Source Interlink equity holders ask court to postpone plan hearing, name official committee

By Caroline Salls

Pittsburgh, May 20 - Source Interlink Cos., Inc.'s informal committee of equity holders has asked the U.S. Bankruptcy Court for the District of Delaware to postpone the company's combined disclosure statement approval and plan confirmation hearing and appoint an official equity holders committee for the company's bankruptcy case, according to a Wednesday court filing.

The informal group said Source Interlink's case "has all the elements of an extreme prepack," a derogatory term coined to describe recent bankruptcy filings in which public companies are taken private with little or no meaningful opportunity for equity shareholders to protest, let alone stop, their investments from being wiped out in short order.

In addition, the equity holders said Source Interlink's proposed plan precludes any creditor or equity holder oversight, uses a controversial gifting mechanism to get around the absolute priority rule, rewards management with equity in a new company and "has as its lynchpin a debt-for-equity swap with lenders, the value of which is neither known nor tested by competitive market forces."

The equity holders said postponing the combined disclosure statement and plan confirmation hearing, which is scheduled for May 28, will allow the U.S. Trustee to appoint an official equity committee and give that committee time to investigate plan alternatives.

Source Interlink, a media and marketing services company based in Bonita Springs, Fla., filed for bankruptcy on April 27. Its Chapter 11 case number is 09-11424.

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