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Cetero warns of “fatal” funding alternatives in defence of sale

By Nick Taylor , 23-Apr-2012

Cetero has hit back at critics of its financing plan by saying use of third-party funders would cause a “likely fatal” fight.

The assessment of the health of Cetero was presented in reply to unsecured creditors’ objections to the bankruptcy sale process. Cetero admitted that “in a perfect world” it would never have agreed to all the terms with its lenders but claims the alternative options are worse.

Cetero submits that this financing package, as a whole, and together with the stalking horse bid, the wind-down process and all the other concessions obtained from Cetero’s secured lenders, constitutes the best financing package available under the circumstances”, lawyers for the firm wrote.

The unsecured creditors can “quibble with one or another concession”, the legal team wrote, but the deal represents “an excellent accommodation”. Cetero accepted the terms because it says it needs a lender that is willing to support it even though it is already “significantly overburdened” with debt.

Fatal fight

An alternative to accepting the terms of its existing lenders is going to a third-party for post-petition financing. However, Cetero says finding better terms is impossible. Even if they were, Cetero says use of a third-party financier creates “the potential for a protracted, and likely fatal, priming fight”.

In the Journal of Corporate Renewal in 2010 , lawyers from Olshan Grundman Frome Rosenzweig & Wolosky wrote: “Priming fights traditionally have been avoided because of their expensive and divisive nature.”

Cetero is keen to avoid anything that adds to costs or extends the sale process as, with the fees it is paying for restructuring, it is projecting negative cash flow for the duration of the Chapter 11 cases.

The provisions should be viewed in light of the projected brevity of the Chapter 11 cases and the scarcity of funds during the sale process to meet all restructuring and operating expenses”, the CRO’s legal team wrote.

The case continues.

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