Local Rule 4001-5: REQUESTS FOR USE OF CASH COLLATERAL OR TO OBTAIN CREDIT

Rule 4001-5 REQUESTS FOR USE OF CASH COLLATERAL OR TO OBTAIN CREDIT

(a) Contents of Financing Motions.

In addition to the requirements set forth in Bankruptcy Rule 4001, all motions to use cash collateral and to obtain credit pursuant to Bankruptcy Code §§ 363 and 364 ("Financing Motions") shall recite whether the proposed form of order and/or underlying cash collateral stipulation or loan agreement contains any provision of the type indicated below, identify the location of any such provision in the proposed form of order, cash collateral stipulation and/or loan agreement, and state the justification for the inclusion of such provision. Failure to do so may result in such provisions being deemed denied by the Court. The requirements of Bankruptcy Rules 4001(b)(1)(B), (c)(1)(B) and (d)(1)(B) and this rule may be fulfilled through citation reference to the provisions of a filed copy of the relevant agreement. Defined terms shall either be defined in the motion or the motion shall include a specific reference to where the terms are defined in the filed copy of the relevant agreement.

(i) the amount of cash collateral the party seeks permission to use or the amount of credit the party seeks to obtain, including any committed amount or the existence of a borrowing base formula and the estimated availability under such formula;

(ii) material conditions to closing and borrowing, including budget provisions;

(iii) pricing and economic terms, including letter of credit fees, commitment fees, any other fees, and the treatment of costs and expenses of the lender(s), any agent for the lender(s), and their respective professionals;

(iv) any effect on existing liens of the granting of collateral or adequate protection provided to the lender(s) and any priority or superpriority provisions;

(v) any carve-outs from liens or superpriority claims;

(vi) any cross-collateralization or other provision that elevates prepetition debt to administrative expense (or higher) status or that secures prepetition debt with liens on postpetition assets (which liens the creditor would not otherwise have by virtue of the prepetition security agreement or applicable law);

(vii) any rollup or other provision that applies the proceeds of postpetition financing to pay, in whole or in part, prepetition debt or which otherwise has the effect of converting prepetition debt to postpetition debt;

(viii) any provision that would limit the Court's power or discretion in a material way, or would interfere with the exercise of the fiduciary duties, or restrict the rights and powers, of the trustee, debtor in possession, or a committee appointed under Bankruptcy Code §§ 1102 or 1114, or any other fiduciary of the estate, in connection with the operation, financing, use or sale of the business or property of the estate, but excluding any agreement to repay postpetition financing in connection with a plan or to waive any right to incur liens that prime or are pari passu with liens granted under Bankruptcy Code § 364;

(ix) any limitation on the lender's obligation to fund certain activities of the trustee, the debtor in possession, or a committee appointed under Bankruptcy Code §§ 1102 or 1114;

(x) any terms that provide that the use of cash collateral or the availability of credit will cease on (i) the filing of a challenge to the lender's prepetition lien or the lender's prepetition claim based on the lender's prepetition conduct; (ii) entry of an order granting relief from the automatic stay other than an order granting relief from the stay with respect to material assets; (iii) the grant of a change of venue with respect to the case or any adversary proceeding; (iv) management changes or the departure, from the debtor, of any identified employees; (v) the expiration of a specified time for filing a plan; or (vi) the making of a motion by a party in interest seeking any relief (as distinct from an order granting such relief);

(xi) any change-of-control provisions;

(xii) any provision establishing a deadline for, or otherwise requiring, the sale of property of the estate;

(xiii) any prepayment penalty, termination fee or other provision that affects the debtor's right or ability to repay the financing in full during the course of the chapter 11 case;

(xiv) in jointly administered cases, terms that govern the joint liability of the debtors, including any provisions that would govern the nature and/or priority, if any, of any interdebtor claims that would result if a debtor were to repay debt incurred by or for the benefit of another debtor;

(xv) any provision for the funding of non-debtor affiliates with cash collateral or proceeds of the loan, as applicable, and the approximate amount of such funding; and

(xvi) provisions that require the debtor to pay an agent's or lender's expenses and attorneys' fees in connection with the proposed financing or use of cash collateral, without any notice or review by the Office of the United States trustee, the committee appointed under Bankruptcy Code § 1102 (if formed), or, upon objection by either of the foregoing parties, the Court.

(b) Disclosure of Efforts to Obtain Financing and Good Faith.

A Financing Motion seeking authority to obtain credit shall describe in general terms the efforts of the trustee or debtor in possession to obtain financing, the basis on which the trustee or the debtor determined that the proposed financing is on the best terms available and material facts bearing on the issue of whether the extension of credit is being extended in good faith.

(c) Enforcement and Remedies.

