test.

84. Adequate Protection. The pre-petition First Lien Lenders whose liens are being primed are adequately protected through the comprehensive First Lien Adequate Protection Package described in Section IV.A above. The First Lien Adequate Protection Package provides the remaining First Lien Lenders with (i) replacement liens on the DIP Collateral, junior only to the DIP Liens and the Carve-Out; (ii) superpriority administrative expense claims under section 507(b) of the Bankruptcy Code; (iii) monthly adequate protection payments at the non-default contract rate of SOFR plus 425 basis points per annum (estimated at approximately $702,133 per month); (iv) a $3,500,000 Adequate Protection Reserve funded from Draw 1 proceeds; and (v) reimbursement of the reasonable fees and expenses of Hartwell & Crane LLP, counsel to the Ad Hoc Group of First Lien Lenders, subject to a cap of $1,200,000.

85. The adequate protection package, taken as a whole, provides the pre-petition First Lien Lenders with the "indubitable equivalent" of their interests in the DIP Collateral. See 11 U.S.C. § 361(3); see also In re Mosello, 195 B.R. 277, 289–90 (Bankr. S.D.N.Y. 1996) (holding that adequate protection must provide the lienholder with the equivalent of its bargained-for rights). The replacement liens preserve the First Lien Lenders' secured position (albeit at a lower priority) in the same collateral pool; the superpriority claims provide an additional layer of protection; the monthly adequate protection payments compensate for the time value of money during the pendency of these cases; and the Adequate Protection Reserve provides a cushion against any temporary cash flow shortfalls. The Debtors have thus satisfied the second prong of the section 364(d)(1) test.

C. Authority for the Roll-Up

86. Courts in this District and elsewhere have approved dollar-for-dollar roll-ups of pre-petition secured claims into DIP facilities where the roll-up is justified by the benefits to the estate and where appropriate safeguards are in place to protect the interests of parties in interest. See, e.g., In re Lyondell Chem. Co., 402 B.R. 571, 588–89 (Bankr. S.D.N.Y. 2009); In re Fieldwood Energy LLC, Case No. 20-33948 (MI) (Bankr. S.D. Tex. 2020); In re Belk, Inc., Case No. 21-30630 (CRS) (Bankr. S.D. Tex. 2021). While roll-ups require careful scrutiny, they are a well-recognized feature of DIP financing arrangements and are permissible where the roll-up provides material benefits to the debtor's estate and is subject to adequate protections for creditors.

87. The Roll-Up of Driftwood's $32,000,000 pre-petition first lien claims is appropriate and should be approved for the following reasons:

(a) Condition to DIP Facility. The Roll-Up was an essential condition of Driftwood's agreement to provide the DIP Facility. Driftwood has informed the Debtors that it would not have agreed to provide $43,000,000 in new money DIP financing without the concurrent roll-up of its pre-petition first lien claims. Absent the Roll-Up, the DIP Facility would not be available to the Debtors, and the Debtors' estates would be deprived of the critical liquidity needed to fund operations and pursue a restructuring.

(b) Simplification of Capital Structure. The Roll-Up simplifies the Debtors' capital structure by reducing the number of distinct creditor constituencies holding first lien claims, which facilitates the Debtors' plan negotiations and reorganization process. Following the Roll-Up, the First Lien Term Loan balance will be reduced from $120,000,000 to $88,000,000, and Driftwood's claims will be consolidated into the DIP Facility.

(c) Challenge Period. The Roll-Up is subject to the Challenge Period, which provides the Committee with 75 days and other parties in interest with 60 days from entry of the Final DIP Order to investigate and challenge the validity, perfection, priority, or enforceability of the pre-petition liens and the Roll-Up. The Challenge Period is a critical safeguard that preserves the estate's rights and ensures that the Roll-Up is subject to appropriate scrutiny before becoming final and indefeasible.

(d) Validity of Pre-Petition Claims. The pre-petition claims being rolled up are valid, properly perfected first lien claims held by Driftwood under the First Lien Credit Agreement. The Debtors are not aware of any basis to challenge the validity, perfection, or priority of Driftwood's pre-petition liens, although the Challenge Period preserves the right of the Committee and other parties to investigate and assert any such challenges.

88. For these reasons, the Debtors submit that the Roll-Up is appropriate, is in the best interests of the Debtors' estates, and should be approved by the Court.

D. Superpriority Administrative Expense Claims Under § 364(c)(1)

89. Section 364(c)(1) of the Bankruptcy Code authorizes the Court to grant superpriority administrative expense claim status to a post-petition lender, with priority over any or all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code. As described above, the DIP Obligations, including both the New Money DIP Tranche and the Roll-Up Tranche, will constitute allowed superpriority administrative expense claims (the DIP Superpriority Claims) senior to all other administrative expenses of the Debtors' estates, now existing or hereafter arising, subject only to the Carve-Out.

90. The grant of superpriority administrative expense claim status is appropriate here because (a) it is a necessary condition of Driftwood's willingness to provide the DIP Facility; (b) the Debtors are unable to obtain DIP financing without granting superpriority claims; and (c) the Carve-Out provides an appropriate carve-out from the superpriority claims to fund essential professional fees and court costs.

E. Good Faith of the DIP Lender Under § 364(e)

91. Section 364(e) of the Bankruptcy Code provides that the reversal or modification on appeal of an order authorizing post-petition financing does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended credit in good faith. 11 U.S.C. § 364(e). The protections of section 364(e) serve the important policy purpose of encouraging lenders to provide post-petition financing to distressed companies by assuring lenders that their liens and priority claims will not be retroactively unwound on appeal.

92. Driftwood extended credit under the DIP Facility in good faith and is entitled to the protections of section 364(e). The DIP Facility was negotiated at arm's length between the Debtors and Driftwood, with the active participation of the Debtors' financial advisor, Alderpoint Advisory Partners LLC (through CRO Terrence M. Kowalski), and the Debtors' investment banker, Solstice Partners LLC (through Managing Director David R. Chin). The terms of the DIP Facility were the product of genuine arm's-length negotiations conducted in a competitive process, and were not the result of collusion or overreaching by Driftwood.

93. While Driftwood holds a pre-petition first lien position under the First Lien Credit Agreement, this fact does not negate the arm's-length nature of the DIP negotiations. Driftwood acquired its first lien position on the secondary market and has acted in the capacity of a sophisticated financial investor. The Debtors' independent financial advisors supervised the DIP marketing and negotiation process, evaluated the DIP terms for fairness and reasonableness, and confirmed that the Driftwood proposal represented the best available financing for the Debtors' estates. The existence of Driftwood's pre-petition position was known to all participants in the process and was fully considered in the Debtors' evaluation of the competing DIP proposals.

VIII. REQUEST FOR INTERIM RELIEF

94. Pursuant to Bankruptcy Rule 4001(c)(2), which permits the Court to authorize a debtor to obtain credit on an interim basis pending a final hearing, the Debtors respectfully request that the Court enter the Interim DIP Order, substantially in the form attached hereto as Exhibit A, authorizing the following relief on an interim basis:

(a) Interim borrowing of up to $18,000,000 (Draw 1) under the New Money DIP Tranche of the DIP Facility;

(b) Interim grant of the DIP Liens (priming liens) in favor of Driftwood on substantially all assets of the Debtors, excluding assets of Ridgeline Community Bank subject to regulatory restrictions;

(c) Interim adequate protection for the pre-petition First Lien Lenders as described in Section IV.A above, including the establishment and funding of the $3,500,000 Adequate Protection Reserve;

(d) Payment of the $1,500,000 Commitment Fee to the DIP Lender from the proceeds of Draw 1;

(e) Funding of the $3,500,000 Adequate Protection Reserve from the proceeds of Draw 1; and

(f) Such other and further interim relief as is just and proper.

