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SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

Christine A. Okike

Four Times Square

New York, New York 10036-6522

Telephone: (212) 735-3000

Fax: (212) 735-2000

- and -

Albert L. Hogan III (admitted pro hac vice)

155 N. Wacker Drive

Chicago, Illinois 60606-1720

Telephone: (312) 407-0700

Fax: (312) 407-0411

-and-

Carl T. Tullson (admitted pro hac vice)

One Rodney Square, P.O. Box 636

Wilmington, Delaware 19899-0636

Telephone: (302) 651-3000

Fax: (302) 651-3001

Counsel for Black Diamond Capital Management LLC

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

)

In re ) Chapter 11

)

EMPIRE GENERATING CO, LLC, et al.,1 ) Case No. 19-23007 (RDD)

)

Debtors. ) (Jointly Administered)

) Related Docket Nos.: 338, 344

LIMITED RESPONSE OF BLACK DIAMOND CONCERNING

MINORITY LENDERS’ SUPPLEMENT TO MOTION FOR

STAY PENDING APPEAL

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s tax identification number,

if applicable, are: Empire Generating Co, LLC [3821], Empire Gen Holdco, LLC [3820], Empire Gen

Holdings, LLC [4849], and TTK Empire Power, LLC [none]. The Debtors’ corporate address is: Empire

Generating Co, LLC, c/o Tyr Energy, LLC, 7500 College Blvd., Suite 400, Overland Park, Kansas 66210.

19-23007-rdd Doc 345 Filed 10/25/19 Entered 10/25/19 21:32:19 Main Document Pg 1 of 29

Certain funds managed by Black Diamond Capital Management LLC (“Black

Diamond”) file this limited response (this “Limited Response”) concerning the Supplement to

Motion for Stay Pending Appeal [ECF No. 338] (the “Stay Supplement”)2 filed by a minority

group of Prepetition Lenders led by Ares (the “Minority Lenders”):3

LIMITED RESPONSE

1. The Minority Lenders have sought a stay pending appellate review of the

Confirmation Order and the Sale Order. The Minority Lenders sought this relief from this Court

on October 16. Two days after seeking a stay from this Court, the Minority Lenders filed their

Stay Supplement in this Court, and filed an emergency motion (the “District Court Emergency

Motion”) for a stay pending appeal and expedited briefing in the District Court Appeals.4

2. In the Stay Supplement, the Minority Lenders note that, on October 17, the

Debtors obtained certain regulatory approvals necessary to close the Sale, bringing Closing of

the Sale and consummation of the Plan “one step closer;” and that “in light of” these regulatory

approvals, filing the District Court Emergency Motion was proper. However, it is difficult to

ascertain how these regulatory approvals could have created any sort of “emergency” that

necessitated the filing of the District Court Emergency Motion. The Minority Lenders have been

on notice that a closing was imminent since (at the very latest) October 7, when the Debtors filed

their proposed order under Local Bankruptcy Rule 3021, which set forth a proposed Plan

Effective Date of October 30. [ECF No. 327]. The Minority Lenders did not object to this

2 Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Stay Supplement

or the First-Day Declaration [ECF No. 3], as applicable.

3 The Stay Supplement is a supplement to the Motion for Stay Pending Appeal filed by the Minority Lenders

[ECF No. 338] (the “Stay Motion”).

4 The “District Court Appeals” are those cases numbered 19-cv-09111-NSR and 19-cv-09146-NSR currently

pending in the United States District Court for the Southern District of New York.


2

proposed order, which was approved by this Court on October 16. [ECF No. 336]. Moreover,

the Minority Lenders sought relief from the automatic stay from this Court to intervene in the

applicable regulatory proceedings, and thus, had notice of the possibility that the Debtors could

obtain regulatory approval in the near term. [ECF No. 116].

3. The Minority Lenders’ classification of any matters related to the District Court

Appeals as an “emergency” is belied by the Minority Lenders’ own actions in these Chapter 11

Cases. This Court approved the Sale and Plan on September 16, and docketed the related orders

on September 18 and 23 respectively. [ECF Nos. 298 and 304]. The Minority Lenders waited

until September 27 to file their one-page notices of appeal in respect of these orders. [ECF Nos.

316 and 317]. The Minority Lenders then waited until October 16—an entire month after the

Court approved the Sale and Plan (and 23 days after entry of the related orders)—to move this

Court for a stay. The Minority Lenders now expect this Court, the District Court, Appellees and

Black Diamond to respond to the Minority Lenders’ self-created emergency on an expedited

timeline.

4. To date, no response deadline or hearing date in respect of the Stay Motion has

been set. Black Diamond intends to file an objection to the Stay Motion in full compliance with

any such response deadline that may be set by this Court. Similarly, Black Diamond has filed an

objection to the District Court Emergency Motion (the “District Court Objection”) in the

District Court Appeals, a copy of which is attached hereto as Exhibit A.