(i) If a proposed order contains a provision that modifies or terminates the automatic stay or permits the lender to enforce remedies upon the occurrence of a default or event of default, the proposed order shall require at least 7 days' notice to the trustee or debtor in possession, the United States trustee and each committee appointed under Bankruptcy Code §§ 1102 or 1114 (or the 20 largest unsecured creditors of the debtor as listed on the debtor's schedules if no committee has been appointed under Bankruptcy Code § 1102(a)(1)), before the modification or termination of the automatic stay or the enforcement of the lender's remedies. If less notice is provided, the Financing Motion shall explain why.

(ii) If a proposed order contains a provision that terminates the use of cash collateral, the proposed order shall require at least 5 days' notice before the use of cash collateral ceases (provided that the use of cash collateral conforms to any budget in effect). If less notice is provided, the Financing Motion shall explain why.

(d) Carve-Outs.

(i) Any provision in a Financing Motion or proposed order relating to a carve-out from liens or superpriority claims shall disclose when the carve-out takes effect, whether it remains unaltered after payment of interim fees made before an event of default, and any effect of the carve-out on any borrowing base or borrowing availability under the postpetition loan. If a provision relating to a carve-out provides disparate treatment for the professionals retained by a committee appointed under Bankruptcy Code §§ 1102 or 1114, when compared with the treatment for professionals retained by the trustee or debtor in possession, or if the carve-out does not include reasonable expenses of committee members (excluding fees and expenses of professionals employed by such committee members individually), reasonable post-conversion commissions, fees and expenses of a chapter 7 trustee, fees payable to the Court and the United States trustee (together with any accrued interest), or the costs of investigating whether any claims or causes of action against the lender(s) exists or whether a secured creditor's lien is valid and/or properly perfected, there shall be disclosure thereof under subdivision (a) of this rule, and the Financing Motion shall contain a detailed explanation of the reasons therefor.

(e) Investigation Periods Relating to Waivers and Concessions as to Prepetition Debt.

If a Financing Motion seeks entry of an order in which the trustee or debtor in possession stipulates, acknowledges or otherwise admits to the validity, enforceability, priority, or amount of a claim that arose before the commencement of the case, or of any lien securing the claim, such stipulations, acknowledgements or admissions shall not be listed as factual findings by the Court. If such stipulations, acknowledgements or admissions are included in the proposed order, either the proposed order shall include a provision that permits the investigation and proceedings relating to such determination by parties other than the trustee or debtor in possession as follows, or the Financing Motion shall explain why the proposed order does not contain such a provision:

(i) the committee of unsecured creditors appointed under Bankruptcy Code § 1102 shall have at least 60 days from the date of entry of the final order authorizing the use of cash collateral or the obtaining of credit (or such longer period as the Court orders for cause shown before the expiration of such period) to investigate the facts and file a complaint or a motion seeking authority to commence litigation as a representative of the estate;

(ii) if no such committee has been appointed, any party in interest (other than the Debtor) shall have at least 75 days (or such longer period as the Court orders for cause shown before the expiration of such period) from the entry of the final financing order to investigate the facts and file a complaint or a motion seeking authority to commence litigation as a representative of the estate; provided that the foregoing period may be shortened for cause shown, including in prepackaged or prearranged cases; and

(iii) upon conversion of a chapter 11 case to chapter 7, to the extent that any period to investigate the facts and file a complaint or a motion seeking authority to commence litigation as a representative of the estate has not expired, such period shall automatically be extended for 75 days from the date a chapter 7 trustee is appointed.

(f) Interim Relief.

(i) A single Financing Motion may be filed seeking entry of an emergency or interim order and a final order, which orders would be normally entered at the conclusion of the preliminary hearing and the final hearing, respectively, as those terms are used in Bankruptcy Rules 4001(b)(2) and (c)(2).

(ii) When a Financing Motion is filed with the Court on or shortly after the date of entry of the order for relief, the Court may grant interim relief on shortened notice limited to the relief necessary to avoid immediate and irreparable harm to the estate pending the final hearing. A Financing Motion that seeks entry of an emergency or interim order before a final hearing under Bankruptcy Rule 4001(b)(2) or (c)(2) shall describe the amount and purpose of funds sought to be used or borrowed on an emergency or interim basis and shall set forth facts to support a finding that immediate or irreparable harm will be caused to the estate if immediate relief is not granted before the final hearing.

(g) Adequacy of Budget.

If the trustee or debtor in possession will be subject to a budget under a proposed cash collateral or financing order or agreement, the Financing Motion shall include a statement by the trustee or debtor stating whether it has reason to believe that the budget will be adequate, considering all available assets, to pay all administrative expenses due or accruing during the period covered by the financing or the budget.

(h) Notice.