95. The Debtors respectfully request that the interim hearing on this Motion be scheduled within five (5) business days of the Petition Date, on or before September 15, 2023, as contemplated by the Milestones set forth in the DIP Credit Agreement.

96. The Debtors further request that the final hearing on this Motion be scheduled approximately thirty (30) days following the interim hearing, on approximately 14 days' notice to all parties in interest, as required by Bankruptcy Rule 4001(c)(2). The Debtors propose that the final hearing be held on or before October 13, 2023, consistent with the Final DIP Order Milestone.

97. The Debtors submit that the interim relief requested herein is necessary to avoid immediate and irreparable harm to the Debtors' estates. Without the interim availability of $18,000,000 under Draw 1, the Debtors will be unable to fund payroll, pay critical vendors, establish the Adequate Protection Reserve, or maintain operations during the period between the interim and final hearings.

IX. REQUEST FOR FINAL RELIEF

98. At the final hearing,

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
DEBTORS' MOTION FOR ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN SENIOR SECURED SUPERPRIORITY DEBTOR-IN-POSSESSION FINANCING, (II) GRANTING FIRST PRIORITY PRIMING LIENS AND SUPERPRIORITY ADMINISTRATIVE EXPENSE CLAIMS, (III) APPROVING THE ROLL-UP OF CERTAIN PRE-PETITION SECURED CLAIMS, (IV) PROVIDING ADEQUATE PROTECTION TO PRE-PETITION SECURED LENDERS, (V) SCHEDULING A FINAL HEARING, AND (VI) GRANTING RELATED RELIEF
PRELIMINARY STATEMENT
The above-captioned debtors and debtors in possession (collectively, the "Debtors") hereby move (the "Motion") this Court, pursuant to sections 105(a), 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), and 507(b) of title 11 of the United States Code, 11 U.S.C. §§ 101–1532 (as amended, the "Bankruptcy Code"), Rules 2002, 4001, 6004, and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and the Local Rules of the United States Bankruptcy Court for the District of Delaware (the "Local Rules"), for entry of an interim order (the "Interim DIP Order") and a final order (the "Final DIP Order," and together with the Interim DIP Order, the "DIP Orders") granting the relief described herein. In support of this Motion, the Debtors respectfully represent as follows:
1. Cascabel Financial Holdings, Inc. ("Cascabel," "CFH," or the "Company"), a Delaware corporation, and Cascabel Asset Management LLC ("CAM"), a Delaware limited liability company and registered investment adviser with the U.S. Securities and Exchange Commission (the "SEC"), filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on September 8, 2023 (the "Petition Date"). The Debtors continue to operate their businesses and manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.
2. Ridgeline Community Bank ("Ridgeline" or "RCB"), a Delaware state-chartered commercial bank regulated by the Delaware Office of the State Bank Commissioner (the "State Bank Commissioner") and the Federal Deposit Insurance Corporation (the "FDIC"), is a wholly-owned subsidiary of Cascabel. Ridgeline was intentionally and purposefully excluded from the chapter 11 filing and continues to operate in the ordinary course under the ongoing supervision of its banking regulators. The preservation of Ridgeline's operations outside of these bankruptcy proceedings is of critical importance to the Debtors' restructuring efforts, to Ridgeline's depositors and borrowers, and to the broader financial stability of the communities Ridgeline serves.
3. By this Motion, the Debtors seek entry of the DIP Orders authorizing the Debtors to enter into a $75,000,000 Senior Secured Superpriority Debtor-in-Possession Credit Facility (the "DIP Facility") with Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company, as DIP Lender (the "DIP Lender"). The DIP Facility is comprised of two tranches: (a) $43,000,000 of new money financing (the "New Money DIP Tranche"), which will provide the Debtors with the critical liquidity necessary to fund ongoing operations, preserve going-concern value, and pursue a chapter 11 reorganization; and (b) a $32,000,000 dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims (the "Roll-Up Tranche"), which will simplify the Debtors' capital structure and was a critical condition to Driftwood's agreement to provide the DIP Facility.
4. The need for the DIP Facility is immediate and acute. Without the liquidity provided by the DIP Facility, the Debtors will be unable to fund ongoing operations, meet payroll obligations, pay critical vendors, maintain the CAM advisory platform (which manages approximately $1.2 billion in client assets under management), service the administrative costs of these chapter 11 cases, and pursue a value-maximizing restructuring. The Debtors' financial condition — with total assets of approximately $620 million and total liabilities of approximately $710 million, reflecting a negative equity position of approximately $90 million — underscores the urgency of the DIP financing request.
5. The DIP Facility represents the best available financing after an extensive and thorough pre-petition marketing process conducted by Solstice Partners LLC ("Solstice Partners"), the Debtors' investment banker, under the direction of Managing Director David R. Chin. Solstice Partners contacted multiple potential DIP lenders, solicited indications of interest, and evaluated competing proposals. After careful consideration of all available options, including an analysis of pricing, facility size, speed of execution, operational flexibility, and the inclusion of a roll-up structure that facilitates the Debtors' reorganization, the Debtors, in consultation with their financial advisors, determined that the DIP proposal from Driftwood represented the most favorable terms available to the Debtors' estates.
6. The Debtors have been unable to obtain post-petition financing on an unsecured basis, on a basis secured by junior liens, or through the granting of administrative priority claims alone. The Debtors' deeply negative equity position, ongoing operating losses, and the stigma associated with the bankruptcy filing preclude the Debtors from accessing traditional credit markets or obtaining DIP financing on lesser terms. Accordingly, the DIP Facility requires the granting of first priority priming liens on substantially all of the Debtors' assets and superpriority administrative expense claims, as authorized by sections 364(c) and 364(d) of the Bankruptcy Code.
7. In connection with the DIP Facility, the Debtors propose to provide the pre-petition first lien lenders (other than Driftwood, whose claims are being rolled up) with a comprehensive adequate protection package, including replacement liens, section 507(b) superpriority claims, monthly adequate protection payments at the non-default contract rate, a $3,500,000 adequate protection reserve, and reimbursement of counsel fees for the Ad Hoc Group of First Lien Lenders, all as more fully described herein. The Debtors also propose to provide the pre-petition second lien noteholders with replacement liens on the DIP collateral, junior to the DIP liens and the pre-petition first lien replacement liens.
8. This Motion is filed by the Debtors' counsel, Whitfield, Graves & Sato LLP (Jonathan R. Whitfield, lead partner; Rachel P. Dumont, lead associate), in coordination with Calderwood & Harkness LLP (Colette Whitman, responsible partner; Amy Chesterton, lead associate), counsel to Driftwood, the DIP Lender. The factual statements set forth herein are supported by the Declaration of Terrence M. Kowalski, Chief Restructuring Officer of Cascabel Financial Holdings, Inc. (the "Kowalski Declaration"), filed contemporaneously herewith.
I. JURISDICTION AND VENUE
9. This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference of the United States District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (D), and (M). The Debtors confirm their consent, pursuant to Local Rule 9013-1(f), to the entry of a final order by this Court to the extent that it is later determined that this Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution.
10. Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. Cascabel Financial Holdings, Inc. is incorporated in the State of Delaware, and both Debtors maintain their principal offices within this District.
11. The statutory predicates for the relief requested herein are sections 105(a), 361, 362, 363, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), and 507(b) of the Bankruptcy Code, Bankruptcy Rules 2002, 4001, 6004, and 9014, and the Local Rules of this Court.