3

Dated: New York, New York

October 25, 2019


/s/ Albert L. Hogan III

Christine A. Okike

Four Times Square


Telephone: (212) 735-3000

Fax: (212) 735-2000

– and –


155 North Wacker Drive


Telephone: (312) 407-0700

Fax: (312) 407-0411

– and –




Telephone: (302) 651-3000

Fax: (302) 651-3001

Counsel to Black Diamond Capital Management LLC


Exhibit A

District Court Objection


UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

)

In re )

) Bankr. Case No. 19-23007 (RDD)

EMPIRE GENERATING CO, LLC, et al.,1 ) (Jointly Administered)

)

Debtors. )

)

ASSF IV AIV B HOLDINGS III, L.P., et al., ) On Appeal from the United States

) Bankruptcy Court For the

Appellants, ) Southern District of New York

)

v. ) Case No. 7:19-cv-09111-NSR

) Case No. 7:19-cv-09146-NSR

EMPIRE GENERATING CO, LLC, et al., )

)

Appellees. )

)

OBJECTION OF BLACK DIAMOND TO APPELLANTS’

EMERGENCY MOTIONS FOR STAY PENDING APPEAL AND

EXPEDITED BRIEFING SCHEDULE

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s tax identification number,

if applicable, are: Empire Generating Co, LLC [3821], Empire Gen Holdco, LLC [3820], Empire Gen

Holdings, LLC [4849], and TTK Empire Power, LLC [none]. The Debtors’ corporate address is: Empire

Generating Co, LLC, c/o Tyr Energy, LLC, 7500 College Blvd., Suite 400, Overland Park, Kansas 66210.

Case 7:19-cv-09111-NSR Document 9 Filed 10/25/19 Page 1 of 2419-23007-rdd Doc 345 Filed 10/25/19 Entered 10/25/19 21:32:19 Main Document Pg 6 of 29

CORPORATE DISCLOSURE STATEMENT

Pursuant to Rule 8012 of the Federal Rules of Bankruptcy Procedure, certain funds

managed by Black Diamond Capital Management, L.L.C. and its affiliates (“Black Diamond”)2

state as follows:

BDCM Opportunity Fund IV, L.P. is owned by BDCM Intermediate Opportunity

Fund, IV, L.P., BDCM Opportunity Fund IV GP, L.L.C. and a number of institutional

and accredited investors. None of these investors is a publicly held corporation that

owns 10% or more of the equity of BDCM Opportunity Fund, IV, L.P. The debt

obligations issued by Black Diamond CLO 2013-1 Ltd. and Black Diamond CLO

2014-1 Ltd. are traded in the market, and the identities of such noteholders are

generally not known by Black Diamond. Black Diamond is unaware of any specific

publicly held corporation that owns 10% or more of the equity or debt issued by

Black Diamond CLO 2013-1 Ltd. or Black Diamond CLO 2014-1 Ltd. Each of

BDCM Opportunity Fund IV, L.P., Black Diamond CLO 2013-1 Ltd., and Black

Diamond CLO 2014-1 Ltd. is managed by affiliates of Black Diamond Capital

Management, L.L.C.

2 Capitalized terms used but not defined herein shall have the meaning ascribed to them in the First-Day

Declaration [B.D.I. 3], or the applicable Stay Motions, as applicable.


i

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...................................................................................................... ii

INTRODUCTION ...................................................................................................................... 1

ARGUMENT .............................................................................................................................. 4

I. APPELLANTS CANNOT SATISFY THE REQUIREMENTS FOR A STAY

PENDING APPEAL. ....................................................................................................... 4

A. Appellants Cannot Demonstrate a Likelihood of Success on the Merits. ............... 5

1. The Sale is Not an Unlawful Sub Rosa Plan. ............................................. 5

2. The Court Properly Approved the Credit Bid. ........................................... 7

(a) The Credit Bid is Authorized by the Bankruptcy Code. ................. 7

(b) No “Cause” Exists to Disallow the Credit Bid. .............................. 8

3. The Plan’s Discharge Provisions Are Appropriate. ................................. 10

4. The Purchaser Is a Good Faith Purchaser. ............................................... 10

5. The RSA, Which Satisfies the Applicable Business Judgment Test,

Is Not Subject to the Stay Motions. ......................................................... 11

B. Appellants Will Not Suffer Irreparable Harm in the Absence of a Stay. .............. 11

C. Issuance of a Stay Will Substantially Injure the Debtors and Parties-in-

Interest. .............................................................................................................. 14

D. Issuance of the Stay is Not in the Public Interest. ............................................... 15

II. IN THE EVENT OF A STAY, A SUBSTANTIAL BOND SHOULD BE

REQUIRED TO PROTECT THE DEBTORS AND PARTIES-IN-INTEREST. ............ 15

CONCLUSION ......................................................................................................................... 17


ii

TABLE OF AUTHORITIES

CASES

In re 473 West End Realty Corp.,

507 B.R. 496 (Bankr. S.D.N.Y. 2014) .............................................................................. 5

In re 8 West 58th St. Hospitality, LLC,

No. 14-11524 (SHL), 2016 WL 856800 (Bankr. S.D.N.Y. Mar. 4, 2016) ......................... 5

ACC Bondholder Group v. Adelphia Comminications Corp. (In re Adelphia

Communications Corp.),

361 B.R. 337 (S.D.N.Y. 2007) ....................................................................................... 13

In re Adelphia Communications Corp.,

333 B.R. 649 (S.D.N.Y. 2005) ..................................................................................... 4, 5

In re Atkinson,

No. 12-74366-ast, 2012 WL 6138217 (Bankr. E.D.N.Y. Dec. 11, 2012) ........................ 13

In re Baker,

No. CV05-3487 (CPS), 2005 WL 2105802 (E.D.N.Y. Aug. 31, 2005) ........................... 13

In re Calpine Corp.,

No. 05-60200 (BRL), 2008 WL 207841 (Bankr. S.D.N.Y. Jan. 24, 2008) ................ 12, 15

Committee of Equity Security Holders v. Lionel Corp. (In re Lionel Corp.),

722 F.2d 1063 (2d Cir. 1983) ........................................................................................... 6

