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KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 AVENUE OF THE STARS, 39TH FLOOR LOS ANGELES, CALIFORNIA 90067 TELEPHONE: (310) 407-4000
LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, CA 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Bankruptcy Counsel for Debtors and Debtors In Possession Debtors' Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.'s Tax I.D. #XX-XXX-1079 National R.V., Inc.'s Tax I.D. #XX-XXX-5022
UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. Case No.: 6:07-17941-PC Chapter 11 Jointly Administered with Case No.: 6:07-17937-PC EMERGENCY MOTION OF DEBTORS AND DEBTORS IN POSSESSION PURSUANT TO LOCAL BANKRUPTCY RULE 2081-1(b) AND (c) FOR FURTHER ORDER: (1) GRANTING DEBTORS AND DEBTORS IN POSSESSION INTERIM USE OF CASH COLLATERAL; (2) SCHEDULING DEADLINES RELATING TO A FINAL HEARING ON PERMANENT USE OF CASH COLLATERAL; AND (3) AFTER CONCLUSION OF A FINAL HEARING, AUTHORIZING PERMANENT USE OF CASH COLLATERAL; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; DECLARATION OF THOMAS J. MARTINI
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IN SUPPORT THEREOF; DECLARATION OF DAVID M. GUESS, ESQ. IN SUPPORT THEREOF Hearing Date: Time: Place: January 8, 2008 10:30 p.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501
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TO THE HONORABLE PETER H. CARROLL, UNITED STATES BANKRUPTCY JUDGE, THE OFFICE OF THE UNITED STATES TRUSTEE, COUNSEL FOR THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS, THE DEBTORS' SECURED LENDERS, AND OTHER PARTIES ENTITLED TO NOTICE: National R.V. Holdings, Inc. and National R.V., Inc., the debtors and debtors in possession in the above-referenced cases (the "Debtors"), hereby move this Court pursuant to Local Bankruptcy Rule 2081-1(b) and (c), on an emergency basis, for entry of an order authorizing the Debtors to use Cash Collateral1 on an interim basis, scheduling deadlines relating to a final hearing on permanent use of Cash Collateral, and, after the conclusion of the final hearing, authorizing permanent use of Cash Collateral (the "Motion").2 The Debtors are requesting use of Cash Collateral of Wells Fargo Bank, N.A. (Wells Fargo), and respectfully request that this Court enter an order in substantially the same form and substance as the proposed form of order attached hereto as Exhibit 1 (the "Order"), so that the Debtors may fund payroll, fund security services, pay rent, initiate a build-out, and fund other essential items from January 8, 2008 to and through February 1, 2008 as provided for in the budget attached hereto as Exhibit 2 (the "Budget"). This Motion is supported by the accompanying Memorandum of Points and Authorities, the Declaration of Thomas J. Martini in Support of First-Day Motions [Docket #18], the accompanying Declaration of Thomas J. Martini (the "Martini Declaration"), and the accompanying Declaration of David M. Guess, Esq. (the "Guess Declaration"). From December 12, 2007 to and through January 8, 2008, the Debtors have been using
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"Cash Collateral" means cash or cash equivalents, whenever acquired, in which the Debtors' estates and an entity other than the estates have an interest, including the proceeds, products, offspring, rents, or profits of property, including, without limitation, all amounts that had not been applied by Wells Fargo Bank, N.A. ("Wells Fargo") against the prepetition amounts owing by the Debtors to Wells Fargo by the time of the filing of the Debtors' chapter 11 petitions on November 30, 2007 (but not including, at this time, any Restricted Cash, as defined and further described below). To date, the Debtors have been using Cash Collateral pursuant to two stipulated orders with Wells Fargo, approving an earlier motion of the Debtors for use of Cash Collateral. Because, at this time, the Debtors do not have an agreement with Wells Fargo on the use of Cash Collateral after January 8, 2008, and given the recent developments in these cases which bear directly on matters concerning adequate protection, the Debtors have filed the subject Motion.
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Cash Collateral with the consent of Wells Fargo, pursuant to two orders previously entered by this Court. The Debtors were hopeful that their relatively good working relationship with Wells Fargo would facilitate a third agreement with Wells Fargo on the use of Cash Collateral. Indeed, as late as January 4, 2008, the Debtors were engaged in active negotiations with Wells Fargo concerning the consensual use of Cash Collateral for the next three weeks. As of the filing of this Motion, the parties have been unable to reach an agreement and, accordingly, the Debtors are filing this Motion. Notwithstanding the filing of this Motion, the Debtors are continuing to work with Wells Fargo on a consensual agreement for use of Cash Collateral. The Debtors hope to have a deal in advance of the hearing. Should the Debtors reach an agreement with Wells Fargo, they will advise the Court telephonically and will endeavor to file a notice of any agreed upon form of order in advance of the hearing. Given the Debtors need to fund essential items in order to preserve the value of these estates, unless this Court immediately enters an order authorizing the Debtors to use Cash Collateral (as contemplated herein), the Debtors will suffer irreparable harm. There is ample justification for the relief to use Cash Collateral (without Wells Fargos consent) on an emergency basis, and that such relief is entirely appropriate under the circumstances. Accordingly, pursuant to Rule 4001(b)(2) of the Federal Rules of Bankruptcy Procedure, the Debtors specifically request that the Court authorize the Debtors to use Cash Collateral and request that the Court schedule the next and final hearing on this Motion on a date on or prior to February 1, 2008, at which time the Debtors would seek final authority to use Cash Collateral on a permanent basis, either consensually pursuant to stipulated order or otherwise. WHEREFORE, the Debtors respectfully request that the Court grant the Motion in its entirety and enter the Order: Authorizing the Debtors to use Cash Collateral on an interim basis, pending
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the next and final hearing as specified in the Order; and
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Scheduling deadlines and noticing requirements in connection with the next
and final hearing to consider the use of Cash Collateral.
DATED: January 4, 2008
/s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Bankruptcy Counsel for Debtors and Debtors in Possession
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MEMORANDUM OF POINTS AND AUTHORITIES I. JURISDICTION The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and 1334. Venue is proper pursuant to 28 U.S.C. 1408 and 1409. The matter is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(M). The statutory predicates for the relief sought herein are sections 361, 363, 1107(a), and 1108 of the Bankruptcy Code.3 II. BACKGROUND FACTS A. General Background.
The Debtors commenced these cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code on November 30, 2007 (the "Petition Date"). The Debtors filed these cases in order to conduct an orderly disposition of their assets, and to maximize the value of those assets for the benefit of the economic stakeholders of their estates. The Debtors' principal business is the manufacture and distribution of recreational vehicles ("RVs") throughout the United States and Canada. Since 1964, the Debtors have designed, manufactured, and marketed some of the industry's highest quality "Class A" gas and diesel RVs across several branded product lines, including Dolphin, Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. As of the Petition Date, the Debtors were the ninth largest manufacturer of "Class A" motor homes in the country. Prior to commencing these cases, the Debtors explored a variety of approaches to their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and the infusion of new equity capital. Despite many efforts, it became increasingly clear that the Debtors simply could not continue to operate for any extended period of time. As a result, the Debtors determined they had no choice other than to pursue an orderly liquidation of their assets. To that end, after having conducted substantial "reductions in force," resulting in more than a
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The Bankruptcy Code refers to title 11 of the United States Code, 11 U.S.C. 101-1532.
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90% reduction of their work force, they commenced these cases. The objective of these cases is to maximize value as quickly as possible. This likely will be accomplished through an orderly disposition of the Debtors' assets for the best price. The Debtors believe that value for the benefit of creditors and, with perseverance, shareholders, can be derived from primarily three sources: (a) the successful prosecution of the Kemlite Litigation;4 (b) the orderly sale of inventory, both finished and unfinished motor homes, parts and replacements and other valuable items on hand; and (c) the collection of accounts receivable, general intangibles (including intellectual property) and other assets. Before the filing, and during the brief period since these cases were commenced, the Debtors' efforts have been directed toward maximizing their recovery from these assets. B. Previous Cash Collateral Orders.
On December 12, 2007, this Court entered an order authorizing the Debtors to use Cash Collateral (with the consent of Wells Fargo) for period covering December 12, 2007 to and through December 20, 2007 (Docket # 32, the "First Cash Collateral Order"). On December 20, 2007, this Court entered a subsequent order authorizing the Debtors to use Cash Collateral (with the consent of Wells Fargo) for the period covering December 20, 2007 to and through January 8, 2008 (Docket # 100, "Second Cash Collateral Order", and together with the First Cash Collateral Order, the "Prior Cash Collateral Orders"). C. Liquidity Needs and Developments Following Entry of the Second Cash Collateral Order.
