Lender Dispute Over DIP Financing Resolved in Anthology Bankruptcy
the bankruptcy of Astra, the prepetition borrower under an Anthology credit agreement, saw a contentious dispute over a proposed debtor-in-possession (DIP) financing arrangement resolved through a last-minute amendment. The core of the disagreement centered on a “priming rollup” – a DIP loan used to pay down existing prepetition debt – and the exclusion of lender Vector from participating on a pro rata basis.
The conflict arose after Astra requested a $100 million draw on its revolver,despite the existence of several events of default under the credit agreement. Vector refused to fund its share of the draw,citing these defaults. Astra responded with a lawsuit in New York State court on April 7th, alleging breach of contract by Vector. Vector promptly filed a motion to dismiss, which remained “fully briefed and pending” as of July 28th, according to the New York Supreme Court docket.
Vector subsequently objected to the proposed DIP financing, arguing it was being unfairly targeted due to the ongoing state court litigation, which the debtors were allegedly attempting to “weaponize” through the bankruptcy process. The objection focused on three key areas: violations of the prepetition credit agreement, breaches of fundamental bankruptcy principles, and a lack of good faith.
Specifically,Vector argued that excluding it from the rollup violated the mandatory pro rata sharing provisions of the prepetition agreement. Citing the recent American Tire decision, Vector asserted that any paydown of prepetition debt via a DIP draw must adhere to the existing pro rata allocations outlined in the original agreement. Vector maintained that the prepetition agreement contained no carve-out for DIP financing, thus requiring unanimous lender consent for any deviation from pro rata treatment.
Further, Vector contended the DIP violated the anti-subordination “sacred right,” also lacking a DIP exception within the prepetition agreement.The lender argued this indicated a intentional decision by all parties to require unanimous consent for any subordination, irrespective of context.
vector argued the selective nature of the rollup violated the good faith requirements of Section 364 of the Bankruptcy Code, unfairly discriminating among first-out lenders without benefiting the estate.While not opposing the concept of a dollar-for-dollar rollup, Vector emphasized the discriminatory aspect of excluding it, referencing the convergeone case which found preferential treatment can constitute impermissible discrimination. Vector asserted its inclusion would not jeopardize the DIP, notably as the financing was fully backstopped, and thus lacked any “legitimate business purpose” for exclusion.
The dispute was resolved on November 11th, when Anthology’s counsel filed an amended proposed final DIP order addressing Vector’s concerns.The final order, entered by Judge Alfredo Perez on November 12th, preserves all rights Vector holds in the ongoing New York State litigation. However, it otherwise treats Vector consistently with other first-out lenders, allowing it to join the Restructuring Support Agreement (RSA), participate in new money term loans on a pro rata basis, and receive its share of the rollup.
This resolution highlights the growing uncertainty in the market regarding non-pro rata DIP financings following recent court decisions like American Tire and ConvergeOne. The Anthology case provides a precedent for excluded lenders to successfully object to such arrangements, strengthening their negotiating position in similar situations.
