Magellan Aerospace, Middletown - Chapter 11 DIP Terms

DIP Terms

Borrower

• Magellan Aerospace, Middletown, Inc., as Borrower

Lender

• Magellan USA, Inc., as DIP Lender

DIP Commitments

• $20 million revolving new-money credit facility:
  • Up to $2 million available upon entry of the interim order
  • The remaining balance available upon entry of the final order, in each case consistent with and to the extent required under the budget
  • The Debtor may make unlimited interim draws, provided it does not exceed the maximum principal amount available during the interim period and meets all requirements for interim loans under the DIP term sheet
• Upon entry of the final order, prepetition obligations equal to three times the aggregate principal amount of funded DIP loans will be rolled up, secured by the DIP liens and entitled to DIP superpriority claims pari passu with the new-money DIP obligations:
  • The roll-up may not exceed $60 million and is subject to any limitations or modifications ordered by the court
  • The Debtor owes more than $80 million of unsecured prepetition intercompany loans to the DIP Lender
• Advances require one business day’s prior written notice, and the Debtor must pay all accrued and unpaid interest outstanding at the time of the borrowing notice
• No letters of credit may be issued under or in connection with the facility
• The documents define "DIP Facility" inconsistently: the motion defines it as the new money loaned together with the rolled-up prepetition loans, while the DIP Term Sheet uses the term to refer to the $20 million revolving facility alone

Interest Rate

• DIP loan debt bears interest at the Default Rate (as defined in the DIP term sheet)
• Following an event of default, an additional 2.0% per annum accrues
• Default Rate Increase: 2.0% following an event of default

Fees

• No fees are associated with the DIP loan

Maturity

• December 31, 2026, subject to extension by Magellan USA in its sole and absolute discretion

Carve Out

• The budget may in the future provide for a carve-out for proposed debtor’s counsel in respect of fees subsequently approved by the court
• Funds subject to any carve-out will remain property of the bankruptcy estate until the applicable fees are authorized by court order and paid to the approved professionals
• Any proposed cap on professional fees contained in the DIP term sheet remains subject to modification before entry of the final order and was not approved under the interim order

Use of Proceeds

• Pay expenses enumerated in the first day motions and ordinary-course expenses as they become due, including trade vendor, wage and benefit, supplier, overhead and other expenses necessary to continue the Debtor’s operations and preserve its assets and properties

Credit Bid

• Unless the court orders otherwise for cause, Magellan USA may use all or any portion of the DIP loan to credit bid in any bulk or piecemeal sale or other disposition of all or any portion of the DIP collateral under sections 363 or 1129 of the Bankruptcy Code or otherwise
• Any action by the Debtor, or support by the Debtor for another person’s action, to restrict or prohibit Magellan USA from submitting a credit bid constitutes an event of default

Challenge Period and Debtor Stipulations

• The Debtor stipulated that:
  • The prepetition loans are legal, valid and binding obligations of the Debtor
  • No offsets, defenses, counterclaims or other challenges exist with respect to the prepetition loans
  • The Debtor releases and is barred from asserting claims, counterclaims, causes of action, defenses or setoff rights relating to the prepetition loans against Magellan USA and the other released parties identified in the interim order
• The stipulations are binding on the Debtor and its estate in all circumstances, but become binding on other parties in interest only if no timely challenge is commenced by:
  • 60 days after the formation of an official committee of unsecured creditors, if a committee is appointed
  • 75 days after the petition date, if no committee is appointed

Securities and Priorities

• The DIP loan debt is granted superpriority administrative expense status under section 364(c)(1) of the Bankruptcy Code, with priority over all chapter 11 administrative costs and expenses incurred under sections 503(b) and 507(b)
• Magellan USA is granted DIP liens securing the DIP loan debt pursuant to sections 364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code
• The DIP liens are deemed perfected without further action or the execution, filing or recordation of financing statements, security agreements, mortgages or other instruments
• The Debtor may not incur additional lien-secured or superpriority debt, other than the DIP loan, unless the requirements of section 364 are satisfied and:
  • The Debtor and Magellan USA consent to the applicable order
  • No debt is owed to Magellan USA and Magellan USA has no remaining obligation to extend DIP financing; or
  • The additional financing is first used to repay the prepetition loans in full in cash