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On December 20, 2007 (at the last hearing on use of Cash Collateral), the Debtors indicated to the Court that they were hopeful they would have in place by January 8, 2008 (subject to Court approval) a comprehensive arrangement with Wells Fargo (or another party) which would provide these estates with long term liquidity sufficient to achieve the objectives of these cases an orderly disposition of their assets and wind-down of their business.
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Capitalized terms not otherwise defined in this Order shall have the meaning ascribed to them in the Declaration of Thomas J. Martini in Support of First-Day Motions [Docket #18].
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Over the past two weeks, the Debtors' liquidity and liquidity prospects have improved, in some ways, beyond that which was expected. The Debtors have been able to collect more than $1.1 million of accounts receivable (and sooner than anticipated), and now expect another $244,000 of account receivable collections in the next two weeks. The Debtors have sold their Inland Zone Reactive Organic Gas Emission Reduction Credits (the "ERCs"), and have received roughly $1.585 million in cash proceeds, none of which appears to be subject to any security interests or liens of Wells Fargo.5 In addition, the Debtors have made tremendous progress in marketing their finished RVs and expect to proceed with sale(s) of their finished RVs in accordance with procedures already established by this Court6 (with the support of the Committee), and with such sales projected to close in the next two to three weeks and bring no less than $7.4 million into these estates. In particular, the Debtors have procured an agreement from an affiliated dealer in San Diego (the "San Diego Dealer") which has agreed to buy 77 finished RVs for approximately $7.4 million, subject only to bankruptcy court approval.7 In fact, as of the date of this Motion, the Debtors
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The Debtors position with respect to the ERCs and the proceeds thereof is set forth in considerable detail at the end of the Motion. As noted below, however, a final determination of Wells Fargo's interest in the ERCs and the proceeds thereof can only be achieved by way of an adversary proceeding pursuant to Rule 7001(2) of the Federal Rules of Bankruptcy Procedure. With this procedural constraint in mind, the relief requested herein presumes, solely for purposes of this Motion, that Wells Fargo may have a security interest in or lien upon the $1.585 million of cash from the sale of the ERCs (Through the Order, the parties reserve all rights on this issue.) Given, however, that there is a substantial question as to whether Wells Fargo has a security interest or in such cash proceeds, Wells Fargo should not be entitled to any adequate protection by virtue of the Debtors using such cash at this time. On or about December 27, 2007, Klee, Tuchin, Bogdanoff & Stern LLP, on behalf of the Debtors, sent Wells Fargo a comprehensive memo explaining why the Debtors have taken the position that Wells Fargo does not have an interest in these funds. A copy of this memo is attached as Exhibit B to the Guess Declaration. To date, Wells Fargo has not rebutted the Debtors' position. At minimum, before any adequate protection is provided to Wells Fargo for the use of such funds, Wells Fargo should be required to present why they believe the Debtors' analysis to be incorrect. After all, pursuant to Bankruptcy Code section 363(p)(2), Wells Fargo "has the burden of proof on the issue of the validity, priority, or extent" of its interest in the ERCs. See 11 U.S.C. 363(p)(2). On December 28, 2008, this Court entered that certain Further Order Granting in Part Emergency Motion of Debtors and Debtors in Possession for Authority to (1) Reconcile, Adjust, and Collect Accounts Receivable, (2) Sell Emission Reduction Credits Free and Clear of Liens, Claims, and Interests, and (3) Sell Inventory Free and Clear of Liens, Claims, and Interests (Including a Request for Specific Authority to Sell Eleven RVs Located in Kentucky) [Docket #122] (the "A/R / Inventory Sale Order"). The A/R / Inventory Sale Order provides, among other things, that the Debtors can proceed with a sale of their finished RVs and other inventory on three business days' notice to certain key parties in interest.
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have the support of the Committee to proceed with the sale to the San Diego Dealer in accordance with procedures set forth in the A/R / Inventory Sale Order (and in connection therewith, will be sending out notice of the proposed sale), provided, however, if the Debtors are able to reach legally binding agreements with authorized dealers which will bring more money into these estates (the "Alternative Transaction") within three (3) business days after notice of the proposed sale is transmitted, the Committees' continued support of the proposed sale of the finished RVs is contingent upon the Debtors proceeding with the Alternative Transaction. In any event, under either scenario, no less than $7.4 million would come into the estates in the next two to three weeks and, as discussed in detail elsewhere in this Motion, only a fraction of these sales proceeds would need to be set aside to assure payment in full Wells Fargo. The Debtors have thus become increasingly of the belief that they will probably never need debtor in possession financing from Wells Fargo and certainly do not need it now. Likewise, while the Debtors do need use of Cash Collateral at least through February 1, 2008 (at this point), for reasons discussed below in more detail, the Debtors may not need use of Cash Collateral once the finished RVs are sold. And even if they do, the Debtors will be in a much better position to negotiate a reasonable long-term, comprehensive stipulation for the use of Cash Collateral once the proceeds from the sale of their finished RVs comes in. D. Current Cash Collateral Request.
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The present Motion is solely designed to address the Debtors' immediate, short-term cash needs until and through February 1, 2008, and entry of the Order provides sufficient adequate protection of Wells Fargo's interest in such cash. As discussed in detail below, Wells Fargo is oversecured. This is perhaps best evidenced by the fact that the Debtors already have an executed contract for the sale of 77 finished RVs which, together with the Restricted Cash (defined below), will be more than sufficient to pay Wells Fargo off in full. E. Wells Fargo's Debt.
As this Court is aware, Wells Fargo is the Debtors' principal secured creditor. The Debtors are parties to that certain Credit Agreement, dated as of August 12, 2005, with UPS
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Capital Corp. ("UPS"), as agent and a lender,8 and Wells Fargo, as a lender (as amended, restated, supplemented and modified from time to time, the "Prepetition Credit Agreement", and together with any and all agreements, documents and instruments entered into or executed in connection therewith, the "Prepetition Loan Documents"). Through the Prepetition Credit Agreement, the Debtors obtained a revolving line of credit originally in the amount of $25 million, and now in the amount of $15 million inclusive of a $7.5 million letter of credit sub-facility. The non-default rate of interest was "prime" plus 1.5%. Prepetition, the amount available to the Debtors under the revolving line of credit facility was determined by a borrowing base formula that in turn was based on the amount of "eligible" accounts receivable and inventory on hand. The obligations to Wells Fargo under the
Prepetition Loan Documents are secured by a security interest in and lien upon substantial personal property. As of the Petition Date, approximately $9.5 million of principal was outstanding under the Prepetition Loan Documents, including approximately $7.155 million in outstanding letters of credit, and approximately $2.35 million under the revolver (which includes interest accrued through the Petition Date and a $150,000 early termination fee). Post-petition, and in accordance with the provisions of the Second Cash Collateral Order, Wells Fargo applied $2.0 million of the approximately $7.8 million in Restricted Cash that Wells Fargo held to secure the Debtors' liability relating to any draw on the letters of credit issued in favor of the Debtors' landlord, the State of California due to the Debtors' workers' compensation liabilities, and others (the "Restricted Cash"). Accordingly, the amount of the Restricted Cash was reduced to approximately $5.7 million, and the total potential liability on the letters of credit was reduced to approximately $5.2 million. Wells Fargo currently holds Restricted Cash in the approximate amount of $5.7 million which secures letters of credit in the amount of approximately $5.2 million. (In other words,
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UPS subsequently assigned all of its rights, title, and interest in the Prepetition Loan Documents to Wells Fargo. As such, Wells Fargo currently is the agent and the sole lender.
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Wells Fargo currently holds approximately $500,000 in restricted cash over and above its possible exposure on the letters of credit.) The remaining liquidated obligations owing to Wells Fargo as of the Petition Date total approximately $2.35 million, which is substantially less than the value of the collateral securing this indebtedness (even without taking into account the extent to which the amount of the Restricted Cash exceeds the amount of the letters of credit). As of the Petition Date, the Debtors' gross inventory and accounts receivable alone were estimated to be nearly $29 million, approximately $25 million in inventory, and $4 million in accounts receivable. Even if only "eligible" inventory and accounts receivable (as those terms are used in the Prepetition Loan Documents) are considered, the Debtors had approximately $2.5 million in "eligible" accounts receivable and approximately $9.0 million in "eligible" inventory, for a total of approximately $11.5 million. (As noted above, as of the Petition Date, the Debtors have collected approximately $1.1. million of accounts receivable.)
