IN THE UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION In re: NPC INTERNATIONAL, INC., et al.,1 Debtors. Chapter 11 Case No. 20–33353 (DRJ) (Jointly Administered) Re: Docket No. 994
Hearing Date: November 13, 2020 at 12:30 p.m. (CT) Obj. Deadline: November 13, 2020 at 12:30 p.m. (CT)
LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO EMERGENCY MOTION FOR ENTRY OF AN ORDER (I) APPROVING THE DEBTORS’ SELECTION OF A STALKING HORSE
BIDDER, (II) APPROVING BID PROTECTIONS IN CONNECTION THEREWITH, AND (III) GRANTING RELATED RELIEF
The Official Committee of Unsecured Creditors (the “Committee”) of NPC International, Inc., et al., the above-captioned debtors and debtors-in-possession (collectively, the “Debtors”), by and through its undersigned counsel, hereby files this limited objection (the “Objection”) to the Emergency Motion for Entry of an Order (I) Approving the Debtors’ Selection of a Stalking Horse Bidder, (II) Approving Bid Protections in Connection Therewith, and (III) Granting Related Relief (the “Motion”).2 In support of the Objection, the
Committee respectfully states:
1 The Debtors in these chapter 11 cases are: NPC International, Inc.; NPC Restaurant Holdings I LLC; NPC
Restaurant Holdings II LLC; NPC Holdings, Inc.; NPC International Holdings, LLC; NPC Restaurant Holdings, LLC; NPC Operating Company B, Inc.; and NPC Quality Burgers, Inc.
2 Docket No. 994. Capitalized terms used but not defined herein shall have the meanings ascribed to them in
the Motion or the asset purchase agreement between the Debtors and the Stalking Horse Bidder (the “APA”), annexed as Exhibit B to the Motion.
ARGUMENT
1. The Committee is generally supportive of the relief requested in the Motion. The Committee does not object to the proposed expense reimbursement provisions and does not generally have a problem with the two-tiered break-up fee structure conditioned upon obtaining franchisor consent when viewed in the context of a sale of substantially all of the Debtors’ assets. The Committee is concerned, however, with the magnitude of the Break-Up Fee in a situation where the Stalking Horse Bidder has obtained the consent of the franchisors but the Debtors (or the Ad Hoc Priority/1L Group) choose to pivot to a partial reorganization. In this scenario, the Committee understands the Stalking Horse Bidder would be entitled to a $20.4 million Break-Up Fee regardless of the actual value obtained by the Debtors from a partial sale of their assets.
2. As the Court will recall, the Debtors and the Ad Hoc Priority/1L Group sought and obtained approval for a sale process that created an aggregate $725 million minimum reserve price for the sale of their assets.3 The reserve price was the Debtors’ expectation of the amount necessary to, among other things, secure the support of the Ad Hoc Priority/1L Group.4
The Stalking Horse Bidder has now submitted an $816 million bid for the purchase of substantially all of the Debtors’ assets. Despite obtaining a bid that is substantially in excess of the reserve price, the Debtors and the Ad Hoc Priority/1L Group still seek to preserve the right to pivot to a reorganization process.
3. While the Committee does not per se object to the preservation of optionality, the right of the Ad Hoc Priority/1L Group to force the Debtors to pivot to a partial reorganization has significant economic repercussions under the APA. If, after obtaining
3 See Order Establishing Bid Procedures Relating to the Sale of the Debtors’ Assets. Docket No. 693.
franchisor consent to sell their assets to the Stalking Horse Bidder, the Debtors and lenders abandon the sale process entirely and pivot to a full reorganization, the Debtors are not obligated to pay the Break-Up Fee.5 The Committee does not take issue with this provision. If, however, after obtaining franchisor consent, the Debtors pivot to a partial sale of the Debtors’ assets and a partial reorganization around the remaining assets, the Debtors will be obligated to pay a $20.4 million Break-Up Fee regardless of whether the purchase price for the assets sold exceeds the Stalking Horse Bid.
4. In response to the Committee’s questions regarding this scenario, the Debtors have asserted that the decision to abandon the Stalking Horse Bid in favor of a partial sale and partial reorganization would only occur if the combined sale and reorganization results in a “higher or better offer.” While the Committee conceptually has no issue with this, the APA leaves this determination to the Debtors’ sole and exclusive discretion, and not subject to challenge by any other party or this Court’s review.6 Given the continuing need to secure the support of the Ad Hoc Priority/1L Group to proceed with the Stalking Horse Bid, the Debtors’ decision to pivot away from such bid after obtaining franchisor consent to a partial reorganization should be subject to Court review.
5. The Committee stresses it is not opposed to reasonable break-up fees payable in appropriate circumstances. However, the value of a partial sale and partial reorganization is highly subjective and should not be pre-determined in the Debtors’ sole discretion. Instead, the Committee submits that prior to triggering the estates’ obligation to pay a $20.4 million Break-Up Fee, the Debtors’ determination of a higher or better aggregate transaction structure should be subject to Court review.
5 See APA § 8.01(b).
CONCLUSION
WHEREFORE, the Committee respectfully requests that the Court (i) condition approval of the Motion on modification of the proposed order to make the Debtors’ decisions as to higher or better transactions subject to Court review; and (ii) grant such other and further relief as the Court deems just and proper.
Dated: New York, New York November 12, 2020
KELLEY DRYE & WARREN LLP
/s/ Eric R. Wilson
Eric R. Wilson (admitted pro hac vice) Jason R. Adams (admitted pro hac vice)
Maeghan J. McLoughlin (admitted pro hac vice) Email: [email protected]
[email protected] [email protected]
101 Park Avenue
New York, New York 10178 Tel: (212) 808-7800
Fax: (212) 808-7897
Counsel to the Official Committee of Unsecured Creditors of NPC International, Inc., et al.
CERTIFICATE OF SERVICE
I certify that on November 12, 2020, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas.
/s/ Maeghan J. McLoughlin
