Lenox creditors committee objects to DIP facility, claims bankruptcy case only benefits lenders

By Caroline Salls

Pittsburgh, Dec. 11 - Lenox Group, Inc.'s official committee of unsecured creditors objected Thursday to approval of the company's $85 million debtor-in-possession facility from UBS AG, Stamford Branch, arguing that the proposed DIP loan only really gives the company access to enough cash collateral to take it through February.

According to the objection filed with the U.S. Bankruptcy Court for the Southern District of New York, Lenox's bankruptcy case is "proceeding for the sole and exclusive benefit of the debtors' pre-petition lenders, without regard to the consequences endured by administrative, priority or general unsecured creditors."

Specifically, the committee said the proposed DIP facility allows UBS' outstanding debt to be paid in full via a roll-up into post-bankruptcy debt.

The committee said the DIP facility gives Lenox use of just enough cash collateral, "disguised as post-petition financing," to bridge its operations to an orderly liquidation in February.

In the meantime, the committee said the company projects that it will collect nearly $40 million in accounts receivable to immediately pay down UBS' outstanding debt and dispose of the pre-bankruptcy lenders' remaining collateral.

"The committee's biggest concern is that the proposed DIP facility is the focal point of an overall case strategy of [some of] the pre-petition lenders to enhance their collateral position and bilk the estates for additional fees - all in exchange for consensual use of cash collateral to force a liquidation of the debtors' assets in early 2009," the committee said in the objection.

In addition, the committee said the proposed facility does not give Lenox enough liquidity to support a sale process for the length of time that the company's term loan lenders have indicated is necessary to complete the transaction.

The DIP facility hearing is scheduled for Dec. 15.

Lenox, an Eden Prairie, Minn.-based tableware, collectibles and giftware products company, filed for bankruptcy on Nov. 23. Its Chapter 11 case number is 08-14679.

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