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More significantly, the Debtors have already procured an agreement from an affiliated dealer in San Diego which has agreed to buy 77 finished RVs for approximately $7.4 million, subject only to bankruptcy court approval.9 As noted, the Committee has agreed to support this proposed sale or an Alternative Transaction, where only a fraction of the sales proceeds would need to be set aside to assure that Wells Fargo is paid in full. Pursuant to the A/R / Inventory Sale Order, more approximately $5 million of the proceeds of the sale of the 77 finished RVs would be deposited into the Debtors' debtor in possession accounts, and would be subject only to the security interests and liens of Wells Fargo. After taking into account the excess Restricted Cash, the proceeds from the sale of these RVs would be sufficient to pay Wells Fargo in full and have approximately $2.65 million of unencumbered cash (assuming none of the excess Restricted Cash is applied to pay Wells Fargo).10
The agreement has been provided to Wells Fargo and the Committee. The Debtors intend to include a copy of the subject agreement with the notice it intends to file and serve concerning the sale of the RVs, which notice should be on file before the hearing on this Motion. The A/R / Inventory Sale Order provides, in pertinent part, that the liens, if any, of the chassis vendors on any of these RVs attach solely to the proceeds from the sale of any Finished RV which contains a chassis acquired from Freightliner Custom Chassis Corporation ("FCCC") and Crest Chevrolet, in each case, for which payment remains due and owing on that particular chassis. The Debtors have determined that only
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In sum, Wells Fargo is oversecured. Indeed, the foregoing does not even take into account many of the Debtors' remaining assets. By way of illustration only, the Debtors have other valuable strategic assets, including product lines and other intellectual property. The Debtors are currently speaking with strategic buyers and others that have expressed an interest in these and other assets. Furthermore, the Debtors also have enough raw materials and work-in-progress to build-out another sixty or so RVs, which could potentially bring in approximately another $2.6 million into these estates. F. Other Debt.
Several of the Debtors' prepetition vendors may hold security interests in certain raw materials and other inventory items provided to the Debtors for the manufacture of RVs, namely chassis (i.e., the frame, wheels, and machinery of a motor vehicle, on which the body is supported). As of the Petition Date, the Debtors' liability on its inventory of chassis was estimated to be approximately $6.3 million.11 In addition, the Debtors have certain limited capital lease obligations (i.e., covering photocopiers). As these security interests are limited in scope, this Motion does not seek any relief with respect to these creditors. 12 G. The Debtors Need to Use Cash Collateral to Prevent Irreparable Harm to Their Ability to Orderly Liquidate and Wind Down Their Operations.
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The Debtors have only a limited amount of cash other than Cash Collateral to satisfy the outstanding obligations that are necessary to facilitate an orderly liquidation and wind down
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21 of the chassis are unpaid (with obligations owing to FCCC and Crest Chevrolet) and only those funds will be subject to the liens of such chassis vendors (assuming they have valid, enforceable and unavoidable liens). The Debtors are currently investigating whether and to what extent the chassis vendors have liens in the proceeds of these 21 chassis. In any case, these proceeds will be deposited into separate, interestbearing accounts pending the resolution of any disputes relating to lien priority between and among Wells Fargo, on the one hand, and FCCC and Crest Chevrolet, respectively, on the other hand. The Debtors are also in the process of determining whether, and to what extent, any of the tangible, personal property in their possession is actually owned by third parties. By way of example, it may be the case that certain vendors which provided the Debtors with chassis, which have not been utilized in production, still hold legal title to such assets. To the extent that this is the case and that such property is not property of the estates, it is the Debtors intention to return such property to their rightful owners. In particular, the Debtors have identified UCC financing statements filed on behalf of Freightliner Custom Chassis Corp. Spartan Motors Chassis, Inc. ("Spartan"), and Xerox. These entities are being served with this Motion. That said, the Debtors do not believe that Spartan is owed any monies at this time.
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of operations, let alone one that can maximize value for these estates. Prepetition, pursuant to the Prepetition Loan Documents, Wells Fargo swept the Debtors' cash collections on a daily basis. Accordingly, the Debtors initially had access to a limited amount of cash, approximately $1 million. Subsequently, the Debtors have received approximately $1.1 million in accounts receivable. The bulk of this amount has only come in within the last few weeks. Access to these funds is a necessary precondition to the success of the liquidation. Unless the Court
immediately enters an order authorizing the Debtors to use Cash Collateral (as contemplated herein), there is a real possibility that the Debtors will suffer irreparable harm. As discussed above, the Debtors have made significant progress in the liquidation of these cases since the last hearing. In order to continue with these efforts, however, the Debtors still require access to Cash Collateral, among other things, to maintain their facilities on a limited basis as they proceed to orderly liquidation and wind down of their operations. The Debtors need both time and money to orderly collect their remaining accounts receivable, prosecute the Kemlite Litigation, and sell their remaining assets. Time is also needed to market the Debtors' remaining assets for sale either in whole or in part, including marketing their product lines and other intangibles. Although the Debtors' employees have been reaching out to their contacts within the industry in an attempt to find potential strategic buyers, it will take time to negotiate, document and close the remaining deals. Money is needed to compensate the Debtors' remaining employees, who are indispensable to the success of this liquidation, and the Debtors have to pay utilities and otherwise maintain their facilities. In addition, the Debtors are considering whether to build out their remaining work-inprogress into more saleable finished RVs or simply sell their work-in-progress and raw materials as is. A build-out will require a the use of a significant amount of Cash Collateral.13 In sum, if not authorized to use Cash Collateral, the Debtors will be unable to satisfy those obligations that enable the Debtors to maximize value from the orderly disposition of their
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The Budget currently contemplates that the Debtors will proceed with the first phase of the build-out (referred to as "Door A"). "Door A" refers to the completion of approximately 33 nearly finished RVs, which only need to be painted paint and have other cosmetic type tasks performed on them.
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assets obligations directly related to the sale of assets, to the collection of receivables, and to the wind down of operations. Consequently, absent immediate authority to use Cash Collateral on an interim basis, there is a very real possibility that the Debtors' estates could suffer irreparable harm and that there would be no meaningful option other than to convert these cases to ones under chapter 7, which the Debtors believe would result in diminished asset values. H. The Debtors' Cash Needs and Projections
In working with Bruce Cox Conklin, Jr. of Kibel Green, Inc., the Debtors' proposed financial and management consultant, the Debtors' financial and operating staff has examined the Debtors' operations to determine how much cash they will need to continue to finance their orderly liquidation from January 8, 2008 until and through February 1, 2008. The Debtors' projected cash needs covering this time period are set forth in the Budget. The projections in the Budget are conservative, inasmuch as the Debtors do not assume any extensions of new trade credit. I. Wells Fargo's Interests Are Adequately Protected.
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Bankruptcy Code section 361 provides that adequate protection must protect an entity against any use of collateral that decreases the value of such entity's interest in such collateral. 11 U.S.C. 361(1), (2), (3). As noted above, the value of Wells Fargo's collateral exceeds the amount of its secured claim, and there is a significant equity cushion. The book value of the Debtors' inventory and accounts receivable, and even the value of "eligible" inventory and accounts receivable, is sizeable. More fundamentally, the Debtors' inventory is also selling for prices that will more than ensure that Wells Fargo could soon be paid in full. Finally, the Debtors have other valuable, strategic assets that are likely to bring in additional money into these estates. In view of the foregoing, the Debtors' continued use of Cash Collateral will adequately protect Wells Fargo's interest in its collateral, as the value thereof can best be preserved by the Debtors having the wherewithal to proceed with an orderly disposition of their assets, as opposed to the only likely alternative if the Debtors cannot use Cash Collateral a fire sale.
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J.
The Debtors' Secured Creditors' Interests Can Be Adequately Protected.
To the best of the Debtors' knowledge, Wells Fargo is the only secured creditor potentially entitled to adequate protection in connection with this Motion. Wells Fargo has a security interest in substantially all of the Debtors' personal property, including Cash Collateral, in accordance with the terms of the Prepetition Loan Documents. Furnishing adequate
protection to Wells Fargo (whose collateral package is similar to the collateral granted most institutional lenders of a manufacturer of this type) is straightforward, as set forth below. Bankruptcy Code section 361 provides that adequate protection must protect an entity against any use of collateral that decreases the value of such entity's interest in such collateral. 11 U.S.C. 361(1), (2) & (3). By this Motion, the Debtors propose to adequately protect Wells Fargo as follows: 14 First, the Debtors are prepared to adequately protect Wells Fargo's interest
