Knotel committee of unsecured creditors objects to DIP financing

By Sarah Lizee

Olympia, Wash., Feb. 22 – Knotel, Inc.’s motion for approval of a $40.8 million debtor-in-possession financing package via Newmark Group, Inc. affiliate Digiatech drew an objection from the official committee of unsecured creditors, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

“It is abundantly clear that the sole purpose of this proposed DIP facility is to fund an expedited free and clear ‘friendly foreclosure’ sale of the debtors’ assets for the exclusive benefit of Digiatech rather than the estates as a whole,” the committee said in its objection.

The group said the proposed DIP facility is insufficient in that it neither provides adequate funding or time for a value-maximizing sales process, nor provides for payment of all administrative expenses that will be incurred by the debtors’ estates.

“Most troubling, while the potential of administrative insolvency looms large, neither the debtors nor Digiatech seek to remedy it. Instead, Digiatech seeks to monopolize for itself any available cash, by seeking default interest on its newly acquired pre-petition secured debt, in addition to the hefty fees and expenses associated with the DIP facility,” the committee said.

As previously reported, the committee also objected to the company’s proposed bid procedures for substantially all of its assets and entry into a stalking horse agreement. However, the bid procedures were approved Monday.

“By the motion, the debtors are proposing a sale of substantially all of their assets to Digiatech, LLC, the newly-minted pre-petition lender, the DIP lender, an affiliate of an equity holder, an affiliate of a pre-petition investment banker, an affiliate of a pre-petition real estate consultant, and now the proposed stalking horse, via a $70 million credit bid on an extremely expedited timeline that cannot possibly lead to a reasonable sale process and higher or better offers,” the group had said in the objection.

“To add insult to injury, the debtors and Digiatech, upon completion of this ‘game plan’ will seek to immediately convert this case to Chapter 7.”

The committee said the proposed sale process will chill bidding and prevent the debtors from any opportunity to realize the maximum value for their business and assets, and thereby fulfilling their fiduciary duties to all creditors of the estates.

New York-based Knotel operates a flexible workspace platform that matches, tailors and manages space for customers. The company filed bankruptcy on Jan. 31 under Chapter 11 case number 21-10146.

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