II. BACKGROUND
A. The Debtors' Business
12. Cascabel Financial Holdings, Inc. is a Delaware corporation with its principal office located at 1200 Market Street, Suite 900, Wilmington, Delaware 19801. Cascabel's federal employer identification number is 84-3291057. Cascabel serves as a holding company for a mid-market financial services platform combining two principal business lines: (a) investment advisory services, conducted through Cascabel Asset Management LLC; and (b) community banking, conducted through Ridgeline Community Bank.
13. Cascabel Asset Management LLC. CAM is a Delaware limited liability company and wholly-owned subsidiary of Cascabel. CAM is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended. As of the Petition Date, CAM managed approximately $1.2 billion in client assets under management ("AUM") across a range of investment strategies, including fixed income, equity, and multi-asset portfolios, on behalf of institutional and high-net-worth clients. CAM generates revenue primarily through management fees based on AUM and, to a lesser extent, performance-based fees. CAM's advisory platform represents a significant going-concern asset of the Debtors' estates, and the preservation of CAM's client relationships and investment management infrastructure is essential to the Debtors' restructuring efforts.
14. Ridgeline Community Bank. Ridgeline is a Delaware state-chartered commercial bank and wholly-owned subsidiary of Cascabel. Ridgeline is regulated by the State Bank Commissioner and the FDIC. As of the Petition Date, Ridgeline held total deposits of approximately $385 million and maintained a network of branch offices serving communities throughout northern Delaware and southeastern Pennsylvania. Ridgeline was intentionally excluded from the chapter 11 filing and continues to operate under regulatory supervision. The Debtors' restructuring strategy contemplates that Ridgeline will continue to operate outside of the bankruptcy estate, subject to ongoing regulatory oversight by the State Bank Commissioner and the FDIC. Ridgeline's assets are ring-fenced from these chapter 11 cases and are excluded from the DIP collateral package, as more fully described below.
15. The Debtors' management team includes Gerald T. Harmon, Chief Executive Officer, and Susan K. Nakamura, Chief Financial Officer. In anticipation of the chapter 11 filing, Cascabel's board of directors engaged Alderpoint Advisory Partners LLC ("Alderpoint") as the Debtors' financial advisor and, on August 25, 2023, appointed Terrence M. Kowalski, a managing director of Alderpoint, as Chief Restructuring Officer ("CRO") of Cascabel. Mr. Kowalski brings extensive experience in financial services restructurings and is overseeing the Debtors' day-to-day restructuring activities.
B. Events Leading to the Chapter 11 Filing
16. Cascabel's financial distress stemmed from three principal causes that, in combination, eroded the Company's liquidity and capital position and ultimately necessitated the commencement of these chapter 11 cases.
17. Concentrated Commercial Real Estate Loan Losses at Ridgeline Community Bank. Ridgeline's commercial real estate ("CRE") loan portfolio experienced significant deterioration beginning in mid-2022, driven by declining property values in the office and retail sectors within Ridgeline's primary lending markets. As interest rates rose through 2022 and into 2023, a number of Ridgeline's CRE borrowers experienced difficulty refinancing maturing loans and meeting debt service obligations. Ridgeline was compelled to increase its provision for loan losses substantially and to recognize significant charge-offs against its CRE portfolio. These losses impaired Ridgeline's capital ratios and triggered heightened regulatory scrutiny from the State Bank Commissioner and the FDIC. As Ridgeline's parent company, Cascabel was called upon to downstream capital to Ridgeline to support the bank's capital adequacy, which further depleted the holding company's cash resources.
18. Failed Acquisition of a Fintech Lender. In late 2022, Cascabel entered into a definitive agreement to acquire a fintech lending platform for an aggregate purchase price of approximately $55 million. The transaction was expected to diversify Cascabel's revenue base and provide a technology-enabled origination channel for consumer and small business loans. However, the acquisition was terminated in early 2023 after regulatory approvals were delayed and market conditions deteriorated. Cascabel incurred approximately $8.5 million in non-recoverable transaction costs, including breakup fees, advisory fees, and due diligence expenses, which further strained the Company's financial position.
19. Liquidity Crisis Triggered by Depositor Outflows. During the first and second quarters of 2023, Ridgeline experienced significant depositor outflows as regional banking concerns intensified in the wake of several high-profile bank failures nationally. Uninsured depositors, in particular, accelerated withdrawals from Ridgeline, reducing the bank's deposit base by approximately $75 million over a six-month period. These outflows required Ridgeline to access higher-cost wholesale funding sources and, ultimately, required Cascabel to provide additional liquidity support to the bank. The combination of depositor outflows, increased wholesale funding costs, and the need to downstream capital to Ridgeline placed extreme pressure on Cascabel's consolidated liquidity position.
20. As of the Petition Date, Cascabel had consolidated total assets of approximately $620 million and consolidated total liabilities of approximately $710 million, reflecting a negative equity position of approximately $90 million. The Debtors' available unrestricted cash at the holding company level was insufficient to fund ongoing operations, pay employees, maintain the CAM advisory platform, and service the administrative costs of a chapter 11 case without post-petition financing.
C. The Chapter 11 Cases
21. On September 8, 2023 (the "Petition Date"), Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC each filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in this Court. The cases are being jointly administered under Case No. 23-11487 (KFM) for procedural purposes pursuant to Bankruptcy Rule 1015(b).
22. Ridgeline Community Bank was excluded from the chapter 11 filing and continues to operate in the ordinary course under the ongoing regulatory supervision of the State Bank Commissioner and the FDIC. The exclusion of Ridgeline from the chapter 11 cases was a deliberate and essential element of the Debtors' restructuring strategy, designed to preserve the stability of the banking subsidiary, protect depositors, and avoid the potential adverse consequences of subjecting a regulated bank to bankruptcy proceedings.
23. The Debtors filed their schedules of assets and liabilities and statements of financial affairs on September 22, 2023. On the same date, the United States Trustee for the District of Delaware (the "U.S. Trustee") appointed the Official Committee of Unsecured Creditors (the "Committee") pursuant to section 1102 of the Bankruptcy Code. The Committee retained Breckenridge McCoy LLP (Thomas A. Breckenridge, lead partner) as its counsel.
24. The Debtors continue to operate their businesses and manage their properties as debtors in possession. No trustee, examiner, or patient care ombudsman has been appointed in these cases. The Debtors have filed, or intend to file, various "first day" motions seeking authority to, among other things, pay employee wages and benefits, maintain existing cash management systems, pay certain pre-petition claims of critical vendors, and obtain post-petition financing.
D. Pre-Petition Capital Structure
25. As of the Petition Date, the Debtors' pre-petition funded debt totaled approximately $183,500,000, structured in three tranches as follows:
26. First Lien Term Loan. On January 15, 2021, Cascabel entered into a $120,000,000 senior secured term loan (the "First Lien Term Loan") pursuant to that certain Credit Agreement, dated as of January 15, 2021 (as amended, restated, supplemented, or otherwise modified from time to time, the "First Lien Credit Agreement"), among Cascabel, as borrower, the lenders party thereto from time to time (collectively, the "First Lien Lenders"), and Velthorn National Bank, N.A. ("Velthorn"), located at 500 Boylston Street, Boston, Massachusetts 02116, as administrative agent and collateral agent (in such capacity, the "Pre-Petition Agent"). The First Lien Term Loan bears interest at Adjusted Term SOFR plus 425 basis points per annum and matures on January 15, 2026. The First Lien Term Loan is secured by first priority liens on substantially all assets of the Debtors (excluding assets of Ridgeline Community Bank that are subject to regulatory restrictions).
