Southern Motion - Chapter 11 DIP Terms

DIP Terms

Size and availability

• $5 million recourse factoring facility for Southern Motion, Inc., from Porter Capital Corporation, expandable to $6 million at Porter's sole discretion. The interim order entered Sept. 11, 2026 (Dkt. 93), authorizes receivables purchases, advances and discretionary overadvances through the Oct. 7 final hearing.
• Southern Motion is the seller and borrower, with no entity guarantors. The court found that the debtor lacked sufficient working capital to continue ordinary operations without the facility.
• Two instruments attached to the interim order paper the deal: an umbrella financing agreement, which controls where its terms contradict the others, and the underlying receivables purchase agreement with its Schedule A pricing sheet, which carries the factoring mechanics and the rate and fee grid. The interim order governs over any conflicting term in the financing motion or either agreement.
• Advances are limited to 70% of eligible receivables, subject to the line amount; the receivables agreement separately limits the outstanding face amount of purchased receivables to the line amount.
• Porter purchases receivables with full recourse and determines eligibility in its sole credit or business judgment. Eligible receivables include prepetition invoices outstanding for less than 60 days and invoices generated postpetition; advances are payable within two business days after eligibility is determined and the required receivables submission is received.
• The receivables agreement states that the relationship is that of seller and purchaser of accounts rather than borrower and lender and that the transaction does not constitute financing; the interim order approves the facility under sections 363 and 364 and grants liens and superpriority claims securing the obligations.

Interest rate

• Rate: WSJ prime plus 2%. The receivables agreement floors prime at the rate prevailing upon execution; the Aug. 26 commitment letter specifies a 6.75% floor.
• Interest accrues on the unpaid face amount of purchased receivables, less the reserve account balance, plus outstanding fees and other obligations, on an actual/360 basis. It is calculated monthly using the rate on the month's first business day and paid on the first business day of the following month.
• If prime rises above its level at execution, Porter may increase the discount fee and all other percentages in the receivables agreement and its schedules by the number of basis points separating the highest prime rate during the applicable term from the execution-date rate. If contractual interest is zero, Porter may instead require monthly payments applying that increase to net purchased receivables and other outstanding obligations on an actual/360 basis.

Fees

• Discount fee: 0.85% of each purchased receivable's face amount for each 30-day period, beginning on the invoice date, in addition to interest.
• Origination and exit fees: 3% each on the initial $5 million line. If advances exceed $5 million, each fee also applies at 3% to each $250,000 increment first accessed within the additional $1 million of capacity. The origination fee is payable at first funding; the exit fee is payable on demand upon termination, nonrenewal or repayment in full before the scheduled expiration. The commitment letter also provides for an origination/renewal fee at the beginning of each renewal term.
• Legal and due diligence deposit: $25,000, nonrefundable. The receivables agreement also requires an underwriting fee upon execution.
• Minimum term fee: Following an uncured default, 3% of the largest outstanding obligations after that default, multiplied by the number of months during which any of those obligations remain outstanding, payable on demand in addition to the exit fee.
• Late fee: 0.05% per day on amounts due until paid, with charges on purchased receivables beginning only when the debtor becomes obligated to repurchase them. Late charges are due within one business day after the event triggering liability.
• Misdirected payment fee: The greater of $5,000 or 25% of a payment on a purchased receivable that the debtor fails to forward to Porter within three business days after receipt.
• Transfer fees: $25 per wire and $10 per ACH transfer.
• The debtor bears collection, audit, inspection, filing, returned-check and other contractual expenses, generally payable within one business day after they are incurred. The interim order permits Porter to deduct reasonable case-related expenses, including outside counsel fees, from reserves, purchase payments or collections, with contemporaneous, reasonably detailed invoices to the debtor and any committee; the attached forecast carries $20,000 for DIP lender counsel.

Term and key dates

• Initial term: Six months under the receivables agreement dated Sept. 9, 2026.
• The agreement automatically renews for successive six-month terms unless the debtor gives written termination notice 60 to 90 days before expiration; any outstanding obligations at expiration trigger renewal even if timely notice was delivered.
• The final financing hearing is scheduled for Oct. 7, 2026, at 10:30 a.m. CST. The interim order carries any unresolved financing objections forward to that hearing.
• The court held the emergency evidentiary hearing on the financing motion Sept. 2, 2026, with the debtor, the U.S. Trustee and the landlord participating, and entered the interim order Sept. 11 granting the motion in part.