Credit One Bank, N.A. v. Anderson (In re Anderson),

560 B.R. 84 (S.D.N.Y. 2016) ................................................................................... 12, 13

Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures Corp.),

4 F.3d 1095 (2d Cir. 1993) ............................................................................................. 11

In re Pulp Finish 1 Co.,

No. 12-13774 (SMB), 2014 WL 201482 (Bankr. S.D.N.Y. Jan. 16, 2014) ..................... 15

Sabine Oil & Gas Corp. v. HPIP Gonzales Holdings, LLC (In re Sabine Oil & Gas

Corp.),

551 B.R. 132 (Bankr. S.D.N.Y. 2016) ............................................................................ 12

In re Sabine Oil & Gas Corp.,

548 B.R. 674 (Bankr. S.D.N.Y. 2016) ...................................................................... 14, 16

Triple Net Investments IX, LP v. DJK Residential, LLC (In re DJK Residential, LLC),

No. 08-10375 (JMP), 2008 WL 650389 (S.D.N.Y. Mar. 7, 2008) .............................. 4, 13


iii

In re World Trade Center Disaster Site Litigation,

503 F.3d 167 (2d Cir. 2007) ............................................................................................. 5

STATUTES

11 U.S.C. § 363(k) ...................................................................................................................... 7


1

Black Diamond files this objection (this “Objection”) to Appellants’ Emergency

Motions for Stay Pending Appeal and Expedited Briefing Schedule (the “Stay Motions”)3 filed

by ASSF IV AIV B Holdings III, L.P. and AEIF TRADE, LLC (“Ares”) and SPTIF Parent,

LLC (“Starwood” and, together with Ares, the “Appellants”). In support of this Objection,

Black Diamond respectfully states as follows:

INTRODUCTION

Appellants come before this Court, on an emergency basis, seeking a stay of the

Sale Order and the Confirmation Order before the bankruptcy court has had the opportunity to

consider and rule upon an identical motion. Any “emergency” with respect to the Stay Motions

is created entirely by Appellants. The bankruptcy court approved the Sale Order and the

Confirmation Order 32 days before (and entered the Sale and Confirmation Orders 25 days

before) the Minority Lenders belatedly moved this Court for a stay. Appellants represented to

the bankruptcy court that they have moved this Court for a stay because, on October 17,

Appellees received the requisite regulatory approval to close the transactions contemplated by

the Sale and Confirmation Orders. This representation is disingenuous for two reasons. First, on

October 7, the Debtors filed (and on October 15 the bankruptcy court approved) a timeline that

contemplated closing occurring on or before October 30. This proposed timeline was approved

without any objection from Appellants. [B.D.I. 327].4 Second, Appellants have been active

3 Appellants filed two Stay Motions: (a) the Emergency Motion for Stay Pending Appeal and Expedited Briefing

Schedule of the Sale Order, filed in Case No. 7:19-cv-09111-NSR (the “Sale Stay Motion”) [D.I. 8], and (b)

the Emergency Motion for Stay Pending Appeal and Expedited Briefing Schedule of the Confirmation Order,

filed in Case No. 7:19-cv-09146-NSR (the “Confirmation Order Stay Motion”) [D.I. 9]. The Stay Motions

are substantially similar, and this Objection addresses both of the Stay Motions.

4 References herein to documents in the Bankruptcy Case, Case No. 19-23007-RDD, will be cited as “B.D.I.,”

whereas those in this appeal will be cited as “D.I.”


2

participants in the state and federal regulatory processes as objectors and have had ample notice

of the state of play in those regulatory proceedings.

The Stay Motions do not reflect a genuine emergency, but rather a continuing

pattern of meritless arguments advanced by Appellants in pursuit of negotiating leverage

regarding the post-sale, post-confirmation corporate governance of the purchaser of assets under

the Sale Order (the “Purchaser”). These governance terms never were, and are not now,

properly before the bankruptcy court.5 The bankruptcy court ruled correctly that entry of the

Sale Order was appropriate based on the applicable standards for sales under the Bankruptcy

Code, as well as the plain language of the Credit Agreement and Intercreditor Agreement, which

expressly provide the Majority Lenders (including Black Diamond), as owners of more than 50%

of the debt outstanding under the Prepetition Loan Documents, with “sole discretion” over

enforcement actions, including directing the Collateral Agent to submit a credit bid. See

Intercreditor Agreement § 3.1 [B.D.I. 3 at Exhibit L]; see also Sept. 16, 2019 Hr’g Tr. 78:24–

79:5 [B.D.I. 307] (“Sept. 16 Tr.”) (THE COURT: “It appears clear to me, based on the plain

language of Section 3.1 of the intercreditor agreement that, in fact, the lender group here

[including Appellants] conferred upon the majority required lenders the right to direct the

collateral agent in exercising such a remedy, notwithstanding any other provisions of the

intercreditor agreement, and that such exercise is appropriate and provided for by the parties’

own agreements.”). With respect to the appeal of the Sale Order, the bankruptcy court

specifically addressed each of Appellants’ untenable arguments at the September 16, 2019

combined hearing:

5 THE COURT: “[W]hat [the Appellants are] concerned about is the post-plan, post-sale corporate governance –

that’s a state law issue . . . .” June 4, 2019 Hr’g Tr. 135:18–20 [B.D.I. No. 95] (“June 4 Tr.”).