27. As of the Petition Date, the aggregate outstanding principal balance under the First Lien Term Loan was $120,000,000, plus accrued and unpaid interest and fees. The First Lien Lenders and their respective holdings are as follows:
28. Driftwood holds $32,000,000 in face amount of the First Lien Term Loan, representing approximately 26.67% of the total first lien facility. Driftwood acquired its position on the secondary market through a series of trades executed between March and July 2023 at a weighted average price of approximately $0.68 per dollar of face value, resulting in an aggregate cost basis of approximately $21,760,000. The Debtors understand that Driftwood's acquisition of its first lien position was conducted through standard secondary market trading channels and in compliance with the assignment provisions of the First Lien Credit Agreement.
29. Second Lien Notes. On or about June 1, 2020, Cascabel issued $45,000,000 in aggregate principal amount of 10.50% Senior Secured Second Lien Notes due June 1, 2027 (the "Second Lien Notes") pursuant to that certain Indenture, dated as of June 1, 2020 (as amended, restated, supplemented, or otherwise modified from time to time, the "Second Lien Indenture"), between Cascabel, as issuer, and Zynvaro Trust Company ("Zynvaro Trust"), located at 101 Hudson Street, Jersey City, New Jersey 07302, as indenture trustee (in such capacity, the "Second Lien Trustee"). The Second Lien Notes are secured by second priority liens on substantially all assets of the Debtors (excluding assets of Ridgeline Community Bank), subordinate to the liens securing the First Lien Term Loan pursuant to an intercreditor agreement. As of the Petition Date, the aggregate outstanding principal balance of the Second Lien Notes was $45,000,000, plus accrued and unpaid interest. The Debtors understand that Ashford Mezzanine Capital, LP ("Ashford Mezzanine") holds approximately $30,000,000 of the $45,000,000 in outstanding Second Lien Notes, with the remaining $15,000,000 held by various institutional investors.
30. Unsecured Notes. Cascabel has outstanding $18,500,000 in aggregate principal amount of bilateral unsecured notes bearing interest at 8.00% per annum, maturing on March 1, 2025 (the "Unsecured Notes"). The Unsecured Notes are not secured by any liens on the Debtors' assets.
31. The Debtors' total pre-petition funded debt is summarized as follows:
E. Pre-Petition Marketing Process
32. In anticipation of a potential chapter 11 filing, the Debtors retained Solstice Partners LLC ("Solstice Partners") on August 10, 2023, to market DIP financing opportunities and explore strategic alternatives for the Debtors' businesses. Solstice Partners is a nationally recognized investment bank with significant experience advising distressed companies and facilitating DIP financings. David R. Chin, a Managing Director at Solstice Partners' offices at 650 Fifth Avenue, 18th Floor, New York, New York 10019, served as the lead banker on the engagement.
33. Under Mr. Chin's direction, Solstice Partners conducted an expedited but thorough pre-petition marketing process. Solstice Partners prepared a confidential information memorandum describing the Debtors' business, financial condition, and DIP financing needs, and distributed the memorandum to a broad universe of potential DIP lenders, including commercial banks, specialty finance companies, private credit funds, and distressed debt investors. Solstice Partners received multiple indications of interest from potential DIP lenders.
34. After evaluating all received proposals, the Debtors, in consultation with Solstice Partners, Alderpoint, and CRO Kowalski, determined that the DIP proposal submitted by Driftwood represented the best available terms for the Debtors' estates. The Driftwood proposal was selected based on a comprehensive evaluation of the following factors: (a) pricing and overall cost of capital; (b) facility size and the adequacy of the new money commitment to fund the Debtors' projected liquidity needs throughout the chapter 11 cases; (c) speed of execution and certainty of closing; (d) operational flexibility, including the structure of financial covenants, milestones, and reporting requirements; and (e) the inclusion of the roll-up structure, which provides critical liquidity benefits and simplifies the Debtors' capital structure for purposes of a plan of reorganization. The Debtors negotiated the terms of the DIP Facility with Driftwood at arm's length, with the active participation of the Debtors' financial advisors.
III. THE DIP FACILITY
35. The material terms of the DIP Facility, as set forth in the DIP Credit Agreement (the "DIP Credit Agreement"), are summarized below. This summary is qualified in its entirety by reference to the DIP Credit Agreement, a copy of which is attached hereto as Exhibit C, and the DIP Term Sheet, a copy of which is attached hereto as Exhibit E. To the extent of any inconsistency between this summary and the DIP Credit Agreement, the DIP Credit Agreement shall control.
A. Summary of Material Terms
36. Parties. Cascabel Financial Holdings, Inc. and Cascabel Asset Management LLC, as borrowers (collectively, the "Borrowers"); Driftwood Absolute Return Fund Ltd., as DIP Lender.
37. Facility Size. The DIP Facility provides for a total commitment of $75,000,000, comprised of the following two tranches:
(a) New Money DIP Tranche: $43,000,000 in new money financing, available in two draws:
(i) Draw 1 (Interim): $18,000,000, available upon entry of the Interim DIP Order; and
(ii) Draw 2 (Final): $25,000,000, available upon entry of the Final DIP Order.
(b) Roll-Up Tranche: $32,000,000, representing a dollar-for-dollar roll-up of Driftwood's pre-petition first lien claims, effective upon entry of the Final DIP Order.
38. Interest Rate. The DIP Facility bears interest at a rate per annum equal to Adjusted Term SOFR plus 900 basis points, with a SOFR floor of 4.00%. The minimum all-in interest rate on the DIP Facility is 13.00% per annum. Interest is payable monthly in arrears in cash.
39. Default Rate. Upon the occurrence and during the continuance of an Event of Default (as defined in the DIP Credit Agreement), the outstanding obligations under the DIP Facility shall bear interest at an additional 200 basis points above the otherwise applicable rate (i.e., Adjusted Term SOFR plus 1,100 basis points), with a minimum default rate of 15.00% per annum.
40. Maturity. The DIP Facility will mature on the earliest of: (i) twelve (12) months from the Petition Date (i.e., September 8, 2024); (ii) the effective date of a confirmed chapter 11 plan of reorganization or liquidation (the "Effective Date"); (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.
B. Fees.
41. Commitment Fee. A commitment fee equal to 2.00% of the total $75,000,000 commitment (the "Commitment Fee"), in the amount of $1,500,000, shall be fully earned upon entry of the Interim DIP Order and shall be payable to the DIP Lender from the proceeds of Draw 1. The Commitment Fee shall be non-refundable and shall not be subject to disgorgement.
42. Exit Fee. An exit fee equal to 1.50% of all amounts drawn under the DIP Facility (the "Exit Fee"), shall be payable to the DIP Lender upon the earlier of maturity, repayment in full, or acceleration of the DIP Facility. Based on the full $75,000,000 commitment, the Exit Fee would total $1,125,000.
43. Unused Line Fee. An unused line fee equal to 0.50% per annum on the daily average undrawn portion of the New Money DIP Tranche (the "Unused Line Fee"), accruing from the date of entry of the Interim DIP Order and payable quarterly in arrears. The Unused Line Fee shall cease to accrue upon the earlier of the full draw-down of the New Money DIP Tranche or the maturity of the DIP Facility.
C. Security — Priming Liens
44. The DIP Facility will be secured by first priority priming liens (the "DIP Liens") on substantially all assets of the Debtors, whether now owned or hereafter acquired, including, without limitation, all accounts, inventory, equipment, general intangibles, intellectual property, contract rights, deposit accounts, securities accounts, investment property, instruments, documents, chattel paper, letter-of-credit rights, commercial tort claims, and all proceeds and products of the foregoing (collectively, the "DIP Collateral").