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in Cash Collateral by providing to Wells Fargo adequate protection payments in an amount equal to the non-default contract rate of interest under the Prepetition Loan Documents (described above) as and when such obligations would come due and owing, following the Petition Date, to the extent of the value of the collateral securing Wells Fargo's claim. The Bankruptcy Code expressly provides that making such payments is a means of providing adequate protection. 11 U.S.C. 361(1).
Second, the Debtors are prepared to adequately protect Wells Fargo's interest
in Cash Collateral by providing to Wells Fargo a replacement lien in subsequently generated collateral of the same type as that in which Wells Fargo held a security interest prepetition,15 to the extent the Debtors' use of Cash Collateral results in any diminution, following the Petition Date, in the value of the collateral securing Wells Fargo's claims
Notwithstanding anything stated herein, the Debtors are not waiving any defenses available to them or their estates in the event that Wells Fargo's liens are avoidable or if Wells Fargo proves to be unsecured. Also, the Debtors are not waiving any rights of the estates against any beneficiaries of the letters of credit that the Restricted Cash secures. For the avoidance of any doubt, the replacement liens do not extend to any avoidance actions or recovery rights under chapter 5 of the Bankruptcy Code.
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The Bankruptcy Code expressly provides that granting a replacement lien for this purpose is a means of adequate protection. 11 U.S.C. 361(2). This lien will have the same validity and priority as Wells Fargo's security interest in prepetition collateral, and will be subject to the same defenses and counterclaims. Third, in accordance with Bankruptcy Code section 507(b), if the adequate
protection provided above proves inadequate, as determined by the Court after notice and a hearing, then, to that extent, Wells Fargo shall be granted an allowed administrative expense claim having the priority specified in Bankruptcy Code section 507(b). III. ARGUMENT Bankruptcy Code section 363(c) provides that a debtor may use cash collateral if (i) the entity with an interest in the cash collateral consents, or (ii) the Court authorizes such use. 11 U.S.C. 363(c). Whether a court may authorize such use depends on whether the entity's interest in the cash collateral is adequately protected. As set forth below, it is clear that Wells Fargo is adequately protected or can be furnished with adequate protection. A. Authorizing the Use of Cash Collateral Is Necessary to Preserve the Debtors' Liquidation Value, Which Will Inure to the Benefit of Wells Fargo and All Other Parties in Interest.
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The continued ability of the Debtors to use commercially reasonable efforts to sell assets, to collect receivables, and to wind down operations will preserve their liquidation value and the Debtors' ability to effectuate a sale of their operating assets pursuant to Bankruptcy Code Section 363. The Debtors should have a reasonable opportunity to do so. It is well established that a bankruptcy court, where possible, should be flexible in applying an adequate protection standard to enable debtors to maximize value: Because the ultimate benefit to be achieved by a successful reorganization inures to all the creditors of the estate, a fair opportunity must be given to the Debtors to achieve that end. Thus, while interests of the secured creditor . . . are of concern to the court, the interests of all other creditors also have bearing upon the question of whether use of cash collateral shall be permitted during the early stages of administration.
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The first effort of the court must be to insure the value of the collateral will be preserved. Yet, prior to confirmation of a plan of reorganization, the test of that protection is not by the same measurements applied to the treatment of a secured creditor in a proposed plan. In order to encourage the Debtors' efforts in the formative period prior to the proposal of a reorganization, the court must be flexible in applying the adequate protection standard. MBank Dallas, N.A. v. O'Connor (In re O'Connor), 808 F.2d 1393, 1397-98 (10th Cir. 1987); see also In re Dynaco Corp., 162 B.R. 389, 395 (Bankr. D.N.H. 1993) (cash collateral motion); Hoffman v. Portland Bank (In re Hoffman), 51 B.R. 42, 47 (Bankr. W.D. Ark. 1985) (relief from stay). For example, in Stein v. United States Farmers Home Administration (In re Stein), 19 B.R. 458, 460 (Bankr. E.D. Pa. 1982), the court allowed a debtor to use cash collateral, although the secured party was undersecured, because it found that the use of cash collateral was necessary to the debtor's continued operations and the creditor's "secured position can only be enhanced by the continued operation of the [debtor's business.]" Id. The Debtors require access to Cash Collateral, among other things, to maintain their facilities on a limited basis as they proceed to orderly liquidation and wind down of their operations. The Debtors need both time and money to orderly collect their remaining accounts receivable, prosecute the Kemlite Litigation, and sell their remaining assets. Time is needed to market the Debtors' remaining assets for sale either in whole or in part, including marketing their product lines and other intangibles. Although the Debtors' employees have been reaching out to their contacts within the industry in an attempt to find potential strategic buyers, it will take time to negotiate, document and close the remaining deals. Money is needed to compensate the Debtors' remaining employees, who are indispensable to the success of this liquidation, and the Debtors have to pay utilities and otherwise maintain their facilities. In addition, the Debtors are considering whether to build out their remaining work-inprogress into more saleable finished RVs or simply sell their work-in-progress and raw materials as is. A build-out will require a the use of a significant amount of Cash Collateral. In sum, if not authorized to use Cash Collateral, the Debtors will be unable to satisfy those obligations that enable the Debtors to maximize value from the orderly disposition of their
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assets obligations directly related to the sale of assets, to the collection of receivables, and to the wind down of operations. Consequently, absent immediate authority to use Cash Collateral on an interim basis, there is a very real possibility that the Debtors' estates could suffer irreparable harm and that there would be no meaningful option other than to convert these cases to ones under chapter 7, which the Debtors believe would result in diminished asset values. B. A Substantial Equity Cushion Furnishes Adequate Protection.
The existence of an equity cushion the value of the collateral in excess of the amount of the secured claims "is the classic form of protection for a secured debt," and "standing alone, can provide adequate protection." Pistole v. Mellor (In re Mellor), 734 F.2d 1396, 1400 (9th Cir. 1984); McCombs Properties VI, Ltd. V. First Texas Sav. Ass'n (In re McCombs Properties VI, Ltd.), 88 B.R. 261, 266 (Bankr. C.D. Cal. 1988). In Mellor, the Ninth Circuit held that a 20% equity cushion constituted adequate protection and reversed the lower court's finding to the contrary as "clearly erroneous." Mellor, 734 F.2d at 1400. In fact, "[c]ase law has almost uniformly held that an equity cushion of 20% or more constitutes adequate protection." Kost v. First Interstate Bank (In re Kost), 102 B.R. 829, 831 (D. Wyo. 1989); See Mellor, 734 F.2d at 1400; In re Helionetics, 70 B.R. 433, 440 (Bankr. C.D. Cal. 1987) (20.4% adequate). The Ninth Circuit in Mellor also made clear that a cushion of less than 20% could constitute adequate protection and cited with approval authorities which had held that equity cushions between 10% and 20% constituted adequate protection. Mellor, 734 F.2d at 1400. Here, the value of the collateral securing the claim of Wells Fargo by any calculation, including that most favorable to Wells Fargo exceeds its aggregate claim, which now totals about $7.55 million. That equity cushion is well in excess of the amount described in Mellor and Kost as adequate as a matter of law. Thus, Wells Fargo is adequately protected. C. The Debtors Are only Required to Provide Adequate Protection to the Extent There Is a Decrease in the Value of an Interest in Collateral
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Bankruptcy Code section 361 provides that where, as here, a third party asserts an interest in collateral, such entity is only entitled to adequate protection to the extent the debtor's "use,
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sale, lease, or grant results in a decrease in the value of such entity's interest in such property." 11 U.S.C. 361(2); see also id 361(1), (3); id. 363(e). See United Savs. Ass'n v. Timbers of Inwood Forest Ass'n Ltd., 484 U.S. 365, 369-73, 108 S. Ct. 626 (1988) (the "interest in property" entitled to protection is "the value of the collateral" that serves such claim); In re Kain, 96 B.R. 506, 513 (Bankr. W.D. Mich. 1988); General Elec. Mortgage Corp. v. South Village, Inc. (In re South Village), 25 B.R. 987, 989-90 & n. 4 (Bankr. D. Utah 1982). Thus, in In re Lease-A-Fleet, Inc., 141 B.R. 63 (E.D. Pa.), aff'd without opinion, 983 F.2d 1051 (3d Cir. 1992), the court observed: Further, the concept of adequate protection, and more importantly, the purpose of the July 15 order, is clearly broader than the banks suggest. Adequate protection is supposed to ensure that Morse's position does not deteriorate by virtue of LAF's use of Morse's property. Id. at 66-67 (emphases added). Similarly, in In re Planned Systems, Inc., 78 B.R. 852 (Bankr. S.D. Ohio 1987), the court emphasized that adequate protection is designed to protect a secured creditor against a loss resulting from the imposition of the automatic stay: In the relief from stay context, adequate protection includes protecting the secured creditor from any decrease in the value of the secured creditor's interest in collateral caused by the imposition of the automatic stay. With respect to the automatic stay, "Congress believed that the existence of vel non of such a decline [in the secured creditor's collateral] to be almost decisive in determining the need for adequate protection." In re Saypol, 31 B.R. 796, 800 (Bankr. S.D.N.Y. 1983). Accordingly, KMG may make out a prima facie case, or cause, for relief under 362(d)(1), if it can establish that debtor has not provided KMG with compensation for any decrease in value of the equipment, since the petition date which is attributable to the stay. Id. at 861-62 (emphasis added). Where the debtor's use of cash collateral protects the secured creditor from such loss, the secured creditor is adequately protected without any other form of adequate protection. See, e.g., Orix Credit Alliance, Inc. v. Delta Resources, Inc. (In re Delta Resources, Inc.), 54 F.3d 722, 730 (11th Cir. 1995), cert. denied, 516 U.S. 980, 116 S. Ct. 488 (1995); Westchase I Assoc. L.P. v. Lincoln Nat'l Life Ins. Co., 126 B.R. 692, 694 (W.D.N.C. 1991). This legal proposition is