3

THE COURT: You’re complaining that the price was greater than the value,

not less. Right? So to me, that’s like a character in “Alice in Wonderland.” I

mean, the whole purpose of a good faith finding is to avoid putting one’s

thumb on the price and keeping it too low…. So let’s get real here. Look, I

understand. Your clients have a fight with Black Diamond over future

governance of the purchaser. That has nothing to do with 363(m), period, so

I’m going to overrule that objection. It’s absurd. You know, just because your

clients are well-heeled doesn’t mean that they can make arguments that

literally say up is down and down is up.

Sept. 16 Tr. 54:21–55:11 (addressing § 363(m) good faith purchaser finding in

connection with Sale matters) (emphasis added).

* * *

THE COURT: So far, you have said about six things to me that I have had to

unpack to show, in fact, that they’re nonsense.

….

This is just sophistry. You know, if a -- the one -- the one difference between a

pro se debtor arguing this type of stuff to me and you is that there’s some

credibility associated with it. But it’s just sophistry.

Sept. 16 Tr. 62:11–63:7 (addressing Appellants’ argument that a credit bid in

the full amount of their debt does not satisfy their claims against the Debtors).

* * *

THE COURT: This is all about -- you’re asking me to overturn fundamental

principles of law so that your clients can get drag-along and tag-along rights.

It’s just not going to happen.

Sept. 16 Tr. 71:18–21 (addressing same).

* * *

THE COURT: [Y]ou’re paid in full. It’s just an elemental concept. And the

release doesn’t go into effect unless you’re paid in full. So it’s just -- it’s

mindboggling, this argument. It doesn’t make any sense.

Sept. 16 Tr. 115:24–116:2 (addressing Appellants’ argument that the Debtors

are improperly releasing claims under the Plan where creditors are being paid

in full).

With respect to the Confirmation Order, it is unclear why Appellants have chosen

to appeal (much less seek a stay of) a Plan that, by its own terms, and at the suggestion of

Appellants, preserves Appellants’ post-closing litigation rights as to non-debtors. Appellants


4

neglect to disclose or discuss in the Stay Motions the provisions of the Confirmation Order that

protect Appellants’ interests vis-à-vis non-debtors. See, e.g., Confirmation Order ¶8(b) [B.D.I.

304] (emphasis added).

These protections preserve Appellants’ rights to pursue post-closing claims

regarding state-law governance issues of the Purchaser. As Appellants’ counsel has

acknowledged, “if the corporate governance was resolved, that would resolve everything,

including all the pending appeals.” Sept. 16 Tr. 16:22–24; see also id. at 79:13–20 (THE

COURT: “The objecting minority lenders [i.e., Appellants] here object, as they’ve made clear on

the record today and in their pleadings, not based on a belief that credit bidding is inappropriate,

since they themselves contemplated a credit bid that was a lower proposal, pre-petition, than this

proposal that’s before me today, but only because they are concerned that, after the sale, the

corporate governance documents for the purchaser may inappropriately disadvantage them.”

(emphasis added)). Appellants do not face the prospect of irreparable harm if the Plan is

consummated and, for that reason alone, the Confirmation Order Stay Motion should be denied.

The bankruptcy court’s proper application of bankruptcy law to these facts and

circumstances is fully supported by the record, and there exists no basis to disturb the bankruptcy

court’s rulings, nor stay the Sale and Confirmation Orders on an emergency basis.

ARGUMENT

I. APPELLANTS CANNOT SATISFY THE REQUIREMENTS FOR A STAY

PENDING APPEAL.

The party requesting a stay pending appeal seeks “extraordinary relief,” Triple

Net Investments IX, LP v. DJK Residential, LLC (In re DJK Residential, LLC), No. 08-10375

(JMP), 2008 WL 650389, at *5 (S.D.N.Y. Mar. 7, 2008), and therefore “carries a heavy burden”

to demonstrate the relief is warranted. In re Adelphia Commc’ns Corp., 333 B.R. 649, 659


5

(S.D.N.Y. 2005). Courts consider four factors in weighing such a request: “‘(1) whether the stay

applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the

applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will

substantially injure the other parties interested in the proceeding; and (4) where the public

interest lies.’” In re 8 West 58th St. Hosp., LLC, No. 14-11524 (SHL), 2016 WL 856800, at *2

(Bankr. S.D.N.Y. Mar. 4, 2016) (quoting In re World Trade Ctr. Disaster Site Litig., 503 F.3d

167, 170 (2d Cir. 2007)).

The burden falls upon Appellants to establish each of these factors, see In re 473

W. End Realty Corp., 507 B.R. 496, 501 (Bankr. S.D.N.Y. 2014), and the presence of “‘more of

one [factor] excuses less of the other.’” In re World Trade Ctr. Disaster Site Litig., 503 F.3d at

170 (citations omitted) (alteration in original). Even if all four factors are met, the “decision to

grant or deny a stay pending appeal is committed to the discretion of the . . . court.” In re 8 W.

58th St. Hosp., 2016 WL 856800, at *2.

A. Appellants Cannot Demonstrate a Likelihood of Success on the Merits.

1. The Sale is Not an Unlawful Sub Rosa Plan.

Appellants’ argument that the bankruptcy court-approved Sale and Plan constitute

a sub rosa “scheme”—see Sale Stay Motion at 10–11—intentionally misconstrues and conflates

the legal effects and operation of the Prepetition Loan Documents, on the one hand, and the

implementation of the provisions of the Bankruptcy Code, on the other hand. The thrust of

Appellants’ sub rosa argument is that the court-approved Sale Order and Confirmation Order

together enable a sale transaction that improperly satisfies Appellants’ claims through a full

credit bid, thus depriving Appellants of the right to vote (because they have no outstanding

claims prior to substantial consummation of the Plan) to potentially block confirmation of the

Plan.


