Bridge Financing OntarioOntario Bridge Loan
At Re Crystallex, the Ontario Court of Appeal ("Court of Appeal") confirmed by unanimity three decisions of the Ontario Superior Court of Justice ("OSCJ") that (1) approved bridge financing, (2) approved bridging financing in accordance with Section 11. Companies' Creditors Arrangement Act ('CCAA') and (3) approved a Business Investment Programme ('MIP').
The company had a treaty for the development of a goldmine in Venezuela, which was terminated by the Venetian authorities through no fault of Crystallex. Cristallex had an appeal for 3.4 billion dollars against the Venetian state. Due to the contract's downturn, Crystallex was not able to repay $100 million to its debtors, which was due on December 31, 2011, and accordingly the submission of a CCAA application began.
Litigation was the only advantage of Crystallex. Crystallex's CCAA -protected blanket order also allowed Crystallex to follow all bridging funding channels, including holding an auctions to obtain funds to follow the claims for the arbitration. OSCJ also authorized a USD 3.125 million bridging credit from Tenor Special Situations Fund 1, L.P ("Tenor").
As a result of the sale, Crystallex selected a $36 million DIP financing offer from Tenor and rejected the offer from its note holders. Tenor DIP financing included some uncommon terms, among which 35% extra consideration of net receipts from an arbitral tribunal or arrangement and certain corporate Governance Actions. OSCJ cleared the tenor bridging and the bondholders, who were all Crystallex lenders, objected to the ruling.
Debtors filed appeals for various reasons, among which that the DIP financing will be continued after Crystallex emerges from the CCAA cover, that they offer to comply with the conditions for the tenor DIP financing, that the OSCJ made a mistake in postponing the directors' commercial judgment when it approved the bridging credit and the DIP credit, and that the tenor DIP credit was indeed a financing agreement.
Though the debtors objected to the granting of the bridging credit, this was not strongly prosecuted. Since the bridging credit had already been paid, issued and reimbursed, the Court of Appeals found that the appeals were controversial. Appeals were dismissed by the Court of Appeals in relation to the Tenor DIP and MIP.
However, the Court of Appeal found that the CCAA gives the Court a wide margin of appreciation. It was this margin of appreciation that encouraged the OSCJ's approval of the OSCJ's intermediate DIP financing auctions. In addition, the Court of Appeal found that Section 11. The CCAA is considering granting a fee, the principal object of which is to ensure the financing needed by the obligor during the anticipated period of its CCAA procedure.
However, the Tribunal further stated that a further objective of the bridging finance was provided under Section 11. 2 (4)(a) requests that the tribunal take into account the duration of the CCAA term of credit, it does not request that such a term actually exist. Allowed bridging finance that went beyond the CCAA term of coverage.
However, the Court of Appeal found that the OSCJ had found that the debtors' rival DIP financing offer was not on the same conditions as the tenor DIP financing, confirmed this and dismissed the debtors' comments on this point. Court of Appeal found that the recommendations of the debtor's director regarding the bridging loan under Section 11.
CCAA 2 is not a determining element and in some cases cannot be a determining element at all as to whether or not an order should be made under Section 11. 2, although it would be uncommon for the Executive Committee not to commend the financing for which the borrower asks for credit.
The Appeals Tribunal, however, ruled that the recommendations of the debtor's independents about a MIP had some significance, especially if, as in this case, these principals had been given panel of experts because the CCAA did not specify the particular elements that the Tribunal must take into account and the principals probably had the best understanding of which staff were material to the reorganization effort.
Re Crystallex Appeals Court's ruling underlines the versatility of Section 11. CCAA Article 2 gives a supervisor the possibility to provide provisional DIP financing to a corporation protected under the CCAA.