Theindenture trustee associated with the vast majority of 'sunsecured debt has demanded substantial revisions to the manner in which theSarasota, Fla.-based company has proposed to auction and sell its primary banking unit under Section363 of the U.S. Bankruptcy Code.
Amongother things, Wilmington TrustCo. took issue with a provision of the bid procedures proposed byBank of Commerce Holdings that require competing bidders to make offers on"the same or better terms" as the agreement with stalking-horse P. ByronDeFoor, who has agreed to pay total consideration of $1.75 million to acquireBank of Commerce andrecapitalize it with up to $4.7 million.
Thatprovision, the M&T BankCorp. unit argued, "renders the sale process proposed by thedebtor a complete sham — a process created for the sole and exclusive benefitof non-debtor parties with all of the profit reserved for non-debtor partieswhile allocating to the debtor and its estate all of the expenses."Wilmington Trust said it believes potential purchasers "should be free topropose any transaction they prefer" without any requirement to retainBank of Commerce's existing management or to perform under the terms of anagreement whereby DeFoor intends to pay $1 million to acquire the bank's $5million in subordinated debt.
Further,Wilmington Trust argued that the timeline Bank of Commerce Holdings hasproposed for fielding competing offers, holding an auction and receiving theapproval of the U.S. Bankruptcy Court for the Middle District of Florida allwithin 45 days of the Sept. 22 bankruptcy filing is unnecessarily compressed.The company has proposed to sell the bank "at breakneck speed with norational justification for doing so," the trustee alleged. It cautionedthat the allegedly truncated process will "chill bidding."
Bankof Commerce Holdings responded to the trustee's objection Sept. 29, saying itis unclear what the alternative to the "same or better terms"provision might be.
"Ina complicated commercial transaction, this is a common and helpful provision toinclude in that it provides bidders with a format and context for theirbid," the company argued. "A transaction that simply provides for acash payment and makes no provision for regulatory approval or necessary equityinvestment would serve little purpose in preserving the one asset of theestate."
Thecompany also defended the proposed timeline, saying the agreement with DeFoorimposes a series of closing conditions based on the bank's financial performanceand health.
"Thelonger the period between the petition date and the closing date, the greaterthe transaction risks," Bank of Commerce Holdings argued.
WilmingtonTrust serves as indenture trust on junior subordinated debt issued by Bank ofCommerce Holdings to two statutory trusts that, in turn, issued trust preferredsecurities purportedly held by the Preferred Term Securities XX Ltd. andPreferred Term Securities XXIII Ltd. CDOs. The trustee said Bank of CommerceHoldings owes "not less than $5.1 million" in principal on each ofthe debentures. Another PreTSL CDO, Preferred Term Securities XV Ltd., holdsthe bank's subordinated debt.
WilmingtonTrust was not the only party to balk at the Bank of Commerce motion to approvethe bidding procedures. HoldCo Advisors LP submitted a limited objectionrelated to its efforts to collect a restructuring fee. Bank of CommerceHoldings engaged the firm in 2012 to research, develop and implement therestructuring of the holding company's and bank's debt obligations. The companyalleged, however, that HoldCo is not entitled to any fee since its right toobtain such monies expired in July 2015, one year after the termination date ofthe parties' contract.
Atthe same time, Bank of Commerce Holdings applied to authorize 's employment as itsfinancial adviser in connection with the 363 sale. The firm stands to receive aflat fee of $450,000 upon completion of a sale of the bank; the applicable engagementletter provides for Bank of Commerce Holdings to receive a 50% credit on the$100,000 engagement fee it paid on a pre-petition basis. Hovde Group has alsoreceived three $15,000 installments in monthly advisory fees.
SinceBank of Commerce's subordinated debtholders, and not the holding company'sestate, stand to directly benefit from the success of any post-petitionmarketing process, Wilmington Trust argued that they should bear the obligationfor any advisory fees Bank of Commerce Holdings incurs from Hovde Group inconnection with the sale. The trustee is preparing a formal written objectionto the company's application, and Bank of Commerce Holdings did not address theissue in its Sept. 29 response.
Thebankruptcy court was scheduled to convene a preliminary hearing on a series ofmatters during the morning of Sept. 29.