45. The DIP Liens include a lien on the proceeds of avoidance actions arising under chapter 5 of the Bankruptcy Code, including sections 544, 545, 547, 548, 549, 550, and 553 of the Bankruptcy Code (collectively, "Avoidance Action Proceeds"), subject to entry of the Final DIP Order.
46. Excluded Collateral. The DIP Collateral expressly excludes any and all assets of Ridgeline Community Bank that are subject to regulatory restrictions imposed by the State Bank Commissioner and the FDIC. The Debtors and the DIP Lender acknowledge that Ridgeline operates as a regulated banking subsidiary outside of these chapter 11 cases and that its assets are not available to secure the DIP Facility.
47. Priming of Pre-Petition Liens. The DIP Liens are senior and prior to all existing liens on the DIP Collateral, including the first priority liens securing the First Lien Term Loan and the second priority liens securing the Second Lien Notes. The DIP Facility primes the existing pre-petition first lien term loan, as authorized by section 364(d)(1) of the Bankruptcy Code, subject to the adequate protection provisions described in Section IV below.
D. Superpriority Administrative Expense Claims
48. All obligations arising under the DIP Facility, including all principal, interest, fees, costs, expenses, and other amounts owing thereunder (collectively, the "DIP Obligations"), shall constitute allowed superpriority administrative expense claims against each of the Debtors' estates (the "DIP Superpriority Claims") pursuant to sections 364(c)(1) and 507(b) of the Bankruptcy Code. The DIP Superpriority Claims shall have priority over all other administrative expense claims and unsecured claims against the Debtors' estates, now existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, administrative expenses arising under sections 503(b) and 507(b) of the Bankruptcy Code, and shall at all times be senior to the rights of the Debtors and any successor trustee, examiner, or any other estate representative, subject only to the Carve-Out (as defined below).
E. Roll-Up Mechanics
49. Upon entry of the Final DIP Order, $32,000,000 in face amount of Driftwood's pre-petition first lien claims under the First Lien Credit Agreement shall be deemed rolled up into the DIP Facility on a dollar-for-dollar basis (the "Roll-Up"). The Roll-Up Tranche shall constitute DIP Obligations under the DIP Credit Agreement and shall be entitled to the same DIP Liens and DIP Superpriority Claims as the New Money DIP Tranche, on a pari passu basis.
50. Upon the effectiveness of the Roll-Up, Driftwood's pre-petition secured claims in the amount of $32,000,000 under the First Lien Credit Agreement shall be extinguished and deemed satisfied in full, and such claims shall be replaced with DIP claims of equal face amount under the DIP Credit Agreement. Following the Roll-Up, Driftwood shall no longer hold any claims under the First Lien Credit Agreement, and the aggregate outstanding balance under the First Lien Term Loan shall be reduced from $120,000,000 to $88,000,000.
51. The Roll-Up is conditioned on entry of the Final DIP Order and is subject to the Challenge Period described in Section V below.
F. Budget and Financial Reporting
52. The Debtors shall operate in accordance with a 13-week rolling cash flow budget (the "Budget"), which is attached to the DIP Credit Agreement as Exhibit B and a copy of which is attached hereto as Exhibit D. The Budget sets forth the Debtors' projected receipts and disbursements on a weekly basis for the initial 13-week period following the Petition Date.
53. The Budget shall be updated every four (4) weeks on a rolling basis, subject to the approval of the DIP Lender (such approval not to be unreasonably withheld, conditioned, or delayed). Each updated Budget shall extend the projection period by an additional four weeks, maintaining a rolling 13-week forecast at all times.
54. The DIP Credit Agreement establishes permitted variances from the Budget. Specifically, the Debtors' actual results shall not deviate from the Budget by more than the following thresholds: (a) revenue: plus or minus 10%; and (b) disbursements: plus or minus 15%. Variance testing shall be conducted on a cumulative bi-weekly basis, with the first variance test occurring at the end of the second full week following the Petition Date.
55. In addition to the Budget, the Debtors shall provide the DIP Lender with weekly cash flow reports, monthly financial statements, and such other financial information as the DIP Lender may reasonably request from time to time. The Debtors shall also provide the DIP Lender with prompt notice of any material adverse change in the Debtors' business, operations, assets, or financial condition.
G. Milestones.
56. The DIP Credit Agreement contains the following milestone provisions (the "Milestones"), which require the Debtors to achieve specified restructuring benchmarks within established time frames:
(a) Interim DIP Order: The Court shall have entered the Interim DIP Order within five (5) business days of the Petition Date (target date: September 15, 2023).
(b) Final DIP Order: The Court shall have entered the Final DIP Order within thirty-five (35) days of the Petition Date (target date: October 13, 2023).
(c) Filing of Plan and Disclosure Statement: The Debtors shall have filed a chapter 11 plan of reorganization and related disclosure statement within ninety (90) days of the Petition Date (target date: December 7, 2023).
(d) Confirmation Order: The Court shall have entered an order confirming the Debtors' chapter 11 plan within one hundred fifty (150) days of the Petition Date (target date: February 5, 2024).
(e) Plan Effective Date: The Effective Date of the confirmed plan shall have occurred within one hundred eighty (180) days of the Petition Date (target date: March 6, 2024).
57. Failure to satisfy any Milestone by the applicable deadline shall constitute an Event of Default under the DIP Credit Agreement, unless such Milestone is extended by the DIP Lender in its sole discretion.
H. Carve-Out.
58. Notwithstanding any other provision of the DIP Credit Agreement or the DIP Orders, the DIP Liens and DIP Superpriority Claims shall be subject to a carve-out (the "Carve-Out") in the aggregate amount of $2,750,000, allocated as follows:
(a) $2,500,000 for allowed professional fees and expenses of professionals retained by the Debtors and the Committee pursuant to sections 327, 328, or 1103 of the Bankruptcy Code, incurred at any time during these chapter 11 cases; provided, however, that of the $2,500,000 allocated to professional fees, no more than $750,000 shall be available for the fees and expenses of professionals retained by the Committee; and
(b) $250,000 for fees payable to the Clerk of the Bankruptcy Court and to the U.S. Trustee pursuant to 28 U.S.C. § 1930(a)(6).
59. The Carve-Out shall be available regardless of whether an Event of Default has occurred and is continuing under the DIP Credit Agreement. The Carve-Out is designed to ensure that the Debtors' estates have sufficient resources to fund essential professional services and court fees, thereby protecting the integrity of the chapter 11 process.
I. DIP Lender's Professional Fees
60. Pursuant to Section 11.04 of the DIP Credit Agreement, all reasonable and documented fees and out-of-pocket expenses of Calderwood & Harkness LLP, as counsel to the DIP Lender, and any other advisors retained by the DIP Lender in connection with the DIP Facility and these chapter 11 cases, shall be paid by the Debtors' estates promptly upon presentation of reasonably detailed invoices, without the need for further Court approval or compliance with sections 327, 328, 330, or 331 of the Bankruptcy Code. Such fees and expenses shall constitute DIP Obligations and shall be entitled to the protections afforded to all DIP Obligations under the DIP Orders, including the DIP Liens and DIP Superpriority Claims.
IV. ADEQUATE PROTECTION FOR PRE-PETITION SECURED LENDERS
A. Adequate Protection for Pre-Petition First Lien Lenders
61. The pre-petition First Lien Lenders (other than Driftwood, whose first lien claims are being rolled up into the DIP Facility) hold an aggregate of $88,000,000 in outstanding first lien claims under the First Lien Credit Agreement. The remaining First Lien Lenders and their respective holdings are as follows:
