Turnaround Lending 2016: What Lenders and Borrowers Need to Know Panel #1 – Getting In Robert P. Grbic, Panelist Patricia B. Jefferson, Panelist Capital Business Credit Miles & Stockbridge PC Allen D. Wilen, Panelist Rosa J. Evergreen, Moderator Eisner Amper Arnold & Porter LLP Allen D. Wilen, Panelist Eisner Amper Patricia B. Jefferson, Panelist Robert P. Gbric, Panelist Miles & Stockbridge PC Capital Business Credit

Capital Business Credit Market Overview Robert P. Grbic Capital Business Credit

Total Chapter 11 Cases Filed 2000 - 2016

Chapter 11 Cases Filed – Over $1 Billion Assets (Publicly Held Companies) 2000 - 2016 Source of Data: New Generation Research, Inc.

Large* Chapter 11 Cases Filed – Selected Industries * Publicly held companies with over $100 million in pre-petition assets. Source of Data: New Generation Research, Inc.

46 North American Oil & Gas Exploration & Production Companies 5 17 17 Bankruptcy Cases Filed January 2015 – August 2016 TEXAS DELAWARE CANADA COLORADO 5 46 17 17 ALL OTHER STATES LOUISIANA NEW YORK 9 4 4 Source: Haynes and Boone, LLP Oil Patch Bankruptcy Monitor

Filing Location of Large* Chapter 11 Cases January 2000 – August 2016 DELAWARE SOUTHERN DISTRICT OF NEW YORK * Large Case = Over $100 Million in Pre-petition Assets 196 427 TEXAS CALIFORNIA ILLINOIS EVERYWHERE ELSE 269 33 49 80 Source of Data: New Generation Research, Inc.

Role of the CRO & Related Considerations Allen Wilen, CPA/ CFF,CTP, CFA, CIRA

The Parties: Understanding the Roles Some of the Players Secured Creditor Junior Secured Creditor Noteholders Trade Unions Government Entities Regulatory Taxing Pension Funds Equity Board of Directors/Trustees Officers of the Debtor External Family Members

The Role of the CRO – Non-Financial Dynamics A keen knowledge of the interactions and potential conflicts of interest amongst the parties is crucial to the success of any turnaround… Personal – understand the interactions of the parties Principals of the business Counsel Financial Advisors Individual creditor motivation and fears Individual representatives at each of the creditors’ motivation and fears Third party actions and reactions by parties without an actual financial stake in the deal Government Community National Union representatives Side deals that don’t include the Debtor by different classes of creditors Providing credibility to the process vs. appearing to be in secured creditors’ pocket

The Role of the CRO – The Strategy Process Now that we know who the players are…how do we develop a strategy? What does the lender want the business to do? Liquidate Sell Reorganize Restructure debt What is the best method of achieving success in getting to that objective? Article 9 Bankruptcy – 7 or 11 ABC Receivership Composition Agreement Does the Debtor agree with the lender? If not, potential alternatives? Does the company have the ability to survive without its senior secured lender on board? If yes, develop a budget that both sides can agree to in order to get the ultimate objective

DIP Deal Term Considerations Patricia B. Jefferson Miles & Stockbridge PC

Local Bankruptcy Rules Rule 4001-5: Requirements for Cash Collateral and Financing Motions and Orders Cash collateral motions shall disclose: The existence of an insider relationship between the debtor and creditor The nature or source of the cash collateral Cash flow projection including projected revenue and a line-item proposed budget for use of funds Estimated amount debtor owes to creditors claiming an interest in the cash collateral as of the petition date Description of the collateral pledged to secure the claims of creditors claiming an interest in the cash collateral

Local Bankruptcy Rules Rule 4001-5: Requirements for Cash Collateral and Financing Motions and Orders Special provisions to be highlighted, and the justification for such provisions: Cross-collateralization protection other than replacement liens and other adequate protection Provisions and findings of fact that bind the estate or other parties regarding the validity, perfection or amount of the secured creditor’s prepetition lien, or the waiver of claims without giving parties at least 75 days from the petition date, and the creditors committee, if formed, at least 60 days from formation to investigate Provisions that seek to waive rights under Section 506(c) Provisions that grant liens on chapter 5 causes of action

Local Bankruptcy Rules Special provisions to be highlighted, and the justification for such provisions (continued): “Roll Up” provisions Provisions that treat committee professionals differently from professionals retained by the debtor with respect to a carve-out, and provisions that limit committee counsel’s use of the carve-out Provisions that prime secured liens without consent Provisions that grant a secured creditor any relief from the automatic stay without further order of the Court

Local Bankruptcy Rules Rule 4001-5: Requirements for Cash Collateral and Financing Motions and Orders Cash collateral and financing motions shall include a summary of the essential terms of the proposed use of cash collateral and/or financing A proposed order approving cross-collateralization or a roll-up must include language reserving the Court’s right to unwind the protection in certain circumstances Interim orders shall only provide what is necessary to avoid immediate and irreparable harm to the estate. Absent extraordinary circumstances, proposed interim orders shall not include any of the provisions identified in the local rules as “Special Provisions.”

Trends in DIP Loans In In re Emerald Oil, Inc., the Bankruptcy Court for the District of Delaware indicated it would reject the proposed DIP Financing unless certain provisions with which the Court took issue were modified, including: The breadth of liability releases The amount of liens attached to avoidance actions The amount of funds and time afforded to the unsecured creditors committee to investigate additional recoveries The proposed $110 million rollup to cover prepetition debt Ultimately the DIP was approved after the releases were restricted, the committee was granted $600,000 to fund its investigation, and the rollup was eliminated. In re Emerald Oil, Inc., Bankr. D. Del. Case No. 16-10704

Lenders Beware: Some Considerations Consent to file bankruptcy provisions may be invalidated In re Intervention Energy Holdings, LLC, et al., 553 B.R. 258 (Bankr. D. Del. 2016) In re Lake Michigan Beach Pottawattamie Resort, LLC, 547 B.R. 899 (Bankr. N.D. Ill. 2016) Beware of lender liability risks In re SGK Ventures, LLC, 521 B.R. 842 (Bankr. N.D. Ill. Nov. 30, 2014) Pay attention to terms of cash collateral order In re Global Protection USA, Inc., 546 B.R. 586 (Bankr. D. N.J. 2016)

Concluding Comments What issues should lenders/ parties be thinking about when considering a restructuring? Lessons learned? Takeaways? Questions?