6

But the satisfaction of Appellants’ claims via the Credit Bid is authorized and

effectuated by the Prepetition Loan Documents to which Appellants voluntarily became bound

by their acquisition of the debt. In other words, Appellants never had an unqualified right to vote

on a Chapter 11 plan in the first instance. Instead, any right to vote was always legally and

logically conditioned on Appellants having allowed and impaired claims at the time such claims

are addressed under a plan. Moreover, as a result of the Credit Bid, all holders of satisfied

claims (including Black Diamond), and not just Appellants, are subject to the same treatment and

do not vote on the Plan. At the September 16 hearing, the bankruptcy court clearly explained

these issues in the context of its ruling confirming the Plan:

The plan does not classify the objectors [i.e., Appellants] -- the

class in which the objectors would otherwise be classified, because the

sale, which will be implemented before the effective date of the plan,

pays off that debt. So there’s no reason to classify them.

And given the language that we’ve gone through for the

confirmation order, the effective date of the plan will in no way affect, as

against the debtors, any such rights, because they will have been all

satisfied by the credit bid.

Sept. 16 Tr. 119:13–21 (emphasis added). The bankruptcy court additionally made all of the

necessary factual findings to support its approval of the Sale Order and entry of the Confirmation

Order, including that there exists a “good business reason” to approve the Sale under the Second

Circuit’s seminal “sub rosa” decision in Comm. of Equity Sec. Holders v. Lionel Corp. (In re

Lionel Corp.), 722 F.2d 1063, 1071 (2d Cir. 1983). See, e.g., Sept. 16 Tr. 77:13–25 (concluding

that there is a good business reason for the sale to take place under Section 363 because the sale

“resolves the primary indebtedness against [the Debtors] in full, in excess of 353 million dollars,

[and] there has been an opportunity for competitive bidding, both pre-bankruptcy and post-

bankruptcy, pursuant to the bid procedures. And based on the uncontroverted declaration of the


7

financial advisor in charge of that bidding . . . this is the highest and best price for the asset, . . .

and it’s clearly in the [D]ebtors’ best interest to accept that price.” (emphasis added)).

2. The Court Properly Approved the Credit Bid.

(a) The Credit Bid is Authorized by the Bankruptcy Code.

Appellants contend that the Credit Bid approved by the bankruptcy court is

“unlawful” because there does not exist an “allowed claim” against seller TTK Empire. See Sale

Stay Motion at 11. Appellants are wrong on the law, and the bankruptcy court properly disposed

of this argument. There is no requirement in Section 363(k) that the claim being credit bid in a

Section 363 sale be a claim against the debtor selling the property. Rather, Section 363(k)

provides that “[a]t a sale . . . of property that is subject to a lien that secures an allowed claim . . .

if the holder of such claim purchases such property, such holder may offset such claim against

the purchase price of such property.” 11 U.S.C. § 363(k). Here, the Prepetition Agent’s Credit

Bid indisputably satisfies each of the elements prescribed by the statute: (1) an “allowed claim”;6

(2) TTK Empire’s equity interests in Holdings constitute, pursuant to the Pledge Agreement,

“property that is subject to a lien that secure[s]” such “allowed claim”; and (3) TTK Empire

proposes to sell “such property.” Id. Thus, the Prepetition Agent is entitled to credit bid the

obligations under the Prepetition Loan Documents in connection with the Debtors’ sale of TTK

Empire’s equity interests in Holdings. This is the straightforward result demanded by the statute,

and the bankruptcy court cited both the statute as well as controlling Supreme Court precedent in

approving the Credit Bid:

It is quite clear . . . that a nonrecourse, secured claim is, in fact, a claim

for bankruptcy purposes, as stated by the unanimous Supreme Court in

Johnson v. Home State Bank[:] “We have no trouble concluding that a

6 Appellants cannot and do not dispute the validity of the “allowed claim” (i.e., the obligations under the

Prepetition Loan Documents) or the “lien” (i.e., TTK Empire’s pledge of its equity interests in Holdings).


8

mortgage interest that survives the discharge of a debtor’s personal liability is a

claim, within the terms of Section 101(5).”

Sept. 16 Tr. 78:9–15 (quoting Johnson v. Home State Bank, 501 U.S. 78, 84 (1991)).

Such a holding is also consistent with the legislative history to Section

1111 of the Bankruptcy Code, and as I noted in my bench ruling on June 4th,

the leading commentator on bankruptcy, [Collier] . . . and further, is consistent

with the Supreme Court’s decision in Radlax Gateway Hotel v. Amalgamated

Bank, . . . recognizing an absolute right to credit bid under section 363(k), or

even in connection with a Chapter 11 plan.

Id. at 78:16–23 (citing RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. 639

(2012)). Moreover, Appellants’ argument lacks textual support, as the presence of a mutuality

requirement in Bankruptcy Code Section 553 and the simultaneous absence of a corollary

requirement in Bankruptcy Code Section 363(k) supports the proposition that a secured creditor

may credit bid at the sale of its collateral regardless of whether the creditor has personal

recourse7 against the entity that owns, and proposes to sell, such collateral.

(b) No “Cause” Exists to Disallow the Credit Bid.

