Limited Objection GAP

8/3/2019 Limited Objection GAP

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Hearing Date: November 14, 2011 at 10:00 a.m. (ET)

Objection Deadline: November 11, 2011 at 4:00 p.m. (ET)

BROWN RUDNICK LLPEdward S. Weisfelner, Esq.Daniel J. Saval, Esq.Neal DAmato, Esq.Seven Times Square

New York, NY 10036Telephone: (212) 209-4800Facsimile: (212) 209-4801

- and -

Andrew P. Strehle, Esq.One Financial CenterBoston, MA 02111Telephone: (617) 856-8200Facsimile: (617) 856-8201

Special Counsel to Wells Fargo Bank, N.A.,

in its capacity as successor Trustee and Collateral Agent

& Counsel to the Ad Hoc Consortium of Certain Holders of

A&P 11 3/8% Senior Secured Notes

UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK

__________________________________________)

In re: ) Chapter 11)

THE GREAT ATLANTIC & PACIFIC TEA ) Case No. 10-24549 (RDD)COMPANY, INC., et al. )

) (Jointly Administered)Debtors. )

_________________________________________)

LIMITED OBJECTION OF WELLS FARGO BANK, N.A., IN ITS CAPACITY ASSUCCESSOR TRUSTEE AND COLLATERAL AGENT, AND THE AD HOC

CONSORTIUM OF CERTAIN HOLDERS OF A&P 11 3/8% SENIOR SECUREDNOTES TO THE DEBTORS MOTION FOR AN ORDER AUTHORIZING THE

DEBTORS TO (A) ENTER INTO CERTAIN SECURITIES PURCHASEAGREEMENTS FOR A $490 MILLION NEW CAPITAL INVESTMENTAND (B) PAY CERTAIN FEES IN CONNECTION THEREWITH, EACH

TO SUPPORT DEBTORS PLAN OF REORGANIZATION

1024549111111000000000013

Docket #2859 Date Filed: 11/11/20


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Wells Fargo Bank, N.A., in its capacity as successor Trustee and Collateral Agent (the

Secured Notes Trustee) for the 11 3/8% Senior Secured Notes (the Secured Notes or the

Second Lien Notes) issued by The Great Atlantic & Pacific Tea Company, Inc. (A&P), and

the ad hoc consortium (the Secured Noteholder Consortium)1 of holders (the Secured

Noteholders or Second Lien Noteholders) of approximately 70% of the $260 million

outstanding principal amount of the Secured Notes, by and through their undersigned counsel,

Brown Rudnick LLP, hereby submit this limited objection (the Limited Objection) to the

Debtors Motion for an Order Authorizing the Debtors to (A) Enter Into Certain Securities

Purchase Agreements for a $490 Million New Capital Investment and (B) Pay Certain Fees in

Connection Therewith (the Motion).2 In support of this Limited Objection, the Secured Notes

Trustee and the Secured Noteholder Consortium (collectively, the Secured Note Parties)

respectfully state as follows:

LIMITED OBJECTION

1. The Secured Note Parties applaud the successful efforts of the Debtors in reachingan agreement with the Investors for the New Money Commitment, an important and very

encouraging step towards the Debtors exit from Chapter 11. Although the Secured Note Parties

are generally supportive of the transactions set forth in the Securities Purchase Agreements (the

SPAs), there is a troublesome feature of the SPAs that should be remedied before Court

approval of those agreements, thus necessitating this Limited Objection.

2. Although the SPAs obligate the Debtors to file and seek confirmation of a plan of

1 As of the date hereof, the Secured Noteholder Consortium comprises institutions holding$180,623,000.00, or 69.5%, of the outstanding principal amount of the Secured Notes.

2 Capitalized terms used hereunder and not defined herein shall have the meanings ascribed to them inthe Motion.


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reorganization (the Plan) that, inter alia, provides for the payment of the allowed Second Lien

Note Claims3

in full in cash, they further provide that:

upon agreement of the Investors and the Company, the Plan may

provide for the cramdown of Second Lien Note Claims to theextent permitted by 11 U.S.C. 1129(b)(2), and the New MoneyFunding may be adjusted accordingly in such instance.