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no less true where the collateral to be used by the debtor consists of cash or other "soft" assets, such as inventory and accounts receivable. See, e.g., In re Dynaco Corp., 162 B.R. 389 (Bankr. D.N.H. 1993); McCombs Properties VI, Ltd. v. First Texas Sav. Ass'n (In re McCombs Properties VI, Ltd.), 88 B.R. 261, 267 (Bankr. C.D. Cal. 1988). Here, the ability to conduct an orderly liquidation will enhance the recoveries of Wells Fargo; so if anything, use of Cash Collateral itself is a form of adequate protection.
D.
The Debtors Are Prepared to Protect Wells Fargo by Providing It Adequate Protection Payments as the Non-Default Interest Rate.
The Debtors are further prepared to adequately protect Wells Fargo's interest in Cash Collateral by providing to Wells Fargo adequate protection payments in an amount equal to the non-default contract rate of interest under the Prepetition Credit Agreement (as described above) as and when such obligations would otherwise become due and owing (but for the commencement of these cases), following the Petition Date. The Bankruptcy Code expressly provides that making such payments is a means of providing adequate protection. 11 U.S.C. 361(1). However, nothing requires the Debtors to provide this form of adequate protection where a creditor is oversecured, as Wells Fargo is here. See, e.g., In re Delta Resources, Inc., 54 F.3d at 727-30; In re McCombs Properties VI, Ltd., 88 B.R. at 266. In other words, although an over-secured creditor is entitled to accrue postpetition interest as part of its allowed secured claim, "payment of postpetition interest must await the completion of the bankruptcy case and not occur before." In re M4 Enterps., 183 B.R. 981, 985 (Bankr. N.D. Ga. 1995); (emphasis added). Nonetheless, the Debtors have elected to make the above-described adequate protection payments in the hope that their generosity may prevent a contentious and expensive cash collateral fight.
E. The Debtors Propose to Grant a Replacement Lien on Postpetition Assets to the Extent the Debtors' Use of Cash Collateral Decreases the Value of the Prepetition Collateral that Validly Secures Such Lien.
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The Bankruptcy Code expressly provides that the granting a replacement lien are means of providing adequate protection. 11 U.S.C. 361. See, e.g., Imperial Bank v. El Patio, Ltd. (In re El Patio, Ltd.), 6 BR. 518, 522 (Bankr. C.D. Cal. 1980): In re O'Connor, 808 F.2d at 1393; In
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re Dixie-Shamrock Oil & Gas, Inc., 39 B.R. 115, 118 (Bankr. M.D. Tenn. 1984). The Debtors are prepared to adequately protect Wells Fargo's interest in Cash Collateral by providing to Wells Fargo a replacement lien in subsequently generated cash, inventory and accounts receivable of the same type as Wells Fargo held a security interest thereon prepetition, to the extent the Debtors' use of Cash Collateral results in any decrease, following the Petition Date, in the value of the collateral securing Wells Fargo's claim. These replacement liens will have the same validity and priority as Wells Fargo's security interest in prepetition collateral, and be subject to the same defenses and counterclaims. F. The Debtors Propose to Grant Other Forms of Adequate Protection.
In accordance with Bankruptcy Code section 507(b), if the Debtors provide adequate protection of the interests of Wells Fargo that are secured by a lien on the Debtors' property, and if, notwithstanding this protection, Wells Fargo has a claim allowable under Bankruptcy Code section 507(a)(1) arising from the stay of action against such property under Bankruptcy Code section 362; from the use, sale, or lease of property under Bankruptcy Code section 363; or from the granting of a lien under Bankruptcy Code section 364(d), then such claim shall have priority over every other administrative claim allowable under such section. See 11 U.S.C. 507(b). G. The Costs and Expenses of Maintaining Wells Fargo's Collateral Are Chargeable to the Collateral under Bankruptcy Code Section 506(c).
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Bankruptcy Code section 506(c) provides that a debtor "may recover from property securing an allowed secured claim the reasonable, necessary costs and expenses of preserving, or disposing of, such property to the extent of any benefit to the holder of such claim." 11 U.S.C. 506(c). This is true "even if the trustee's use of collateral results in a diminution in the value of the collateral." 5 COLLIER ON BANKRUPTCY, 552.02[5][a] (15th ed. rev. 2007). Here, the costs and expenses associated with disposing of the Debtors' property in an orderly manner are absolutely necessary to preserve the collateral's value. Therefore, the Debtors should be entitled to use the Cash Collateral to pay the costs of orderly liquidating and winding down the Debtors' business (including specifically the costs and expenses of disposing of Wells Fargo's collateral). The legislative history of section 506(c) clearly demonstrates that Congress also intended
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that a debtor may use Cash Collateral to pay the expenses of operating the secured creditors' collateral, including operating the collateral in a liquidation and wind down: "the reference to section 506(c) permits broad categories of operating expenses such as the cost of cleaning and repair services, utilities, employee payroll and the like to be charged against pledged revenues." 140 CONG. REC. 10678 (daily ed. Oct. 4, 1994). Courts have authorized the use of Cash Collateral for a wide variety of direct or indirect expenses under section 506(c). See, e.g., In re Afco Enters., Inc., 35 B.R. 512, 515 (Bankr. D. Utah 1983) (expenses of maintaining a resort property authorized to be paid from the receipts generated on that property because preserving the resort's going-concern value benefited the secured creditor); Ford Motor Credit Co. v. Jim Kelly Ford, Ltd. (In re Jim Kelly Ford, Ltd.), 14 B.R. 812, 816-17 (N.D. Ill. 1980) (overhead and operating expenses recoverable from proceeds of creditor's collateral because the expenses facilitated the inventory's sale); John Deskins Pic Pac, Inc. v. Flat Top Nat'l Bank (In re John Deskins Pic Pac, Inc.), 59 B.R. 809 (Bankr. W.D. Va. 1986) (rental charges for premises where debtor kept inventory pending liquidation are recoverable from inventory proceeds as a necessary cost of liquidating collateral).16 The Debtors' use of Cash Collateral to conduct an orderly liquidation and wind down preserves the value of Wells Fargo's interest in its collateral. If the Debtors did not pay these expenses, the Debtors' assets would likely sell for far less than what they have been selling for. Thus, the Debtors' use of Cash Collateral benefits Wells Fargo by preserving the liquidation value of these assets. The Debtors are therefore entitled to recover these expenses from Wells Fargo's Cash Collateral under Bankruptcy Code section 506(c), without regard to whether the Debtors would be entitled to use Cash Collateral under section 363(c)(2).
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16
Courts have also consistently allowed the use of cash collateral to pay the necessary costs of preserving and maintaining property that generates cash collateral. See, e.g., In re 499 W. Warren St. Assocs., Ltd. P'ship, 142 B.R. 53, 56 (Bankr. N.D.N.Y. 1992) ("[U]se of a portion of the rental income to pay the reasonable and necessary operating expenses of the property satisfies this [adequate protection] requirement."); In re Prichard Plaza Assocs. Ltd. P'ship, 84 B.R. 289, 30102 (Bankr. D. Mass. 1988) ("To the extent that the debtor applies rental income to the operation and maintenance of the property . . . the mortgagee may be considered to be adequately protected.").
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H.
The Debtors Should Be Authorized to Use Cash Collateral to During the Wind Down of Operations upon the Equities of this Case.
Under Bankruptcy Code section 552(b)(2), a lender's security interest does not extend to postpetition property if the Court so orders "based on the equities of the case." 11 U.S.C. 552(b)(2). In determining the equities of the case, the Court has "broad discretion to balance the protection of secured creditors . . . against the strong public policies favoring continuation of jobs, preservation of going concern values and rehabilitation of distressed debtors, generally." H.R. 5116, 103rd Cong., 2nd Sess., 140 CONG. REC. H10768 (1994). "Another example would be when the estate puts effort into selling inventory, proceeds of which go to the secured party. Equity might require that a portion of the proceeds be used to compensate the estate for the sales effort." 5 COLLIER ON BANKRUPTCY, 552.02[4][a] (15th ed. rev. 2004); see also In re McKim, 217 B.R. 97, 97-98 (Bankr. D.R.I. 1998). In the present case, the equities overwhelmingly mandate that the Debtors be permitted to use Cash Collateral to conduct their orderly liquidation and wind down. IV. CONCLUSION WHEREFORE, the Debtors respectfully, for entry of an order authorizing the Debtors to use Cash Collateral in substantially the same form and substance as the proposed form of order attached hereto as Exhibit 1, which permits the use of Cash Collateral on an interim basis, schedules deadlines relating to a final hearing on permanent use of Cash Collateral, and, after the conclusion of the final hearing, authorizes permanent use of Cash Collateral.
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101628.5
DATED: January 4, 2008