Appellants argue that, even if the Credit Bid were technically proper, the

bankruptcy court abused its discretion by failing to disallow the Credit Bid for “cause” because

the Credit Bid “requires the Collateral Agent to violate the Intercreditor Agreement.” Sale Stay

Motion at 12. The bankruptcy court, however, properly recognized that the Intercreditor

Agreement unambiguously permits the Credit Bid. See Sept. 16 Tr. 78:1–79:5. Indeed, Section

3.1 of the Intercreditor Agreement vests the Collateral Agent (at the direction of the Required

Lenders) with “sole discretion” over enforcement actions, including a credit bid. As such,

7 Appellants’ assertion that there can be no claim against TTK Empire based on Section 6.25 of the Pledge

Agreement is irrelevant. Black Diamond does not contend that the non-recourse provisions of the Pledge

Agreement are unenforceable—just that they are wholly irrelevant to whether the Prepetition Agent can credit

bid the obligations under the Prepetition Loan Documents at the sale of the pledged equity interests.


9

Appellants’ argument that it “never contractually delegated authority to the Collateral Agent” to

enter into the Credit Bid is demonstrably false.

Refusing to acknowledge the practical and legal effects of Section 3.1 of the

Intercreditor Agreement, Appellants instead argue that Section 2.3 requires the Collateral Agent

to have specific and unique authorization from Appellants to enter into the Credit Bid. See Sale

Stay Motion at 12. But Section 2.3 does not require such authorization, and the bankruptcy court

rejected this rationale when ruling that Section 3.1 is intentionally drafted so as to trump any

such arguably competing provisions of the Intercreditor Agreement. See Sept. 16 Tr. 68:22–69:3

(THE COURT: “But 3.1(b) is introduced by the phrase, ‘[n]otwithstanding anything to the

contrary herein or any of the other collateral documents’ . . . which would seem to . . . trump

9.16(b)[.]”).8

Additionally, there is no basis for Appellants’ related assertion that the Credit Bid

is “against their own interests” or does not benefit all secured creditors. See Sale Stay Motion at

12–13. The parties are getting precisely what they bargained for under the Prepetition Loan

Documents. Indeed, the Direction Letter authorizing the Collateral Agent to undertake the

Credit Bid requires the Collateral Agent to “[t]ake all steps necessary to . . . distribute or assign

interests in the Purchaser in accordance with Section 4.1 of the Intercreditor Agreement, the

Loan Documents and applicable law.” Direction Letter § E [B.D.I. 61 at Exhibit F]. Because the

Direction Letter specifically incorporates and requires compliance with the pro rata sharing

provisions of the Prepetition Loan Documents, there is no basis for Appellants’ contention that

8 For this reason, Appellants’ claim that the bankruptcy court did not address this argument is incorrect and

should be disregarded.


10

the Collateral Agent is making an effort “to benefit Black Diamond at the expense of everyone

else.” See Sale Stay Motion at 13.

3. The Plan’s Discharge Provisions Are Appropriate.

Appellants argue the Plan’s discharge provisions are too broad because they

purportedly provide a “discharge of non-sellers.” Confirmation Order Stay Motion at 13–14.

But Appellants’ argument is grounded upon their flawed view that the claim which is credit bid

in a Section 363 sale must be a claim against the debtor selling property. As described above,

there is no such requirement under Section 363(k). See supra Section I.A.2(a). Moreover,

claims against the Debtors are properly discharged upon the closing of the Sale because claims

under the Prepetition Loan Documents will be satisfied and the Prepetition Lenders will have no

further recourse against the collateral. See Sept. 16 Tr. 119:13–21 (THE COURT: “The plan

does not classify the objectors -- the class in which the objectors would otherwise be classified,

because the sale, which will be implemented before the effective date of the plan, pays off that

debt. So there’s no reason to classify them. And . . . the effective date of the plan will in no way

affect, as against the debtors, any such rights, because they will have been satisfied by the credit

bid.”).

4. The Purchaser Is a Good Faith Purchaser.

Appellants argue the Sale Order improperly deems the Purchaser a good faith

purchaser under Section 363(m) of the Bankruptcy Code. See Sale Stay Motion at 13. But

Appellants failed to present at the Sale hearing any evidence that a good faith finding was

improper; and the only evidence submitted on the record of the Sale hearing supported the good

faith finding. See Sept. 16 Tr. 82:18–22 (“The courts have been clear . . . that courts in this

district have repeatedly relied on the lack of any evidence of bad faith when affirming that good

faith purchaser’s finding.”); see also id. 54:8–55:12 (finding there was no evidence “contrary to


11

Mr. Cummins’ declaration which said that there was a marketing process, the stalking horse was

noted, and if anyone wanted to bid more, they could have” and “as far as he knows, Black

Diamond did – or the purchaser did nothing to dampen the value of this property and that theirs

is the highest and best bid”).

5. The RSA, Which Satisfies the Applicable Business Judgment Test, Is Not

Subject to the Stay Motions.

Appellants argue that the bankruptcy court used the wrong standard of review

when approving the Debtors’ assumption of the RSA. See Sale Stay Motion at 14. First,

assumption of the RSA is subject to an entirely separate—and fully briefed—appeal commenced

by Appellants before Judge Karas, and Appellants’ argument should be disregarded. Second,

when ruling on the Debtors’ request to assume the RSA, the bankruptcy court properly applied

governing Second Circuit precedent under Orion Pictures Corp. v. Showtime Networks, Inc. (In

re Orion Pictures Corp.), 4 F.3d 1095 (2d Cir. 1993). Third, assumption of the RSA is proper

under any standard of review, where the deal for the Debtors was so good that the bankruptcy

court concluded that “[t]here’s nothing more to ask for . . . .There’s literally nothing more to ask

for at that point.” June 4 Tr. 150:23–25.