DIP Account and Collateral Covenants

• The Debtor must designate its prepetition bank account as a debtor-in-possession account for purposes of the DIP facility and notify the U.S. Trustee and Magellan USA of the designation
• The Debtor must maintain the DIP collateral, keep it fully insured against loss, peril and hazard, and pay all postpetition taxes, assessments and governmental charges relating to the DIP collateral
• Magellan USA must be listed as lender loss payee or additional insured, as applicable, under the relevant insurance policies
• Upon reasonable notice and at the Debtor’s expense, Magellan USA and its representatives may access the Debtor’s premises, assets, books and records, and personnel, except to the extent such access would compromise the Debtor’s attorney-client privilege

Events of Default

• Events of default include:
  • Entry of an interim or final DIP order that is not acceptable to Magellan USA in its sole discretion
  • Conversion of the chapter 11 case to chapter 7, dismissal of the case or the filing of a motion requesting either form of relief
  • The filing, support or confirmation of a plan, or a request for confirmation, that does not provide for indefeasible payment in full of the DIP obligations and, to the extent secured by the DIP liens if the roll-up is approved, the prepetition obligations, unless otherwise agreed by Magellan USA in writing
  • Appointment of a trustee without Magellan USA’s written consent, or the filing of a request for such appointment that the Debtor fails to timely oppose
  • Entry of an order staying or vacating the DIP facility or a DIP order without Magellan USA’s written consent, or the filing of a request for such relief that the Debtor fails to timely oppose
  • Subject to entry of the final order, an attempt to obtain, or entry of, an order or judgment that invalidates, reduces or otherwise impairs Magellan USA’s claims or subjects its collateral to a section 506(c) surcharge
  • Entry of a final order granting stay relief to a creditor holding a claim exceeding $1 million or permitting a creditor to retain or withhold assets valued at more than $1 million
  • Failure to make payments under the DIP facility when due or any material breach of a covenant or obligation under the DIP facility or a DIP order
  • Failure to disburse sale proceeds to Magellan USA in accordance with the applicable priority of proceeds contemporaneously with the closing of a sale of substantially all of the Debtor’s assets, subject to payment of the carve-out
  • Commencement of a suit not subject to the automatic stay seeking to reduce, set off or subordinate the DIP obligations or DIP liens
  • Denial, failure to obtain or loss of authorization to use cash collateral
  • Allowance of an administrative expense claim exceeding $250,000 that is not subordinated to Magellan USA’s superpriority administrative claims
  • The Debtor’s request to grant a lien or security interest in its assets other than the DIP liens
  • Payment of, or an application to pay, a prepetition claim or other amount without Magellan USA’s prior written consent, except for amounts included in the budget, subject to any permitted variance under the DIP term sheet
  • Failure to comply with the budget, subject to any permitted variance under the DIP term sheet

Remedies

• Following the Termination Date, and provided that the court does not enter a contrary order during the five-day notice period provided to the Debtor, the U.S. Trustee and any committee, Magellan USA may exercise customary remedies, including realizing on the DIP collateral and exercising remedies available under applicable law without further court relief
• The DIP collateral secures the DIP loan debt and, to the extent the roll-up is approved, the prepetition loans
• Relief from the automatic stay in favor of Magellan USA becomes effective upon expiration of the five-day notice period without further notice, hearing or court order

Waivers

• The Debtor waives its rights:
  • To return DIP collateral under section 546(h) of the Bankruptcy Code
  • To consent to an order allowing claims under section 503(b)(9) of the Bankruptcy Code
  • To consent to setoff under section 553 of the Bankruptcy Code
• Subject to entry of the final order, neither Magellan USA nor the DIP collateral will be subject to the doctrine of marshaling

Indemnification

• The Debtor is authorized to indemnify and hold Magellan USA harmless, except that the indemnity does not cover losses, costs, fees or expenses Magellan USA incurs in defending or responding to a challenge to the validity, enforceability, priority, perfection or extent of the prepetition loans or Magellan USA's related claims or liens, and does not apply to third-party challenges to Magellan USA's prepetition claims or liens or to any chapter 7 causes of action
• The Debtor's indemnification obligations with respect to the DIP loan debt, the DIP liens and any other claims, liens or obligations arising under or in connection with the DIP facility are unaffected
• None of these indemnification obligations are dischargeable or deemed unenforceable against a liquidating trust established under a Debtor-proposed plan of reorganization without Magellan USA's prior written consent