/s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Bankruptcy Counsel for Debtors and Debtors in Possession
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EXHIBIT 1 PROPOSED FORM OF ORDER.
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LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, CA 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Bankruptcy Counsel for Debtors and Debtors In Possession Debtors' Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.'s Tax I.D. #XX-XXX-1079 National R.V., Inc.'s Tax I.D. #XX-XXX-5022
UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. Case No.: 6:07-17941-PC Chapter 11 Jointly Administered with Case No.: 6:07-17937-PC ORDER (1) GRANTING INTERIM USE OF CASH COLLATERAL; AND (2) SCHEDULING DEADLINES RELATING TO CONTINUED AND FINAL HEARING ON PERMANENT USE OF CASH COLLATERAL Hearing Date: Time: Place: January 8, 2008 10:30 a.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501
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101501.1
Exhibit 1
1 2 3 4 5 6 7 8 9 10 11
On January 8, 2008, this Court held a hearing on the Emergency Motion of Debtors and Debtors in Possession Pursuant to Local Bankruptcy Rule 2081-1(b) and (c) for Order: (1) Granting Debtors and Debtors in Possession Interim Use of Cash Collateral; (2) Scheduling Deadlines Relating to a Final Hearing on Permanent Use of Cash Collateral; and (3) After Conclusion of a Final Hearing, Authorizing Permanent Use of Cash Collateral (the "Motion"), which was filed on January 4, 2008 by National R.V. Holdings, Inc. and National R.V., Inc., the debtors and debtors in possession in the above-captioned cases (the "Debtors"). The Court has considered the Motion, the budget attached thereto (the "Budget"), the accompanying Declaration of Thomas J. Martini, the accompanying Declaration of David M. Guess, Esq., the Declaration of Thomas J. Martini in Support of First-Day Motions [Docket #18], any other exhibits and papers submitted in support of the Motion, and the arguments of counsel appearing at the hearing. Appearances were noted on the record. BASED UPON THIS REVIEW AND CONSIDERATION, THE COURT FINDS THAT: A. B. The Debtors filed chapter 11 petitions on November 30, 2007 (the "Petition Date"). The Debtors' request that the Court authorize the Debtors to use cash or cash
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equivalents, whenever acquired, in which the Debtors' estates and an entity other than the estates have an interest, including the proceeds, products, offspring, rents, or profits of property (the "Cash Collateral") on an interim basis, pending a continued hearing on cash collateral (the "Continued Hearing"), in such amounts as are necessary to enable the Debtors to operate their business in such a way as to avoid immediate and irreparable harm. C. D. This is a core proceeding under 28 U.S.C. 157(b)(2)(M). The parties asserting an interest in Cash Collateral include Wells Fargo Bank, N.A.
("Wells Fargo"), as the Debtors' prepetition lender under that certain Credit Agreement, dated as of August 12, 2005, with UPS Capital Corp., as agent and a lender, and Wells Fargo, as a lender (as amended, restated, supplemented and modified from time to time, the "Prepetition Credit Agreement", and together with any and all agreements, documents and instruments entered into or executed in connection therewith, the "Prepetition Loan Documents").
Exhibit 1
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E.
The Budget (attached hereto as Exhibit "1") sets forth the Debtors proposed use of
Cash Collateral from January 8, 2008 through February 1, 2008 (the "Interim Period"). THEREFORE, IT IS HEREBY ORDERED THAT: 1. The Debtors are authorized to use Cash Collateral, including specifically the cash
proceeds of the Debtors' ERCs (as defined in the Motion) to the extent that these cash proceeds are considered to be Cash Collateral, but not including, at this time, any Restricted Cash,1 during the Interim Period up to the amounts set forth in the Budget. 2. As adequate protection for the Debtors' use of Cash Collateral, the Debtors shall
provide Wells Fargo adequate protection payments in an amount equal to the non-default contract rate of interest under the Prepetition Loan Documents as and when such obligations would come due and owing, following the Petition Date, to the extent of the value of the collateral securing Wells Fargo's claim. 3. As adequate protection for the Debtors use of Cash Collateral, Wells Fargo is
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hereby granted a replacement lien in subsequently generated collateral of the same type Wells Fargo held a valid and perfected security interest in prepetition, to the extent that the Debtors' use of Cash Collateral results in any diminution, following the Petition Date, in the value of the collateral securing Wells Fargo's claims. 4. If the adequate protection provided above proves inadequate, as determined by the
Court after notice and a hearing, then, to that extent, Wells Fargo shall be granted an allowed administrative expense claim having the priority specified in Bankruptcy Code section 507(b). 5. The replacement liens and/or priority claims granted to Wells Fargo in accordance
with this Order will have the same validity and priority (and shall be subject to the same defenses, if any) as Wells Fargo's respective liens and security interests in prepetition collateral. 6. The liens and priority claims provided herein shall be deemed valid and perfected
with such priority as provided in this Order, without any further notice or act by any party that may otherwise be required under any other law.
All capitalized terms not otherwise defined have the meanings given to them in the Motion.
Exhibit 1
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7.
If any provision of this Order is hereinafter modified, vacated, or stayed, such
modification, vacation, or stay shall not affect the validity, priority, or enforceability of any lien, security interest, or priority authorized or created hereby. 8. The following shall govern matters concerning the Continued Hearing: a. b. The Continued Hearing will be held on January __, 2008 at __:__ _.m. The Debtors shall provide notice of the Continued Hearing by regular mail on all parties in interest upon whom service of the Motion was provided, plus any party that has filed and served a request for special notice prior to the Debtors' service of such notice. The Debtors shall file supplemental pleadings in advance of the Continued Hearing no later than 5:00 p.m. on January __, 2008. c. Any response or objection to the Motion must be filed and served by messenger, facsimile, or e-mail (with a hard copy by regular mail) by no later than one Court day before the Continued Hearing on counsel for the Debtors, the Office of the United States Trustee and Wells Fargo.
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Presented By:
DATED: January ___, 2008 THE HONORABLE PETER H. CARROLL UNITED STATES BANKRUPTCY JUDGE
_______________________________________ DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Bankruptcy Counsel for Debtors and Debtors in Possession
Exhibit 1
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EXHIBIT 2
PROPOSED BUDGET (COVERING JANUARY 8, 2008 THROUGH FEBRUARY 1, 2008)
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National RV
PROJECTED CASH FLOW Cash Collateral though Friday, February 1, 2008 ($000)
Week Ending 968 42 1 1,010 1,040 1,769 35 782 1,005 987 1,364 2,952
Notes
Week 1 Actual 12/7/07
Week 5 F'cast 1/4/08
Week 6 F'cast 1/11/08 2,575 244
Week 7 F'cast 1/18/08 2,121
Week 8 F'cast 1/25/08 1,497
Week 9 F'cast 2/1/08 1,099
TOTAL Through 2/1/08 968
BEGINNING CASH (Funding Acct + Lockbox)
RECEIPTS: 170 1,585 3,119
Cash Collections on Accounts Receivable Sale of Energy Credits 3 Sale of Assets
2,952
2,819
2,121
1,497
7,400 8,499
1,273 1,585 7,400 11,226
AVAILABLE CASH
CASH DISBURSEMENTS: 2 3 47 61 62 81 84 75 79 74 564
190 -
30
200 21
21
390 -
21 250
21 125
21 250
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36 83 35 -
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Personnel: Payroll, Payroll Taxes, and Benefits (incl. severance) Professional: Kemlite - Trial expenses Professional Fees Operating/Finance: Security Services Property Lease payment - Dec/Jan Utility Deposits Payments to chassis vendors Transportation agreement Wells Fargo interest Build out - new materials Build out - labor (from Select) All Other Operating Expenses TOTAL CASH DISBURSEMENTS 5 5 6 53
405
75 167
55 377
100 147 95 698
100 147 155 624
96 147 55 398
147 55 568
135 625 36 83 35 40 296 590 501 3,295
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ENDING CASH (Funding Acct + Lockbox)
1,005
987
1,364
2,952
2,575
2,121
1,497
1,099
7,931
7,931
Exhibit B
National RV
Notes to Cash Flow
Bulk sale to 10,000 RV or highest bidder Payroll - employees paid 1 week in arrears - arrearage from final pre-petition week paid pre-petition. Net payroll paid in current week - payroll taxes paid in following week. 3 Expenses for experts ($190k) and post-petition retainer for O'Melveny ($200k) in Kemlite trial to begin in January 2008. 4 Security costs $3k per day - $21k per week. 5 Utility deposits within 20 days of the petition date. 6 Deposit for continued transportation services (returns units not sold; ships new sold units) 7 Wells Fargo interest at non-default interest rate 8 New materials needed to buildout 61 units in WIP, assume COD. 9 Labor for buildout - assume paid weekly (hired through Select). 10 All other operating expenses, except professional fees. Made up of Utilities, business insurance employee fringe, office supplies, travel, and other operating expenses (estimated at $220k per month). 11 Rent payments on property pursuant to an agreement being finalized between the parties. The debtors reserve the right to adjust this line in the event the aforementioned agreement is not finalized or approved by the Court.
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Exhibit B
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DECLARATION OF THOMAS J. MARTINI I, Thomas J. Martini, declare as follows: 1. I am the Chief Financial Officer and Treasurer of National R.V. Holdings, Inc.
and National R.V., Inc., a California corporation, the debtors and debtors in possession in the above-captioned cases (the "Debtors"). 2. In these capacities, and in conjunction with the efforts of other members of the
