Diamond Glass creditors committee objects to DIP terms, asset purchase agreement with Guggenheim

By Jennifer Lanning Drey

Portland, Ore., April 21 - Diamond Glass, Inc.'s official committee of unsecured creditors objected to the company's commitment for $41 million in debtor-in-possession financing, as well as its motion for approval of the bidding procedures related to the sale of substantially all of its assets, in separate filings made Monday with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Diamond requested court approval of the asset sale procedures and to obtain the financing from Guggenheim Corporate Funding, LLC in connection with the company's Chapter 11 bankruptcy filing made April 1.

In the objection to the DIP financing, Diamond's official committee of unsecured creditors said Guggenheim would receive a first-priority lien on substantially all of Diamond's estates to secure $7 million of new funds under the DIP revolver. Additionally, a $34 million pre-bankruptcy secured claim held by Guggenheim would be rolled up to become post-petition debt via the DIP term loan.

Among its arguments for denying the DIP loan, the creditors said Guggenheim has not established a legally sufficient basis supporting the proposed roll-up of the $34 million.

"The roll-up would maximize Guggenheim's return in these cases by giving it almost unfettered control," the creditors said in the objection.

The creditors said if the court allows the roll-up, Guggenheim would be entitled to additional interest payments from Diamond of approximately $800,000.

The creditors said Diamond has asserted that Guggenheim would be entitled to a similar amount in adequate protection payments if the roll-up did not occur and that the amount is not actually being paid. However, the creditors believe neither argument is persuasive, in part, because Guggenheim's pre-bankruptcy claim is adequately protected in the case.

Further objections

In addition to the protection provided to Guggenheim in connection with the DIP facility, Guggenheim is also being provided with $10 million of protections from Diamond's largest equity holder, Kenneth Levin, for pre-bankruptcy debt held by Diamond, according to the filing.

The creditors said the lenders should be subject to marshaling with respect to Levine's guaranty.

Additionally, they said the fees proposed by Guggenheim are excessive for a $7 million loan for 90 days.

The creditors further argued that the proposed financing should contain a reservation of rights to unwind the paydown of pre-bankruptcy debt in the event there is a successful challenge to the validity, enforceability, extent and/or priority of the pre-bankruptcy claims or liens, or if there is a determination that the pre-bankruptcy debt owed to Guggenheim was undersecured.

Bidding procedures objection

In a separate filing, the committee also objected to the bidding procedures related to the sale of substantially all of Diamond's assets to its senior secured lenders through lender agent Guggenheim.

As previously reported, under the Guggenheim purchase agreement, a significant portion of Guggenheim's debt would be exchanged in part for ownership of the business and related assets.

If Guggenheim is the high bidder at an auction expected to be held in June, the company previously said it expects the lender agent to carry on Diamond Glass' business.

In the objection, the creditors argued that the stalking horse bidder should not be allowed to credit bid any amount that is secured by the Levine collateral.

Additionally, they said the 2% expense reimbursement sought is unreasonable and should be allowed at a reduced and fixed amount.

The creditors also believe Diamond should be permitted to seal bidding without consent and review of the committee.

The committee further said it takes issue with the scope of releases required under the agreement, which would release all claims in connection with the DIP financing, the credit agreement and any other agreements to which Diamond and Guggenheim are parties.

The creditors said the provision is improper in the context of a proposed sale.

Diamond Glass is a Kingston, Pa., automotive glass replacement and repair company. Its Chapter 11 case number is 08-10601.

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