62. In connection with the granting of the DIP Liens, which prime the existing first priority liens securing the First Lien Term Loan, the Debtors propose to provide the remaining First Lien Lenders with a comprehensive adequate protection package (the "First Lien Adequate Protection Package") to protect against any diminution in value of the First Lien Lenders' interests in the DIP Collateral resulting from the granting of the DIP Liens, the Debtors' use of cash collateral, and the imposition of the automatic stay. The First Lien Adequate Protection Package consists of the following elements:
(a) Replacement Liens. Pursuant to sections 361(2) and 364(d)(1) of the Bankruptcy Code, the remaining First Lien Lenders shall receive replacement liens (the "First Lien Replacement Liens") on the DIP Collateral, which First Lien Replacement Liens shall be junior only to the DIP Liens and the Carve-Out, and senior to all other liens on the DIP Collateral, including any replacement liens granted to the Second Lien Noteholders. The First Lien Replacement Liens shall secure the remaining First Lien Lenders' claims in the aggregate amount of $88,000,000, plus accrued and unpaid interest and other amounts owing under the First Lien Credit Agreement.
(b) Superpriority Administrative Expense Claims. Pursuant to section 507(b) of the Bankruptcy Code, the remaining First Lien Lenders shall receive allowed superpriority administrative expense claims (the "First Lien Adequate Protection Claims") to the extent the adequate protection provided herein proves insufficient to compensate for any diminution in value of the First Lien Lenders' interests in the DIP Collateral. The First Lien Adequate Protection Claims shall be junior to the DIP Superpriority Claims but senior to all other administrative expense claims against the Debtors' estates.
(c) Adequate Protection Payments. The Debtors shall make monthly current-pay interest payments (the "Adequate Protection Payments") to the remaining First Lien Lenders on the outstanding principal amount of $88,000,000 at the non-default contract rate of Adjusted Term SOFR plus 425 basis points per annum. Based on an assumed Adjusted Term SOFR rate of 5.33% (resulting in an all-in rate of approximately 9.58% per annum), the estimated monthly Adequate Protection Payment is approximately $702,133, payable in cash on the first business day of each calendar month, commencing on October 2, 2023. The Adequate Protection Payments shall be allocated among the remaining First Lien Lenders on a pro rata basis in accordance with their respective outstanding principal balances.
(d) Adequate Protection Reserve. The Debtors shall establish and fund an adequate protection reserve (the "Adequate Protection Reserve") in the amount of $3,500,000, to be funded from the proceeds of Draw 1. The Adequate Protection Reserve shall be held in a segregated interest-bearing deposit account at a financial institution acceptable to the Pre-Petition Agent and shall be available to fund Adequate Protection Payments in the event the Debtors' cash flow is insufficient to make such payments from operating revenues. The Adequate Protection Reserve shall be replenished by the Debtors from operating cash flow to the extent drawn upon, subject to the Budget.
(e) Professional Fee Reimbursement. The Debtors shall reimburse the reasonable and documented fees and out-of-pocket expenses of counsel to the Ad Hoc Group of First Lien Lenders, Hartwell & Crane LLP (Monica L. Hartwell, lead partner), located at 51 JFK Parkway, Suite 200, Short Hills, New Jersey 07078, in an aggregate amount not to exceed $1,200,000 (the "Ad Hoc Group Fee Cap"). Such fees and expenses shall constitute administrative expense claims against the Debtors' estates and shall be payable upon presentation of reasonably detailed invoices.
63. The Debtors submit that the First Lien Adequate Protection Package, taken as a whole, provides the remaining First Lien Lenders with the "indubitable equivalent" of their interests in the DIP Collateral and satisfies the requirements of sections 361 and 364(d)(1) of the Bankruptcy Code.
B. Adequate Protection for Pre-Petition Second Lien Noteholders
64. The holders of the Second Lien Notes (the "Second Lien Noteholders") hold an aggregate of $45,000,000 in claims secured by second priority liens on substantially all of the Debtors' assets, junior to the first priority liens securing the First Lien Term Loan, pursuant to the Second Lien Indenture and the intercreditor agreement between the First Lien Lenders and the Second Lien Trustee.
65. In connection with the DIP Facility, the Debtors propose to provide the Second Lien Noteholders with the following adequate protection:
(a) Replacement Liens. The Second Lien Noteholders shall receive replacement liens (the "Second Lien Replacement Liens") on the DIP Collateral, which Second Lien Replacement Liens shall be junior to (i) the DIP Liens, (ii) the Carve-Out, (iii) the First Lien Replacement Liens, and (iv) any other adequate protection liens granted to the First Lien Lenders. The Second Lien Replacement Liens shall maintain the same relative priority as the Second Lien Noteholders' pre-petition liens vis-à-vis the First Lien Lenders' liens.
66. The Debtors note that the Second Lien Noteholders' existing liens are not being directly primed by the DIP Facility in a manner that alters their relative priority vis-à-vis the First Lien Lenders. The DIP priming lien is senior to the first lien, and the second lien was already contractually and structurally junior to the first lien under the intercreditor agreement. Accordingly, the relative position of the Second Lien Noteholders is not materially altered by the DIP Facility. The Second Lien Replacement Liens provide additional protection against any diminution in value of the Second Lien Noteholders' interests resulting from the Debtors' use of cash collateral and the imposition of the automatic stay.
V. CHALLENGE PERIOD
67. The proposed Final DIP Order establishes a challenge period (the "Challenge Period") during which parties in interest may investigate and, if warranted, commence an adversary proceeding or contested matter challenging the validity, extent, priority, or perfection of the pre-petition liens securing the First Lien Term Loan and/or the Second Lien Notes, and/or the appropriateness of the Roll-Up. The Challenge Period is structured as follows:
(a) The Official Committee of Unsecured Creditors shall have seventy-five (75) days from entry of the Final DIP Order to investigate and commence any challenge (the "Committee Challenge Deadline").
(b) Any other party in interest shall have sixty (60) days from entry of the Final DIP Order to investigate and commence any challenge (the "General Challenge Deadline").
68. If no challenge is properly commenced within the applicable Challenge Period by a party with standing to assert such challenge, then (a) the pre-petition liens securing the First Lien Term Loan and the Second Lien Notes shall be deemed valid, properly perfected, enforceable, and not subject to avoidance, subordination, recharacterization, or disallowance under any applicable law or provision of the Bankruptcy Code, and (b) the Roll-Up shall be deemed valid and not subject to challenge, avoidance, or modification.
69. The Challenge Period is an important safeguard that protects the rights of the Committee and other parties in interest to investigate the pre-petition liens and the Roll-Up, while providing certainty and finality to the DIP Lender and the pre-petition secured lenders within a reasonable time frame. The Debtors submit that the proposed Challenge Period is consistent with the periods approved in comparable DIP financing orders in this District.
VI. THE DEBTORS' NEED FOR DIP FINANCING
A. Immediate Liquidity Needs
70. The Debtors' need for DIP financing is immediate, critical, and beyond reasonable dispute. Absent the liquidity provided by the DIP Facility, the Debtors will be unable to fund their ongoing operations, preserve the going-concern value of their businesses, or pursue a chapter 11 restructuring.
71. As described above, the Debtors' consolidated financial position reflects total assets of approximately $620 million and total liabilities of approximately $710 million, resulting in a negative equity position of approximately $90 million. The Debtors' available unrestricted cash at the holding company level is insufficient to fund the Debtors' anticipated near-term obligations, including payroll, critical vendor payments, insurance premiums, regulatory compliance costs, professional fees associated with these chapter 11 cases, and the U.S. Trustee's quarterly fees.
