Debtor's Joint Prepackaged Chapter 11 Plan of Reorganization

Summary

This debtor's joint prepackaged plan of reorganization template is for use by a Chapter 11 debtor in possession filing a prepackaged (or prepack) bankruptcy. This template includes practical guidance, drafting notes, alternate and optional clauses. The goal of a prepackaged bankruptcy case is a short stay in Chapter 11. This minimizes the professional fees and other large Chapter 11 expenses associated with a typical Chapter 11 bankruptcy case (which the debtor must pay in full) and the disruption to the debtor's business from being in Chapter 11. A prepack works best for reworking a debtor's balance sheet with respect to its primary secured debt and equity. A prepack is not the best choice (and most likely with not work) if the debtor needs to restructure its business operations (for example numerous executory contracts and unexpired leases of real property need to be rejected or renegotiated), has pending lawsuits and/or damage awards, or has significant pre-petition unsecured debt, including trade debt, that the debtor cannot pay in full. In a prepack, the debtor, prior to commencing the Chapter 11 case, will have negotiated, and agreed to the terms and conditions of the restructuring of debtor's pre-petition secured debt (possibly the claims of other major creditors) and equity. As part of these pre-petition negotiations, the holders of the pre-petition secured debt will typically agree to fund the (1) debtor's operations during the short stay in bankruptcy (if the debtor's business cash flow is not sufficient) by way of a DIP loan and (2) plan payments and the debtor's post-bankruptcy business operations by way of exit financing. The debtor will have circulated a plan of reorganization that incorporates these agreements and plan treatment, with ballots and an accompanying disclosure statement, to these parties and they will have voted to accept the plan. Shortly thereafter, the debtor will commence the bankruptcy case and immediately file a motion or motions that, among other things, seeks court approval of the pre-petition solicitation of votes, approval of the votes cast in favor of the plan (pursuant to Section 1126(b) of the Bankruptcy Code), and confirmation of the proposed plan. The process is illustrated below: This template contemplates a single debtor and that the plan proponents of the plan are the debtor and the entities funding the plan (referred to below as the plan sponsors). This template also contemplates that there is no public debt that needs to be restructured. The pre-petition solicitation of the votes of holders of public debt would require compliance with the federal securities laws of the United States and a complicated balloting process which is beyond the scope of this template. This template also contemplates that the debtor's pre-petition funding was through the private sale of secured notes (not a revolving credit facility) and post-petition funding was through the purchase of notes and stock (not a DIP loan). This template also provides for a single debtor. Often, there will be subsidiaries and affiliates of the debtor who are also debtors (usually the cases will be jointly administered) and parties to the plan. This template is based on the following hypothetical facts: • The debtor funded its pre-petition operations through the sale of notes rather than pursuant to a revolving credit facility • ABC is the secured creditor that provided funds to the debtor through the purchase of the notes and holds first priority liens against substantially all of the debtor's assets • XYZ purchased some of ABC's notes but agreed to be contractually subordinated • The plan sponsors consist of ABC, XYZ, and DEF Holdings • The plan sponsors and the debtor entered into a funding agreement and stock and note purchase agreement whereby the plan sponsors are funding (through the purchase of notes and stock in the reorganized debtor) the debtor's post-petition operations (including plan payments) and post-bankruptcy business • XYZ created DEF Holdings to fund the purchase and hold some of the stock in the reorganized debtor • The post-petition obligations of the debtor to the plan sponsors will survive confirmation in the form of notes and stock in the reorganized debtor It makes sense for the pre-petition lenders to fund the debtor's post-petition operations as such lenders are most familiar with the debtor's operations and want to protect their pre-petition secured claims. By dealing with its pre-petition secured creditors, the parties also avoid costly post-petition litigation over priming liens and the use of cash collateral (something to be avoided in a prepack where speed is the essence for confirmation). If pre-petition the facts were different and the debtor had financed its operations through a revolving credit facility, its post-petition funding could be the more traditional post-petition revolving credit facility (a DIP loan) made by the lenders under the pre-petition credit facility. A typical DIP loan would be repaid in full in cash on the effective date of the plan or could be rolled over into exit financing for the debtor. For more information on DIP loans, see DIP Financing. For information and resources on plan and confirmation requirements (applicable to both conventional and prepackaged bankruptcies), see Confirmation and Chapter 11 Plan Confirmation Resource Kit. For information and resources on filing a prepack bankruptcy, see Commencing a Prepackaged Bankruptcy Proceeding and Prepackaged Bankruptcy Resource Kit. For a prepack disclosure statement template, see Disclosure Statement for Debtor's Prepackaged Chapter 11 Plan. For a prepack confirmation order template, see Order Confirming Prepackaged Joint Chapter 11 Plan. For a form non-prepack plan, see Debtor's Chapter 11 Plan.