Entertainment Publications bidder says lender 'hijacked' sale process

By Jim Witters

Wilmington, Del., April 17 - A potential bidder for the assets of Entertainment Publications, LLC is seeking court intervention to prevent lender Fontella, LLC from "hijacking" the process, according to an April 17 filing with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, Fontella agreed to accept a $5.5 million note from the stalking-horse bidder in lieu of full payment of Fontella's claim at the closing of the sale.

HSP-EPI - formed by Lowell Potiker, the son of company founders Hughes and Sheila Potiker - has tendered an $11.8 million offer for the company that also includes $6.33 million in cash.

Fontella also would receive warrants to buy 10% of the capital stock of the purchaser upon a liquidation event.

EQI Acquisition, LLC - an entity organized by three members of the Stanton family - asked Fontella to agree to the same arrangement in connection with its potential bid for substantially all of Entertainment Publications' assets.

But Fontella declined.

EQI claims the Fontella note arrangement creates an unfair advantage for HSP-EPI going into the asset auction, scheduled for April 19.

During the March 25 hearing on the bid procedures, Judge Christopher S. Sontchi said he was concerned about the possibility of collusion regarding the Fontella note that could create an advantage for one bidder over others.

But he affirmed that Chapter 7 trustee Charles M. Forman has the discretion to require all-cash bids.

EQI position

The Stanton family "has long experience in the same line of business as the debtor" and has provided its financial details to Fontella and to the Chapter 7 trustee.

The trustee determined that EQI is a qualified bidder, the court filing states.

"We are now in a situation in which the Stanton family (and potentially other bidders) has to bid its cash against credit (potentially up to Fontella's scheduled claim of more than $11 million)," the filing stated.

"Even if the Stanton family were to go beyond the original note by in essence bidding almost $12 million cash against the bifurcated cash/credit bid of the stalking-horse bidder, the stalking-horse bidder can continue to bid more credit while the Stanton family continues to bid cash," EQI said.

Although the trustee makes the determination on which is the highest and best bid at auction, "given the lack of transparency and refusal to allow the Stanton family the advantage of a note, it appears that Fontella has in effect hijacked the process," the filing stated.

If HSP-EPI has offered Fontella an equity position or something akin to an equity position, the offer would constitute collusion, since Fontella is a potential bidder that has reserved its right to credit bid, according to EQI.

The Stantons also believe HSP-EPI, through one of its companies, has continued to employ former Entertainment Publications workers, in contravention of the court's direction.

Relief sought

EQI is asking the court for

• Disclosure of the Fontella note and the stalking-horse warrants to potential bidders;

• Provisions for other bidders to give a note to Fontella to ensure "that bidding is on a level playing field"; and

• A determination of "whether there is potential collusion between Fontella and the stalking-horse bidder."

An emergency telephonic status conference is scheduled for 9:45 a.m. ET on April 18.

Entertainment Publications, a Troy, Mich.-based coupon book publisher, filed for bankruptcy on March 12. Its Chapter 7 case number is 13-10496.

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