Debtors' senior management, I am involved on a day-to-day basis with all aspects of the Debtors' affairs, including business operations, strategic planning, financial reporting, human resources, legal affairs and other management activities, including the Debtors' efforts to address their current financial difficulties. 3. As a consequence, I review and work extensively with the books and records of
the Debtors, including their business plans, financial statements and projections, business analyses and reports, contracts and other legal documents, notes and correspondence and the like. On a regular basis, I witness and/or participate in negotiations with lenders, vendors and other creditors of the Debtors, and have worked closely with personnel from all aspects of the Debtors' business operations. 4. Based upon all of the foregoing, I have developed an intimate familiarity with:
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(a) the Debtors' books and records, which are maintained in the ordinary course of business under my supervision and control as custodian (and under the control of other members of senior management), (b) the Debtors' business and financial history, and their current business and financial situation, and (c) the financial and operational details of the Debtors' business operations, and (d) the recreation vehicle industry generally. 5. I hold a B.S. in accounting from Pennsylvania State University. I am a certified
public accountant and a member of the AICPA. I began working in the recreation vehicle industry nearly 30 years ago. From 1978 to 1984, I served as a controller for Coachmen Industries, Inc ("Coachmen"), which manufactures recreational vehicles ("RVs"), travel trailers, camping trailers, single family homes and multi-family residential structures, distributes to over 500 dealerships throughout the United States, and sells products directly from its company101628.5
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owned dealership under such brand names as Coachmen, Georgie Boy, Sportscoach, Adrenaline, and Viking. From 1986 to 2001, I worked for Starcraft Industries, Inc. and Miller Building Systems, Inc. where I served as Chief Financial Officer for both companies. In 2001, I returned to Coachmen, where I assumed the role of Vice President and Treasurer. In 2004, I joined the Debtors as Treasurer and in 2005 I assumed the additional position of Chief Financial Officer. 6. I submit this Declaration in support of the accompanying Emergency Motion of
Debtors and Debtors in Possession Pursuant to Local Bankruptcy Rule 2081-1(b) and (c) for Order (1) Granting Debtors and Debtors in Possession Interim Use of Cash Collateral; (2) Scheduling Deadlines Relating to a Final Hearing on Permanent Use of Cash Collateral; and (3) After Conclusion of a Final Hearing, Authorizing Permanent Use of Cash Collateral (the "Motion"). Except as otherwise stated herein, if called as a witness, I could and would competently testify to the matters set forth herein from my own personal knowledge. 7. In order to proceed with their orderly liquidation and wind down of operations,
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the Debtors need to fund payroll, fund security services, pay rent, initiate a build-out, and fund other essential items from January 8, 2008 to and through February 1, 2008. 8. The Debtors have only a limited amount of cash other than Cash Collateral
to satisfy the outstanding obligations that are necessary to facilitate an orderly liquidation and wind down of operations, let alone one that can maximize value for these estates. Prepetition, pursuant to the Prepetition Loan Documents, Wells Fargo swept the Debtors' cash collections on a daily basis. Accordingly, the Debtors initially had access to a limited amount of cash,
approximately $1 million. Subsequently, the Debtors have received approximately $1.1 million in accounts receivable. The bulk of this amount has only come in within the last few weeks. Access to these funds is a necessary precondition to the success of the liquidation. Unless the Court immediately enters an order authorizing the Debtors to use Cash Collateral (as contemplated herein), there is a real possibility that the Debtors will suffer irreparable harm. 9. The Debtors still require access to Cash Collateral, among other things, to
maintain their facilities on a limited basis as they proceed to orderly liquidation and wind down of their operations. The Debtors need both time and money to orderly collect their remaining
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accounts receivable, prosecute the Kemlite Litigation, and sell their remaining assets. Time is also needed to market the Debtors' remaining assets for sale either in whole or in part, including marketing their product lines and other intangibles. Although the Debtors' employees have been reaching out to their contacts within the industry in an attempt to find potential strategic buyers, it will take time to negotiate, document and close the remaining deals. Money is needed to compensate the Debtors' remaining employees, who are indispensable to the success of this liquidation, and the Debtors have to pay utilities and otherwise maintain their facilities. 10. If not authorized to use Cash Collateral, the Debtors will be unable to satisfy
those obligations that enable the Debtors to maximize value from the orderly disposition of their assets obligations directly related to the sale of assets, to the collection of receivables, and to the wind down of operations. Consequently, absent immediate authority to use Cash Collateral on an interim basis, there is a very real possibility that the Debtors' estates could suffer irreparable harm and that there would be no meaningful option other than to convert these cases to ones under chapter 7, which the Debtors believe would result in diminished asset values. 11. Over the past two weeks, the Debtors' liquidity and liquidity prospects have
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improved, in some ways, beyond that which was expected. The Debtors have been able to collect on more than $1.1 million of accounts receivable (and sooner than anticipated), and now expect another $244,000 of account receivable collections in the next week or two. The Debtors have also been able to sell their Inland Zone Reactive Organic Gas Emission Reduction Credits (the "ERCs"), and have received roughly $1.585 million in cash proceeds. 12. The Debtors have also made tremendous progress in marketing their finished
RVs and expect to proceed with sale(s) of their finished RVs in accordance with procedures already established by this Court, and with such sales projected to close in the next two to three weeks and bring no less than $7.4 million into these estates. Indeed, the Debtors have already procured an agreement from an affiliated dealer in San Diego which has agreed to buy 77 finished RVs for approximately $7.4 million, subject only to bankruptcy court approval. The
Debtors intend to proceed in short order with a sale of the vast majority of these RVs on economic terms no less favorable to the estates than the terms of the agreement with the San
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DECLARATION OF DAVID M. GUESS, ESQ. 1. 2. I, David M. Guess, declare as follows: I am an attorney with the law firm of Klee, Tuchin, Bogdanoff & Stern LLP
("KTBS"), the bankruptcy counsel for National R.V. Holdings, Inc. and National R.V., Inc., the debtors and debtors in possession in the above-captioned cases (the "Debtors"). 3. I submit this Declaration in support of the accompanying Emergency Motion of
Debtors and Debtors in Possession Pursuant to Local Bankruptcy Rule 2081-1(b) and (c) for Order (1) Granting Debtors and Debtors in Possession Interim Use of Cash Collateral; (2) Scheduling Deadlines Relating to a Final Hearing on Permanent Use of Cash Collateral; and (3) After Conclusion of a Final Hearing, Authorizing Permanent Use of Cash Collateral (the "Motion"). Except as otherwise stated herein, if called as a witness, I could and would competently testify to the matters set forth herein from my own personal knowledge. 4. On or about December 22, 2007, I left a voicemail for Ms. Barbara Baird, the
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Principal Deputy District Counsel of the South Coast Air Quality Management District (the "AQMD") to inquire whether Wells Fargo Bank, N.A. ("Wells Fargo"), the Debtors' prepetition secured lender, had ever provided a copy of its security interest (or any other related documentation) to the AQMD with respect to the 100 Reactive Organic Gas Emission Reduction Credits (the "ERCs") that were then registered under the name of National R.V., Inc. 5. On December 26, 2007, Ms. Baird returned my call. In our conversation, Ms.
Baird informed me that the AQMD had no record of Wells Fargo's security interest. In addition, Ms. Baird informed me that had Wells Fargo filed any documentation relating to its security interest, she would have definitely seen it. Ms. Baird noted that had the AQMD received such documentation from Wells Fargo, it likely would have transferred the ERCs into Wells Fargo's name. Notwithstanding this, Ms. Baird informed me that she and others at the AQMD would continue to look to see if any documentation had been received from Wells Fargo. To assist her and her staff, I provided Ms. Baird with the certificate numbers of the Debtors' ERCs. 6. Later that same day, Ms. Baird sent me an e-mail, which is attached hereto as
part of Exhibit A. In this e-mail, Ms. Baird confirmed that the Debtors "still own" the ERCs.
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She added that "it does not appear Wells Fargo has any ERCs." 7.
On or about December 27, 2007, I sent a comprehensive memo that I had
prepared to David Kurzweil and John Dyer of Greenberg Traurig LLP, counsel for Wells Fargo. A true and correct copy of this memo is attached hereto as Exhibit A. The memo explains why Wells Fargo does not have an interest in the cash proceeds of the ERCs.
8.
To date, I have not seen or heard anything from Wells Fargo to rebut the
Debtors' position that Wells Fargo does not hold a security interest in or lien on the ERCs.
I declare under penalty of perjury that the foregoing is true and correct.
Executed this 4th day of January, 2008 at Los Angeles, California.
/s/ David M. Guess DAVID M. GUESS
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EXHIBIT A MEMO RE: SECURITY INTEREST OR LIEN IN OR ON ERCS
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National R.V. Holdings, Inc. - U.S. Mail