Notice of a preliminary or final hearing shall be given to the United States trustee, the debtor's 20 largest unsecured creditors or the creditors' committee if one has been appointed, the persons required by Bankruptcy Rules 4001(b)(3) and 4001(c)(3), as the case may be, and any other persons whose interests may be directly affected by the outcome of the Financing Motion or any provision of the proposed order.

(i) Presence at Hearing.

Unless the Court directs otherwise,

(i) counsel for each proposed lender, or for an agent representing such lender, shall be present at all preliminary and final hearings on the authority to obtain credit from such lender, and counsel for each entity, or for an agent of such entity, with an interest in cash collateral to be used with the entity's consent shall be present at all preliminary and final hearings on the authority to use such cash collateral; and

(ii) a business representative of the trustee or debtor in possession, the proposed lender or an agent representing such lender, and any party objecting to the Financing Motion for authority to obtain credit, each with appropriate authority, shall be present at, or available by telephone for, all preliminary and final hearings for the purpose of making necessary decisions with respect to the proposed financing.

(j) Provisions of the Proposed Order.

(i) Jurisdiction. The proposed order shall identify the basis for the Court's jurisdiction over the matter.

(ii) Findings of Fact.

(A) A proposed order approving the use of cash collateral under Bankruptcy Code § 363(c), or granting authority to obtain credit under Bankruptcy Code § 364, shall limit the recitation of findings to facts essential to entry of the order, including the facts required under Bankruptcy Code § 364 regarding efforts to obtain financing on a less onerous basis and (where required) facts sufficient to support a finding of good faith under Bankruptcy Code § 364(e).

(B) A proposed emergency or interim order shall include a finding that immediate and irreparable loss or damage will be caused to the estate if immediate financing is not obtained and should state with respect to notice only that the hearing was held pursuant to Bankruptcy Rule 4001(b)(2) or (c)(2), the parties to which notice was given, the manner of notice and that the notice was, in the trustee's or debtor in possession's belief, the best available under the circumstances.

(C) A proposed final order may include factual findings as to notice and the adequacy thereof.

(D) To the extent that a proposed order incorporates by reference to, or refers to a specific section of, a prepetition or postpetition loan agreement or other document, the proposed order shall also include a summary of the material provisions of that section.

(iii) Mandatory Provisions.

The proposed order shall contain all applicable provisions included in the enumerated lists of material provisions set forth in Bankruptcy Rule 4001(b)(1)(B), (c)(1)(B), and (d)(1)(B), as supplemented by subdivision (a) of this rule.

(iv) Cross-Collateralization and Rollups.

A proposed order approving cross-collateralization or a rollup shall include language that reserves the right of the Court, after notice and hearing, to unwind or partially unwind the postpetition protection provided to the prepetition lender or the paydown of the prepetition debt, whichever is applicable, in the event that there is a timely and successful challenge to the validity, enforceability, extent, perfection or priority of the prepetition lender's claims or liens, or a determination that the prepetition debt was undersecured as of the petition date, and the cross-collateralization or rollup improperly advantaged the lender.

(v) Waivers, Consents or Amendments with Respect to the Loan Agreement.

A proposed order may permit the parties to enter into waivers or consents with respect to the loan agreement or amendments thereof without the need for further Court approval, provided that (i) the agreement as so modified is not materially different from that approved, (ii) notice of all amendments is filed with the Court, and (iii) notice of all amendments (other than those that are ministerial or technical and do not adversely affect the estate) is provided in advance to counsel for any committee appointed under Bankruptcy Code §§ 1102 or 1114, all parties requesting specific notice and the United States trustee.

(vi) Conclusions of Law.

(A) A proposed order may provide that the trustee or debtor in possession is authorized to enter into the loan or other agreement, but it shall not state that the Court has examined and approved the loan or other agreement.

(B) A proposed final order may contain conclusions of law with respect to the adequacy of notice under Bankruptcy Code § 364 and Bankruptcy Rule 4001.

(vii) Order to Control.

A proposed order shall state that to the extent that a loan or other agreement differs from the order, the order shall control.

(viii) Statutory Provisions Affected.

A proposed order shall specify those provisions of the Bankruptcy Code, Bankruptcy Rules and/or Local Rules relied upon as authority for granting relief, and shall identify those sections that are, to the extent permitted by law, being limited or abridged.

(ix) Limitations on Interim Relief.

Unless expressly and separately addressed by the Court, an interim order approving use of cash collateral or obtaining credit may not contain, and any application requesting such provisions in an interim order shall be deemed denied, with respect to any provisions waiving any rights under Bankruptcy Code § 506(c), the doctrine of marshalling, a lien on or recovery of proceeds of any avoidance action or the equities of the case doctrine under Bankruptcy Code § 552(b).

REFERENCES: Bankruptcy Code §§ 363 and 364 Committee Note: This rule is not intended to supersede or duplicate Bankruptcy Rule 4001, but imposes additional requirements on proponents of cash collateral and financing motions.