Cash collateral, reserves and recourse

• Required reserve: 30% of the unpaid balance of purchased receivables, with excess collected funds available for release daily upon request under the receivables agreement. Porter may charge obligations against the reserve; the debtor must fund any shortfall on demand.
• Porter controls collections, and the debtor must forward payments received directly within three business days. A five-business-day clearance period is added to payment receipt dates for purposes of the agreement, and Porter may debit the debtor's deposit accounts through ACH to satisfy obligations.
• Repurchase period: 90 days from the invoice date. Porter may require repurchase at the unpaid face amount plus unpaid related fees for overdue or disputed receivables, receivables affected by a customer's insolvency or payments subject to disgorgement, and all purchased receivables upon default or termination; it may collect through a reserve charge and retains its security interest after repurchase.
• The interim order permits use of receivables proceeds and advances as cash collateral within the approved budget and financing terms. The debtor may not factor, finance, pledge or sell receivables to another provider during the agreement's term.

Budget and permitted variance

• Permitted variance: 10% between budgeted and actual amounts under the interim order. Cash collateral must fund operating, maintenance and administrative expenses in the budgeted categories and periods; other uses require Porter's consent or a further court order.
• The attached forecast for Aug. 31 through Nov. 27, 2026, shows beginning cash of $57,162, approximately $5.8 million of negative net cash flow, $6 million of DIP proceeds and ending cash of $233,721. Its low point is $89,026 of cash for the week ending Sept. 11, the week carrying $1.5 million of critical vendor payments.
• The budget's DIP loan proceeds row schedules the following funding:
  • $250,000 for the week ending Sept. 11.
  • $1.25 million for the week ending Sept. 18.
  • $1.15 million for the week ending Sept. 25.
  • $1 million for the week ending Oct. 2.
  • $250,000 for each week ending Oct. 9, Oct. 16 and Oct. 23.
  • $500,000 for the week ending Oct. 30.
  • $400,000 for the week ending Nov. 6.
  • $250,000 for each week ending Nov. 13 and Nov. 20.
  • $200,000 for the week ending Nov. 27.
• The revised budget provides $220,000 in monthly rent to landlord STORE SPE Southern Motion 2018-1, LLC, with the first payment due Sept. 8, 2026, and subsequent payments due on the first of each month. This resolved the landlord's objection to omitting rent during the case's first 60 days for financing purposes, while preserving disputes over the master lease and applicable rent.
• The landlord had objected to financing (Dkt. 47) and joined the U.S. Trustee's objection (Dkt. 43); the court denied the debtor's request to delay rent payments (Dkt. 57). The budget remains subject to further rulings on the critical vendor motion (Dkt. 8), continued to Sept. 10, 2026 (Dkt. 60), and final financing approval. The attached forecast includes approximately $2.5 million of critical vendor payments.
• The financing agreement requires a rolling 13-week budget satisfactory to Porter. The receivables agreement requires monthly financial statements and records, updated customer lists and payables aging within 20 days after each quarter-end, and proof of payroll and other tax payments within 10 days after filing, at least monthly.

Covenants

• The debtor may not suffer any lien on any of its assets, now owned or later acquired, without Porter's prior written consent, and may not change its state of organization or its name, merge, or transfer, sell, lease or assign assets outside the ordinary course without Porter's written consent at least 30 days before the action.
• The debtor must insure all insurable property against customary risks, including fire and business interruption, in amounts and with carriers acceptable to Porter and naming Porter as additional insured and, on request, loss payee or mortgagee, with 30 days' notice of cancellation; the deed of trust separately requires all-risk replacement-cost property coverage, commercial general liability, business-interruption and, where the property lies in a special flood hazard area, flood insurance.
• The debtor must pay taxes, assessments and license fees relating to the collateral when due, keep the collateral in good repair, and give Porter or its designee access to its premises, collateral and books and records, at the debtor's expense and at any time after a default.