72. The Debtors' ongoing operations — including the preservation of the CAM advisory platform, which manages approximately $1.2 billion in client AUM — require continuous liquidity to fund day-to-day operations, retain key employees, and maintain the confidence of CAM's institutional and high-net-worth advisory clients. Any disruption in CAM's operations or any suggestion that CAM may be unable to meet its obligations could trigger a flight of client assets, which would permanently and irreversibly destroy going-concern value.
73. Draw 1 of $18,000,000 under the New Money DIP Tranche is immediately necessary upon entry of the Interim DIP Order to fund the following essential obligations and expenditures:
(a) Payroll and employee benefit obligations for the Debtors' workforce, including key personnel at CAM whose continued employment is essential to the preservation of client relationships and AUM;
(b) Critical vendor payments necessary to maintain the Debtors' operations, information technology systems, and regulatory compliance infrastructure;
(c) Payment of the $1,500,000 Commitment Fee to the DIP Lender;
(d) Funding of the $3,500,000 Adequate Protection Reserve for the benefit of the remaining First Lien Lenders;
(e) Payment of insurance premiums and other essential operating expenses; and
(f) Preservation of the going-concern value of the Debtors' businesses pending the final hearing on this Motion.
74. In the absence of prompt approval of the Interim DIP Order and Draw 1, the Debtors will face an immediate liquidity shortfall that will jeopardize their ability to maintain operations, meet payroll, retain employees, and preserve the going-concern value of their estates for the benefit of all stakeholders.
B. Inability to Obtain Unsecured or Junior Credit
75. The Debtors are unable to obtain unsecured credit allowable under section 503(b)(1) of the Bankruptcy Code as an administrative expense, or credit secured by liens junior to the existing pre-petition liens, or credit with priority over existing administrative expense claims under sections 364(a) or 364(b) of the Bankruptcy Code. The Debtors' deeply negative equity position, ongoing operating losses, and the stigma and uncertainty associated with the chapter 11 filing render the Debtors unable to access traditional credit markets or to borrow on an unsecured or junior secured basis.
76. The pre-petition marketing process conducted by Solstice Partners LLC confirmed that no lender was willing to provide DIP financing to the Debtors on an unsecured basis, on a basis secured by junior liens, or through the granting of administrative priority claims alone. Every DIP proposal received by Solstice Partners required the granting of priming liens and superpriority administrative expense claims as conditions to providing post-petition financing. The DIP Facility, with its priming liens and superpriority claims, represents the only financing available to the Debtors on commercially reasonable terms.
77. Accordingly, the Debtors have satisfied the threshold requirement of sections 364(c) and 364(d) of the Bankruptcy Code — namely, that the Debtors are unable to obtain credit on lesser terms — and the Court is authorized to approve the DIP Facility with priming liens and superpriority administrative expense claims.
VII. LEGAL BASIS FOR THE RELIEF REQUESTED
A. Authority to Obtain Post-Petition Financing Under § 364
78. Section 364 of the Bankruptcy Code provides a graduated framework for post-petition financing, authorizing the Court to approve credit on increasingly senior terms based on the debtor's demonstrated inability to obtain credit on lesser terms. Section 364(a) permits a debtor to obtain unsecured credit in the ordinary course of business as an administrative expense. Section 364(b) permits the Court to authorize a debtor to obtain unsecured credit outside the ordinary course of business. Section 364(c) permits the Court, upon notice and a hearing, to authorize a debtor to obtain credit:
(1) with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy Code;
(2) secured by a lien on property of the estate that is not otherwise subject to a lien; or
(3) secured by a junior lien on property of the estate that is subject to a lien;
provided that the debtor demonstrates that it is unable to obtain credit otherwise. 11 U.S.C. § 364(c).
79. Section 364(d)(1) authorizes the Court, upon 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 (a "priming lien"), provided that (i) the debtor is unable to obtain credit otherwise, and (ii) there is adequate protection of the interest of the holder of the existing lien on the property to be primed. 11 U.S.C. § 364(d)(1).
80. To determine whether proposed DIP financing should be approved, courts in this District and elsewhere apply a well-established standard that considers: (a) whether the proposed financing is in the best interests of the estate; (b) whether the debtor is unable to obtain financing on lesser terms; (c) whether the proposed terms are fair and reasonable; and (d) whether the proposed financing was negotiated in good faith and at arm's length. See, e.g., In re Ames Dep't Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990); In re Crouse Group, Inc., 71 B.R. 544, 549 (Bankr. E.D. Pa. 1987). Courts generally give considerable deference to the debtor's business judgment in selecting DIP financing, particularly where the debtor has conducted a meaningful marketing process. See In re Lyondell Chem. Co., 402 B.R. 571, 588 (Bankr. S.D.N.Y. 2009).
81. Here, the DIP Facility satisfies each of these requirements. The DIP Facility is in the best interests of the Debtors' estates because it provides the critical liquidity necessary to fund operations, preserve going-concern value, and pursue a chapter 11 restructuring. The Debtors are unable to obtain financing on lesser terms, as confirmed by the Solstice Partners marketing process. The DIP terms are fair and reasonable in light of the Debtors' financial condition and the risks assumed by the DIP Lender. And the DIP Facility was negotiated at arm's length, as described in Section VII.E below.
B. Priming Lien Authorization Under § 364(d)
82. The Debtors satisfy both requirements of section 364(d)(1) of the Bankruptcy Code, warranting the Court's approval of the priming liens in favor of the DIP Lender.
83. Inability to Obtain Credit Otherwise. As described in detail in Section VI above, the Debtors are unable to obtain DIP financing without granting priming liens. The pre-petition marketing process conducted by Solstice Partners confirmed that no potential DIP lender was willing to provide financing secured by liens junior to the existing first priority liens or on an unsecured basis. The DIP Facility, with priming liens on substantially all of the Debtors' assets, represents the only financing available to the Debtors. The Debtors have thus satisfied the first prong of the section 364(d)(1) test.
84. Adequate Protection. The pre-petition First Lien Lenders whose liens are being primed are adequately protected through the comprehensive First Lien Adequate Protection Package described in Section IV.A above. The First Lien Adequate Protection Package provides the remaining First Lien Lenders with (i) replacement liens on the DIP Collateral, junior only to the DIP Liens and the Carve-Out; (ii) superpriority administrative expense claims under section 507(b) of the Bankruptcy Code; (iii) monthly adequate protection payments at the non-default contract rate of SOFR plus 425 basis points per annum (estimated at approximately $702,133 per month); (iv) a $3,500,000 Adequate Protection Reserve funded from Draw 1 proceeds; and (v) reimbursement of the reasonable fees and expenses of Hartwell & Crane LLP, counsel to the Ad Hoc Group of First Lien Lenders, subject to a cap of $1,200,000.
85. The adequate protection package, taken as a whole, provides the pre-petition First Lien Lenders with the "indubitable equivalent" of their interests in the DIP Collateral. See 11 U.S.C. § 361(3); see also In re Mosello, 195 B.R. 277, 289–90 (Bankr. S.D.N.Y. 1996) (holding that adequate protection must provide the lienholder with the equivalent of its bargained-for rights). The replacement liens preserve the First Lien Lenders' secured position (albeit at a lower priority) in the same collateral pool; the superpriority claims provide an additional layer of protection; the monthly adequate protection payments compensate for the time value of money during the pendency of these cases; and the Adequate Protection Reserve provides a cushion against any temporary cash flow shortfalls. The Debtors have thus satisfied the second prong of the section 364(d)(1) test.
