Creditors Blast Bankrupt Game Maker THQ’s Sale Plan
Law360, Wilmington (January 02, 2013, 10:24 PM ET) — Creditors of video game producer THQ Inc. asked a Delaware bankruptcy judge Wednesday to reject its bid procedures, arguing that the proposed terms for the Chapter 11 auction were crafted not to maximize value but to ensure a sale to stalking-horse bidder Clearlake Capital Group LP.
California-based THQ entered court protection Dec. 19 with a prepackaged plan envisioning a $60 million sale to private equity firm Clearlake, but an ad hoc committee of the company’s noteholders claims the terms of the proposed Section 363 sale will serve to chill competitive bidding rather than promote it.
Bid procedures should promote a robust auction, the committee said, but those proposed by the debtor — including an “unjustifiably accelerated sale timeline” calling for a Jan. 9 auction, Jan. 10 sale hearing and a closing by Jan. 15 — would have the opposite effect and “appear to have been designed specifically to thwart any potential bidders from stepping forward to compete with Clearlake’s bid.”
Representing creditors holding 41 percent of the $100 million in senior notes that make up the lion’s share of THQ’s debt, the committee holds that a title-by-title sale of the company’s video game lines would provide a greater return to investors.
The committee blasted a sale provision that would allow THQ to reject any offer that does not include substantially all of the company’s assets, “notwithstanding that there is reason to believe that more value may be generated by a sale of the debtors’ assets on a ‘piecemeal’ basis.”
At a first-day hearing, THQ counsel Jeffrey C. Krause said the hurried sales process was made necessary by the terms of its debtor-in-possession financing package as well as the fact that the company would run out of cash by Jan. 15 even with the added financing.
The time line, while not ideal, offered the only alternative to a complete shutdown and breakup of the company, Krause said, and it would be “better to sell at these terms than be forced to liquidate.”
U.S. Trustee Roberta A. DeAngelis also took issue with the proposed bid procedures, filing a separate objection Wednesday that voiced additional concerns regarding the auction conditions.
Besides echoing the committee’s concerns about the expedited schedule, the trustee said the provision requiring the first bid to top Clearlake’s offer by at least $2.75 million would further restrict competition and should be removed.
“Such a sizeable initial overbid may chill bidding by discouraging potential bidders from participating in the proposed auction,” the trustee said.
The procedures also violate the local rule requiring that auctions be conducted openly with all creditors permitted to attend, the trustee said, claiming they seek to limit attendance to representatives of the qualified bidders, debtors, DIP lenders and any statutorily appointed committees.
“There does not appear to be justification for waiver of this requirement in this case,” the trustee said.
A hearing on the bid procedures and the final DIP order will be held Friday before U.S. Bankruptcy Judge Mary F. Walrath.
THQ, which designs and publishes video games for home consoles, computers and other platforms, sought court protection along with its four U.S. subsidiaries Dec. 19 citing a prolonged cash crunch made worse Nov. 7 when lender Wells Fargo Capital Finance LLC declared an event of default, which Krause said “created much bigger indirect issues.”
The company’s product line includes wholly owned franchises “Saints Row” and “Company of Heroes” and its World Wrestling Entertainment games produced under a licensing agreement, and it currently is developing a game based on “South Park” set to be released in 2013, as well as a new title from the creator of the successful “Assassin’s Creed” series.
The ad hoc committee is represented by Paul N. Silverstein, Jonathan I. Levine and Jeremy B. Reckmeyer of Andrews Kurth LLP.
THQ is represented by Michael R. Nestor, M. Blake Cleary and Jaime Luton Chapman of Young Conaway Stargatt & Taylor LLP and Jeffrey Krause, Jonathan Layne, Ruth Fisher, Oscar Garza and Cromwell Montgomery of Gibson Dunn & Crutcher LLP.
The case is In re: THQ Inc., case number 1:12-bk-13398, in the U.S. Bankruptcy Court for the District of Delaware.
–Editing by Richard McVay.