B. Appellants Will Not Suffer Irreparable Harm in the Absence of a Stay.

Appellants’ primary concern throughout these proceedings has been the scope of

post-closing corporate governance rights in the non-debtor Purchaser. See, e.g., Sept. 16 Tr.

79:13–20 (THE COURT: “The objecting minority lenders [i.e., Appellants] here object . . . only

because they are concerned that, after the sale, the corporate governance documents for the

purchaser may inappropriately disadvantage them.” (emphasis added)); id. at 16:22–24

(Appellants’ counsel acknowledging that “if the corporate governance was resolved, that would

resolve everything, including all the pending appeals”); June 4 Tr. 150:1–4 (THE COURT:


12

“[Y]ou have one issue. You’re afraid that Black Diamond is going to run roughshod over your

shareholder rights once it is the controlling shareholder of the purchase vehicle.”). The problem

with the confirmed Plan, according to Appellants, is that it “risks leaving Black Diamond, as the

majority debtholder, with unchecked authority to dictate the governance structure of the”

Purchaser and that such structure would potentially, “lack any meaningful governance

protections for Appellants.” Sale Stay Motion at 5. But the bankruptcy court included

provisions in the Confirmation Order for the express purpose of protecting and preserving

Appellants’ rights on any post-closing governance issues, and providing that these issues (if any)

can be addressed on a post-closing basis outside of the bankruptcy court. See Confirmation

Order ¶ 20 [B.D.I. 304] (preserving Appellants’ rights and remedies).

Thus, in the absence of any tangible, identifiable harms that might befall

Appellants if the Stay Motions are denied, Appellants instead fall back upon more ethereal

concerns—i.e., the “risk” that substantial consummation of the Debtors’ Plan “might” one day

render these appeals equitably moot. See Sale Stay Motion at 6–8. But in this district, where a

“showing of irreparable harm is the ‘principal prerequisite’” for issuance of a stay, Sabine Oil &

Gas Corp. v. HPIP Gonzales Holdings, LLC (In re Sabine Oil & Gas Corp.), 551 B.R. 132, 143

(Bankr. S.D.N.Y. 2016) (citation omitted), “merely invoking equitable mootness . . .—a risk that

is present in any post-confirmation appeal of a chapter 11 plan—is not sufficient to demonstrate

irreparable harm.” In re Calpine Corp., No. 05-60200 (BRL), 2008 WL 207841, at *4 (Bankr.

S.D.N.Y. Jan. 24, 2008) (emphasis added); see also Credit One Bank, N.A. v. Anderson (In re


13

Anderson), 560 B.R. 84, 91 (S.D.N.Y. 2016) (Román, J.) (irreparable harm must be imminent,

that is, near or impending, not merely possible).9

Appellants’ reliance upon Adelphia is inapposite and easily distinguished. See

Sale Stay Motion at 6. The dead giveaway, of course, is Appellants’ altering of the emphasis

from the original text of the decision. Id. Appellants intentionally deemphasize Adelphia’s

holding that the risk of equitable mootness might support a finding of irreparable harm where the

appeal implicates “significant claims of error.” In re Adelphia, 361 B.R. at 348 (emphasis in

original). In point of fact, Adelphia involved plan proponents’ clear and direct violation of a

bankruptcy court order and the bankruptcy court’s subsequent failure to enforce that order. See

id., 361 B.R. at 356–57; see also In re DJK Residential, 2008 WL 650389, at *3 (explaining that,

in Adelphia, “the claims of error related to the ‘troubling’ failure by the proponents of the

confirmation plan to comply with [a] central order of the Bankruptcy Court and the Bankruptcy

Court’s failure to enforce that order” (citation omitted)).

Here, unlike Adelphia, there are no unique or significant claims of error that

might themselves support a finding of irreparable harm in the absence of a stay, “but merely an

argument that the Bankruptcy Court was wrong on the merits of [its] decisions” below. In re

DJK Residential, 2008 WL 650389, at *3. Additionally, where, as here, the bankruptcy court

has gone out of its way to include provisions in the Confirmation Order for the express purpose

of protecting Appellants’ rights with respect to their primary interest in the bankruptcy

9 See also In re DJK Residential, 2008 WL 650389, at *3, *5 (denying stay based upon “the majority view that

the risk of mootness does not constitute irreparable harm”); ACC Bondholder Group v. Adelphia

Comminications Corp. (In re Adelphia Communications Corp.), 361 B.R. 337, 347 & n.39 (S.D.N.Y. 2007) (a

“majority of courts have held that a risk of mootness, standing alone, does not constitute irreparable harm”)

collecting cases)); In re Atkinson, No. 12-74366-ast, 2012 WL 6138217, at *3 (Bankr. E.D.N.Y. Dec. 11, 2012)

(“‘[T]he possibility that an appeal will be rendered moot by a denial of stay does not, in and of itself, constitute

irreparable harm.’” (citation omitted)); accord In re Baker, No. CV05-3487 (CPS), 2005 WL 2105802, at *9

(E.D.N.Y. Aug. 31, 2005) (collecting cases).


14

proceedings, it cannot be argued that any alleged claims of error are “significant” in the context

of the appeals. Because Appellants will not suffer irreparable harm in the absence of a stay, the

Stay Motions should be denied.