C. Authority for the Roll-Up
86. Courts in this District and elsewhere have approved dollar-for-dollar roll-ups of pre-petition secured claims into DIP facilities where the roll-up is justified by the benefits to the estate and where appropriate safeguards are in place to protect the interests of parties in interest. See, e.g., In re Lyondell Chem. Co., 402 B.R. 571, 588–89 (Bankr. S.D.N.Y. 2009); In re Fieldwood Energy LLC, Case No. 20-33948 (MI) (Bankr. S.D. Tex. 2020); In re Belk, Inc., Case No. 21-30630 (CRS) (Bankr. S.D. Tex. 2021). While roll-ups require careful scrutiny, they are a well-recognized feature of DIP financing arrangements and are permissible where the roll-up provides material benefits to the debtor's estate and is subject to adequate protections for creditors.
87. The Roll-Up of Driftwood's $32,000,000 pre-petition first lien claims is appropriate and should be approved for the following reasons:
(a) Condition to DIP Facility. The Roll-Up was an essential condition of Driftwood's agreement to provide the DIP Facility. Driftwood has informed the Debtors that it would not have agreed to provide $43,000,000 in new money DIP financing without the concurrent roll-up of its pre-petition first lien claims. Absent the Roll-Up, the DIP Facility would not be available to the Debtors, and the Debtors' estates would be deprived of the critical liquidity needed to fund operations and pursue a restructuring.
(b) Simplification of Capital Structure. The Roll-Up simplifies the Debtors' capital structure by reducing the number of distinct creditor constituencies holding first lien claims, which facilitates the Debtors' plan negotiations and reorganization process. Following the Roll-Up, the First Lien Term Loan balance will be reduced from $120,000,000 to $88,000,000, and Driftwood's claims will be consolidated into the DIP Facility.
(c) Challenge Period. The Roll-Up is subject to the Challenge Period, which provides the Committee with 75 days and other parties in interest with 60 days from entry of the Final DIP Order to investigate and challenge the validity, perfection, priority, or enforceability of the pre-petition liens and the Roll-Up. The Challenge Period is a critical safeguard that preserves the estate's rights and ensures that the Roll-Up is subject to appropriate scrutiny before becoming final and indefeasible.
(d) Validity of Pre-Petition Claims. The pre-petition claims being rolled up are valid, properly perfected first lien claims held by Driftwood under the First Lien Credit Agreement. The Debtors are not aware of any basis to challenge the validity, perfection, or priority of Driftwood's pre-petition liens, although the Challenge Period preserves the right of the Committee and other parties to investigate and assert any such challenges.
88. For these reasons, the Debtors submit that the Roll-Up is appropriate, is in the best interests of the Debtors' estates, and should be approved by the Court.
D. Superpriority Administrative Expense Claims Under § 364(c)(1)
89. Section 364(c)(1) of the Bankruptcy Code authorizes the Court to grant superpriority administrative expense claim status to a post-petition lender, with priority over any or all administrative expenses of the kind specified in sections 503(b) and 507(b) of the Bankruptcy Code. As described above, the DIP Obligations, including both the New Money DIP Tranche and the Roll-Up Tranche, will constitute allowed superpriority administrative expense claims (the DIP Superpriority Claims) senior to all other administrative expenses of the Debtors' estates, now existing or hereafter arising, subject only to the Carve-Out.
90. The grant of superpriority administrative expense claim status is appropriate here because (a) it is a necessary condition of Driftwood's willingness to provide the DIP Facility; (b) the Debtors are unable to obtain DIP financing without granting superpriority claims; and (c) the Carve-Out provides an appropriate carve-out from the superpriority claims to fund essential professional fees and court costs.
E. Good Faith of the DIP Lender Under § 364(e)
91. Section 364(e) of the Bankruptcy Code provides that the reversal or modification on appeal of an order authorizing post-petition financing does not affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that extended credit in good faith. 11 U.S.C. § 364(e). The protections of section 364(e) serve the important policy purpose of encouraging lenders to provide post-petition financing to distressed companies by assuring lenders that their liens and priority claims will not be retroactively unwound on appeal.
92. Driftwood extended credit under the DIP Facility in good faith and is entitled to the protections of section 364(e). The DIP Facility was negotiated at arm's length between the Debtors and Driftwood, with the active participation of the Debtors' financial advisor, Alderpoint Advisory Partners LLC (through CRO Terrence M. Kowalski), and the Debtors' investment banker, Solstice Partners LLC (through Managing Director David R. Chin). The terms of the DIP Facility were the product of genuine arm's-length negotiations conducted in a competitive process, and were not the result of collusion or overreaching by Driftwood.
93. While Driftwood holds a pre-petition first lien position under the First Lien Credit Agreement, this fact does not negate the arm's-length nature of the DIP negotiations. Driftwood acquired its first lien position on the secondary market and has acted in the capacity of a sophisticated financial investor. The Debtors' independent financial advisors supervised the DIP marketing and negotiation process, evaluated the DIP terms for fairness and reasonableness, and confirmed that the Driftwood proposal represented the best available financing for the Debtors' estates. The existence of Driftwood's pre-petition position was known to all participants in the process and was fully considered in the Debtors' evaluation of the competing DIP proposals.
VIII. REQUEST FOR INTERIM RELIEF
94. Pursuant to Bankruptcy Rule 4001(c)(2), which permits the Court to authorize a debtor to obtain credit on an interim basis pending a final hearing, the Debtors respectfully request that the Court enter the Interim DIP Order, substantially in the form attached hereto as Exhibit A, authorizing the following relief on an interim basis:
(a) Interim borrowing of up to $18,000,000 (Draw 1) under the New Money DIP Tranche of the DIP Facility;
(b) Interim grant of the DIP Liens (priming liens) in favor of Driftwood on substantially all assets of the Debtors, excluding assets of Ridgeline Community Bank subject to regulatory restrictions;
(c) Interim adequate protection for the pre-petition First Lien Lenders as described in Section IV.A above, including the establishment and funding of the $3,500,000 Adequate Protection Reserve;
(d) Payment of the $1,500,000 Commitment Fee to the DIP Lender from the proceeds of Draw 1;
(e) Funding of the $3,500,000 Adequate Protection Reserve from the proceeds of Draw 1; and
(f) Such other and further interim relief as is just and proper.
95. The Debtors respectfully request that the interim hearing on this Motion be scheduled within five (5) business days of the Petition Date, on or before September 15, 2023, as contemplated by the Milestones set forth in the DIP Credit Agreement.
96. The Debtors further request that the final hearing on this Motion be scheduled approximately thirty (30) days following the interim hearing, on approximately 14 days' notice to all parties in interest, as required by Bankruptcy Rule 4001(c)(2). The Debtors propose that the final hearing be held on or before October 13, 2023, consistent with the Final DIP Order Milestone.
97. The Debtors submit that the interim relief requested herein is necessary to avoid immediate and irreparable harm to the Debtors' estates. Without the interim availability of $18,000,000 under Draw 1, the Debtors will be unable to fund payroll, pay critical vendors, establish the Adequate Protection Reserve, or maintain operations during the period between the interim and final hearings.
IX. REQUEST FOR FINAL RELIEF
98. At the final hearing,