SPAs, Exhibit A, p. 3. In other words, although the Debtors are asking this Court to approve

agreements that will lock them up to a Plan, and that will cost the estates at least $20 million (in

the form of the Break-Up Fee) were they required to consummate an alternative transaction, the

Debtors have not committed to the specific treatment to be accorded the Second Lien Note

Claims under that Plan. While the reservation of the cramdown option is nothing more than a

thinly veiled threat designed to afford the Debtors and junior creditors the opportunity to gain

leverage over the Second Lien Noteholders, the potentially dramatic consequences arising from

the attempted exercise of that option, to the detriment of the estates, mandate that the SPAs only

be approved if the cramdown option is eliminated therefrom.

3. Significantly, the amount of principal and accrued interest owing to the SecuredNoteholders is in excess of $300 million, even before including other amounts to which the

Secured Noteholders are entitled under the Secured Notes Indenture.4 Therefore, if the Debtors

and the Investors attempted to cram down the entirety of the Second Lien Note Claims, the

Investors would be funding less than $200 million in new money, in which case the $40 million

Commitment Fee would exceed 20% of the amounts actually funded and the potential $20

3 Second Lien Note Claims are defined in the SPAs as all claims arising under the existing SecuredNotes. See SPAs, Ex. A at p. 1.

4 Those other amounts include , inter alia, default interest and interest on overdue interest pursuant toSection 4.01 of the Secured Notes Indenture, a make whole premium owing upon redemption of theSecured Notes prior to August 1, 2014 pursuant to Section 3.07, and reimbursement of the Secured NotesTrustees expenses (including professional fees and expenses) pursuant to Sections 4.22(e) and 7.07.


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million Break-Up Fee would exceed 10%.5 Both percentages are plainly unreasonable and far

surpass fees that other courts have approved.

4. Importantly, this optionality and desire to exert bargaining leverage affects notonly the Second Lien Noteholders, but all creditors. If the Debtors and the Investors ever were

to make good on their cramdown option threat, and assuming they were successful over the

vehement objection of the Second Lien Noteholders, the amount and type of financing that the

Investors are committing to provide will almost certainly be adjusted, possibly so that more than

half of the $490 million will never need to be provided. Indeed, if the Debtors and Investors

fully elect the cramdown option, it will be the Secured Noteholders who will effectively be

providing a substantial portion of the exit financing and even more than the Investors. The

result would be a completely different plan.6 And, in that case, the Investors will still be entitled

to receive the $40 million Commitment Fee (payable in New Convertible Third Lien Notes),

even though they could be funding less than half of the $490 million financing package.

5. The cramdown option in the SPAs is designed solely to exert leverage over theSecured Noteholders in resolving the amount of their claims.7 Specifically, the Secured Note

5 In contrast, the Secured Noteholders would receive no commitment fee at all on account of the morethan $300 million in cramdown financing that they would be forced to provide.

6 If the Debtors and the Investors attempted to pursue the cramdown option, that would wholly upendthe Debtors post-emergence capital structure, and particularly the lien priorities of the new debt, as setforth in the SPAs. In this regard, Section 2.28 of the SPA for the New Second Lien Notes provides thatthe liens securing the New Second Lien Notes will be superior to and prior to Encumbrances of all thirdpersons other than the liens securing the Exit Facility. New Second Lien Notes SPA, 2.28. In the

event the Plan provides for the issuance of the New Second Lien Notes notwithstanding a proposedcramdown of the Secured Notes, the Secured Note Parties object to any attempt to prime the lienssecuring the Secured Notes.

7 In the Final Order Authorizing the Debtors to Obtain Post-Petition Financing Pursuant to 11 U.S.C. 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1) and 364(e) and (B) To Utilize Cash CollateralPursuant to 11 U.S.C. 363 and (II) Granting Adequate Protection to Pre-Petition Secured PartiesPursuant To 11 U.S.C. 361, 362, 363 and 364 (the DIP Order), entered on January 11, 2011, theDebtors stipulated that the Secured Notes debt constitutes the legal, valid and binding obligation of the


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Parties have asserted, as part of their claim, amounts due under their indenture (the Secured

Notes Indenture), other than principal and accrued interest, upon redemption of the Secured

Notes prior to their initial maturity date colloquially referred to as the make-whole claim. 8

Upon information and belief, the Debtors and/or the Investors dispute the make-whole claim.