EDWIN J. SIMCOX, ESQ. 4259 SOUTH SHELBY STREET INDIANAPOLIS, IN 46227 XEROX CORP. PO BOX 7413 PASADENA, CA 91109-7413 FIRST INDUSTRIAL, L.P. P.O. BOX 10036 PASADENA, CA 91189 XEROX IMAGE SOURCE 650 E. HOSPITALITY #500 SAN BERNARDINO, CA 92408 INTERNAL REVENUE SERVICE PO BOX 21126 PHILADELPHIA, PA 19114
Served 01/04/08
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the next and final hearing as specified in the Order; and

Scheduling deadlines and noticing requirements in connection with the next

and final hearing to consider the use of Cash Collateral.

DATED: January 4, 2008

The Debtors' Secured Creditors' Interests Can Be Adequately Protected.

DATED: January 4, 2008

If any provision of this Order is hereinafter modified, vacated, or stayed, such

PROPOSED BUDGET (COVERING JANUARY 8, 2008 THROUGH FEBRUARY 1, 2008)

Week 1 Actual 12/7/07

Week 2 Actual 12/14/07

Week 3 Actual 12/21/07

Week 4 Actual 12/28/07

Week 5 F'cast 1/4/08

Week 6 F'cast 1/11/08 2,575 244

Week 7 F'cast 1/18/08 2,121

Week 8 F'cast 1/25/08 1,497

Week 9 F'cast 2/1/08 1,099

TOTAL Through 2/1/08 968

BEGINNING CASH (Funding Acct + Lockbox)

RECEIPTS: 170 1,585 3,119

Cash Collections on Accounts Receivable Sale of Energy Credits 3 Sale of Assets

1,273 1,585 7,400 11,226

CASH DISBURSEMENTS: 2 3 47 61 62 81 84 75 79 74 564

100 147 95 698

100 147 155 624

135 625 36 83 35 40 296 590 501 3,295

ENDING CASH (Funding Acct + Lockbox)

Notes to Cash Flow

On or about December 27, 2007, I sent a comprehensive memo that I had

Executed this 4th day of January, 2008 at Los Angeles, California.

/s/ David M. Guess DAVID M. GUESS

National R.V. Holdings, Inc. - U.S. Mail

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