C. Issuance of a Stay Will Substantially Injure the Debtors and Parties-in-Interest.

The uncontested evidentiary record demonstrates that the Debtors and their

creditors and other stakeholders—including the Consenting Lenders—will be substantially

harmed by a stay of the Sale Order or Confirmation Order. At the hearing on the Debtors’

assumption of the RSA, for instance, Debtors’ CEO, Garrick Venteicher, testified that the

uncertainty of the chapter 11 proceedings was harming the Debtors and the power plant that is

their key asset:

We need to reach finality with this project and get it set on a new course at a

right-size[d] balance sheet. We need finality for the employees. We need

finality for the plant. And we need finality for the creditors. This needs to

stop. It’s been very harmful to the plant. The news is very harmful to the

plant. This has gone on for too long.

June 4 Tr. 82:9–12. Staying the Sale and Confirmation Orders will only increase the uncertainty

and risk to the Debtors and their reorganization. See, e.g., In re Sabine Oil & Gas Corp., 548

B.R. 674, 683 (Bankr. S.D.N.Y. 2016) (recognizing that “placing plan settlements in jeopardy,”

“lost strategic opportunities,” and “difficulty in recruiting and retaining talent,” are all “harms

resulting from the postponement of reorganization proceedings”). Notably, the Debtors’ plant

manager abruptly resigned after a difficult meeting with one of the Appellants. See June 4 Tr.

82:16–83:1.

For their part, Appellants cavalierly dismiss these harms as “inconveniences,” and

seek to lay blame upon the Debtors for a purported “hurry-up-and-wait” approach to seeking

approval of the Sale and Confirmation Orders. See Sale Stay Motion at 8–9. The truth, of

course, is that the schedule here has been dictated by the need to obtain regulatory approvals


15

from FERC and the New York Public Services Commission. Until the Debtors and other parties-

in-interest were reasonably certain that such approvals were obtainable, it simply did not make

sense as a matter of judicial economy to move forward with the Sale and Conformation hearing.

Appellants, for their part, contributed to delays in the regulatory process by intervening and

opposing those proceedings. See, e.g., [B.D.I. 252 ¶2]; [B.D.I. 117].

D. Issuance of the Stay is Not in the Public Interest.

“[T]here is a strong public ‘need for finality of decisions, especially in a

bankruptcy proceeding.’” Calpine, 2008 WL 207841, at *7 (citation omitted). The public

interest also favors “‘the expeditious administration of bankruptcy cases . . . as well as the

preservation of the bankrupt’s estates assets for purposes of paying creditors, rather than

litigation of claims lacking a substantial possibility of success.’” In re Pulp Finish 1 Co., No.

12-13774 (SMB), 2014 WL 201482, at *10 (Bankr. S.D.N.Y. Jan. 16, 2014) (quoting In re

Metiom, Inc., 318 B.R. 263, 272 (S.D.N.Y. 2004)). Here, the uncontested evidentiary record

shows that there is no alternative transaction to the Sale and confirmed Plan available to the

Debtors that would provide greater recoveries for creditors. See Sept. 16 Tr. 77:23–25 (THE

COURT: “[T]his is the highest and best price for the asset . . . and it’s clearly in the [D]ebtors’

best interest to accept that price.”). The public is well-served by the continuation of the Debtors’

business and the successful use of the Bankruptcy Code to efficiently maximize value for

creditors and equity holders. This factor weighs in favor of denial of the Stay Motions.

II. IN THE EVENT OF A STAY, A SUBSTANTIAL BOND SHOULD BE

REQUIRED TO PROTECT THE DEBTORS AND PARTIES-IN-INTEREST.

Any stay granted by this Court should be conditioned on Appellants’ posting of a

supersedeas bond—in an amount to be determined upon further briefing and submission of

evidence—sufficient to protect the Debtors, their creditors, and other stakeholders against


16

potential harm they may suffer as a result of the stay. See, e.g., In re Sabine, 548 B.R. at 683

(recognizing “numerous harms resulting from the postponement of reorganization proceedings;

including . . . exposing the equity to be granted to non-moving creditors to market volatility and

other risks”).


17

CONCLUSION

WHEREFORE, Black Diamond respectfully requests that the Court (i) deny the

Stay Motions, including the request for expedition, and (ii) grant such other relief as may be just

and proper.

Dated: New York, New York

October 25, 2019



Christine A. Okike

Four Times Square


Telephone: (212) 735-3000

Fax: (212) 735-2000

– and –


155 North Wacker Drive


Telephone: (312) 407-0700

Fax: (312) 407-0411

– and –




Telephone: (302) 651-3000

Fax: (302) 651-3001

Counsel to Black Diamond Capital Management LLC


CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME LIMIT, TYPEFACE

REQUIREMENTS, AND TYPE-STYLE REQUIREMENTS

1. This document complies with the type-volume limit of Fed. R. Bankr. P.

8013(f)(3)(A), because, excluding the parts of the document exempted by Fed. R. Bankr. P.

8015(g), this document contains 5,104 words.

2. This document complies with the typeface requirements of Fed. R. Bankr. P.

8015(a)(5) and the type-style requirements of FED. R. BANKR. P. 8015(a)(6) because this

document has been prepared in a proportionally spaced typeface using Microsoft Word 2016 in

size 12 Times New Roman.


Albert L. Hogan III


CERTIFICATE OF SERVICE

I certify that on October 25, 2019, I electronically filed the foregoing Objection of Black

Diamond to Appellants’ Emergency Motions for Stay Pending Appeal and Expedited Briefing

Schedule with the Clerk’s Office of the United States Court for the Southern District of New

York. I certify that all participants in this case are registered CM/ECF users and that service will

be accomplished by the Court’s CM/ECF System.


Albert L. Hogan III