If this is indeed the case, the Secured Note Parties submit that, in the interests of transparency for

the Court and all constituents, the Debtors should disclose and take steps to resolve that dispute,

rather than proceeding with an amorphous, half-baked cramdown option that may call into

question whether the deal the Debtors are asking this Court to approve is indeed the deal that will

ultimately go forward or in reality is less than half of the deal.

6. For the foregoing reasons, the SPAs should be approved only if the cramdownoption is eliminated from the agreements.

Debtors, enforceable in accordance with its terms. DIP Order, 6(c). Moreover, because the ChallengePeriod in the DIP Order has long since expired, (i) this stipulation is now binding on all other parties in

interest, (ii) the Secured Notes debt constitute[s] allowed claims, not subject to counterclaim, setoff,subordination, recharacertization, defense or avoidance, and (iii) the liens securing the Secured Notesdebt shall be deemed to have been, as of the Petition Date, legal, valid, binding and perfected, notsubject to recharacterization, subordination or avoidance, and such liens shall not be subject to any otheror further challenge by any party in interest seeking to exercise the rights of the Debtors estates. DIPOrder 19.

8 The make-whole claim is based on Section 3.07 of the Secured Notes Indenture, which provides forthe payment of a premium, based on a formula, to the Secured Noteholders in the event that the Debtorsredeem the Secured Notes prior to August 1, 2014. When a loan is redeemed before maturity or(sometimes) upon default, a make-whole provision requires a borrower to pay a premium to compensatethe lender for the loss of anticipated interest that might result. In re Chemtura Corp., 439 B.R. 561, 596

(Bankr. S.D.N.Y. 2010). Pursuant to Section 506(b) of the Bankruptcy Code, an oversecured creditor isentitled, as part of its secured claim, to interest on such claim, and any reasonable fees, costs or chargesprovided for under the agreement or State statute under which such claim arose. 11 U.S.C. 506(b). Ingeneral, a prepayment premium is recognized as encompassed in the term charge. In re Premier Entmt Biloxi LLC, 445 B.R. 582, 618 (Bankr. S.D. Miss. 2010); see also In re Imperial CoronadoPartners, Ltd., 96 B.R. 997, 1000 (9th Cir. BAP 1989) (a prepayment premium is clearly a chargeprovided for under the agreement under which such claim arose)). The Secured Note Parties reserve allrights with respect to the assertion of the make-whole claim.


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RESERVATION OF RIGHTS

7. The Secured Note Parties expressly reserve all of their rights with respect to theMotion and the SPAs, including but not limited to, the right to assert additional objections

thereto either at or prior to the hearing on the Motion.9

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

9 Prior to the filing of this Limited Objection, the Secured Note Parties had raised a concern with theDebtors and the Investors regarding the ability of the Investors to seek payment of the Break-Up Feefollowing termination of the SPAs by the Investors following the occurrence of a Material AdverseChange, which the Investors have the right to do under Section 6.3(f) of the SPAs. However, thisconcern has been resolved by confirmation from counsel to the Debtors and the Investors that the Break-Up Fee would not be payable if the Investors terminated the SPAs based on a Material AdverseChange, and the Debtors thereafter pursued an Alternative Transaction which would include anyother plan of reorganization, plan of liquidation or sale of substantially all assets.


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CONCLUSION

The Secured Note Parties respectfully request that this Court (a) sustain this Limited

Objection, (b) modify any relief granted with respect to the Motion in accordance with this

Limited Objection, and (c) grant such other or further relief as the Court deems appropriate.

Dated: New York, New YorkNovember 11, 2011

Respectfully submitted,

BROWN RUDNICK LLP

By: _/s/_Edward S. Weisfelner______

Edward S. Weisfelner, Esq.Daniel J. Saval, Esq.Neal DAmato, Esq.Seven Times SquareNew York, NY 10036Telephone: (212) 2094800Facsimile: (212) 2094801

- and -

Andrew P. Strehle, Esq.One Financial Center

Boston, MA 02111Telephone: (617) 856-8200Facsimile: (617) 856-8201

Special Counsel to Wells Fargo Bank, N.A., in its

capacity as successor Trustee and Collateral Agent

& Counsel to the Ad Hoc Consortium of Certain

Holders of A&P 11 3/8% Senior Secured Notes

Documents

Limited Objection GAP