THQ noteholders object, say DIP loan locks in Clearlake as asset buyer

By Jim Witters

Wilmington, Del., Jan. 3 - THQ Inc.'s request for final approval of $37.5 million of debtor-in-possession financing drew an objection from an informal group of noteholders saying that THQ's bid procedures and financing agreements serve to ensure that stalking-horse bidder Clearlake Capital Group, LP, will emerge as the successful bidder, according to documents filed Jan. 2 with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, THQ filed its bankruptcy case to complete a proposed $60 million sale of substantially all of its operating business assets to newly formed Clearlake Capital Group, LP affiliate Space Investors LLC.

"The debtors' and their advisors pre- and post-petition conduct appear designed to ensure that the sale to Clearlake is consummated, regardless of whether such sale will maximize the value of the debtors' estates and the recoveries of unsecured creditors," the noteholders claim.

The ad hoc committee of convertible noteholders includes Silverback Asset Management, LLC; Third Avenue Focused Credit Fund; and Wolverine Flagship Fund Trading Ltd. They hold THQ 5% convertible senior notes due in 2014.

The present members of the convertible committee collectively hold, in the aggregate, about $41 million, or 41%, of original principal amount of the convertible notes.

"The terms of the proposed DIP financing, including, among other things, the onerous deadlines and milestones proposed therein, appear to have been 'manufactured' by the debtors' management and their advisers to make it appear necessary for the Clearlake sale to be consummated by Jan. 15," the objection states.

"The DIP financing terms, including but not limited to the deadlines and milestones therein, serve to benefit Clearlake unjustifiably at the expense of the debtors' unsecured creditors, as they are designed to force a 'fast-track' sale rather than allowing for a fair and robust [...] sale process."

A hearing on final DIP approval is scheduled for 10:30 a.m. ET on Jan. 4.

DIP terms

THQ receive interim access to $30 million of the DIP financing facility on Dec. 21.

The $37.5 million of facility from Wells Fargo Capital Finance, LLC and Clearlake includes a $27.5 million asset-based revolving credit facility and a $10 million term loan.

Interest on the revolver will either be Libor plus 400 basis points or the pre-bankruptcy lenders' Base rate plus 250 bps, at THQ's option. Interest on the term loan will be 15%, all paid in kind.

The DIP credit facility will mature on Jan. 18.

THQ, a developer and publisher of video games based in Agoura Hills, Calif., filed for bankruptcy on Dec. 19. Its Chapter 11 case number is 12-13398.

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