Originally published in Blakes Bulletin on Restructuring
& Insolvency, April 2009
The dominant theme in recent judicial discussions in connection
with the approval of cross-border DIP financing is the
appropriateness of approving cross-border guarantees in connection
with DIP financing; particularly when the court is asked to approve
re-financing or a roll up of pre-filing indebtedness.
The most recent pronouncements on the subject were made in the
CCAA proceedings of Indalex Limited, and certain of its affiliates
(Indalex Canada). Indalex Canada brought a motion for approval of
debtor-in-possession financing, as well as approval of a secured
guarantee granted by Indalex Canada in favour of the DIP lenders
guaranteeing the obligations of Indalex Canada's U.S.-based
affiliates (Indalex US) under the DIP credit agreement.
The guarantee was determined to be appropriate in this case and,
in his reasons, Justice Morawetz set out a list of factors relevant
to the determination of the appropriateness of authorizing a
guarantee in connection with a cross-border DIP facility (the
(a) the need for additional financing by the Canadian debtor to
support a going concern restructuring;
(b) the benefit of the breathing space afforded by CCAA
(c) the availability (or lack thereof) of any financing
alternatives, including the availability of alternative terms to
those proposed by the DIP lender;
(d) the practicality of establishing a stand-alone solution for
the Canadian debtors;
(e) the contingent nature of the liability of the proposed
guarantee and the likelihood that it will be called on;
(f) any potential prejudice to the creditors of the entity if
the request is approved, including whether unsecured creditors are
put in any worse position by the provision of a cross-guarantee of
a foreign affiliate than as existed prior to the filing, apart from
the impact of the super-priority status of new advances to the
debtor under the DIP financing;
(g) the benefits that may accrue to the stakeholders if the
request is approved and the prejudice to those stakeholders if the
request is denied; and
(h) a balancing of the benefits accruing to stakeholders
generally against any potential prejudice to creditors.
In the case of Indalex Canada, the court noted, inter
alia, that it was unlikely that the guarantee would be called
upon, that the benefits to stakeholders far outweighed the risk
associated with the guarantee and that a stand-alone solution was
impractical given the integrated nature of the business of Indalex
Canada and Indalex US. The Indalex Principles were derived from
recent judicial pronouncements on the subject, and create a unified
roadmap that will be of assistance in future insolvency cases
involving the approval of similar cross-border guarantees.
Blakes acted on behalf of Indalex Canada in connection with
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