Use of proceeds and funding conditions

• Proceeds fund budgeted working capital and general corporate needs, permitted Chapter 11 administrative costs, court-approved fees and expenses, and facility fees, expenses and interest. Prepetition claim payments require court approval and inclusion in the budget.
• The financing agreement conditions funding on satisfactory documentation, diligence, an onsite management meeting and recurring-revenue valuation, release of existing lenders' liens, confirmation of Porter's lien priority, and an acceptable updated cash forecast and business plan. It also requires an acceptable financing order within 30 days after the financing motion, unless Porter agrees to another date.
• Under the interim order, cash collateral may not be used to contest the validity, extent, perfection, priority or enforceability of Porter's liens, to invoke marshaling or any similar doctrine against the DIP collateral, or to prevent, hinder or delay Porter's enforcement against the receivables or other collateral. The financing agreement separately bars using DIP proceeds or collateral to investigate or pursue claims against Porter or its agents, professionals, employees, officers, subsidiaries or affiliates, and requires Porter's prior written consent to use those resources to pursue dispositions or settlements of estate assets, including causes of action and avoidance actions.

Liens and priority

• First-priority liens under section 364(c)(2) secure all DIP obligations solely with the debtor's receivables and their proceeds and its Union County, Mississippi, real property, identified in the financing agreement as 1003 Denmill Road, New Albany; the financing agreement also provides for section 364(d) priming liens.
• The financing agreement makes those liens senior to any adequate protection liens of prepetition secured creditors and, apart from the Carve Out, not subject or subordinate to any lien avoided and preserved for the estate, any lien arising after the petition date in favor of a governmental unit, any intercompany or affiliate lien, or any charge under section 506(c).
• The interim order secures all obligations under the facility, expandable to $6 million, with the real property lien; the attached deed of trust caps secured principal at $5 million, excluding interest, protective advances, collection costs and attorneys' fees.
• The liens are perfected upon entry of the interim order without further filings, deemed perfected as of the petition date and senior to subsequent postpetition liens. The order also grants section 364(c)(1) superpriority administrative claims, including priority over section 507(b) claims, subject to the Carve Out. The financing agreement gives those superpriority claims recourse to all prepetition and postpetition estate property and proceeds.
• The deed of trust covers the property's improvements, fixtures, related personal property, leases, rents and proceeds. The debtor may collect rents until a continuing default, when Porter may collect them directly.

Carve Out

• Budgeted debtor and committee professional fees and required court and U.S. Trustee charges constitute the Carve Out, which takes priority over Porter's DIP liens and superpriority claims under the interim order. The debtor may set aside those funds, with professional compensation payable upon court approval.
• The attached forecast allocates $864,000 to professional fees, $125,000 to committee professionals and $81,495 to U.S. Trustee fees.

Estate protections and investigation periods

• Parties in interest have 75 days from entry of the interim order, and any committee has at least 60 days from formation, to investigate the validity, perfection, priority or amount of any prepetition Porter lien and waivers of claims against Porter, to the extent the order binds the estate or other parties on those matters.
• The interim order protects DIP obligations, payments, transfers and security grants against avoidance, recovery, defenses, setoff, recoupment and counterclaims, and provides that a later modification, vacatur or stay of the order, on appeal or otherwise, does not affect obligations incurred, Porter's ownership interest in purchased receivables, or the liens and priorities granted before it takes effect, all of which remain governed by the order. It also grants Porter section 363(m) protection for receivables purchases.

Defaults and remedies

• Three business days of default notice and continued budgeted cash use apply under the interim order to the following defaults:
  • Failure to pay Porter when due.
  • A continuing default under the receivables agreement, which includes covenant breaches and Porter's good-faith determination that repayment or performance is insecure.
  • Failure to pay budgeted administrative expenses.
  • Unconsented liens, dispositions or other actions materially impairing DIP collateral or the estate's interests in it.
  • A stay, reversal, vacatur or modification of the interim order without Porter's written consent, other than through the final financing order.
  • Loss of validity, perfection or enforceability of Porter's liens or claims.
• The debtor or any committee may seek an expedited hearing to contest whether a default occurred, and Porter consents to a hearing within five business days after that request. The receivables agreement separately provides three business days to cure payment defaults and 30 calendar days to cure nonpayment defaults before contractual termination and acceleration.
• Authority to sell receivables and use cash collateral terminates immediately, without further notice or hearing, upon:
  • Dismissal, conversion to Chapter 7 or suspension of the case.
  • Appointment of a Chapter 11 trustee or an examiner with expanded powers.
  • Stay relief permitting another party to foreclose on a material asset constituting DIP collateral.
  • Entry of an order granting a superpriority claim senior to or pari passu with Porter's claim.
• The deed of trust provides a 30-day notice and cure period for covenant breaches, except insurance, environmental and unauthorized lien or disposition breaches, which receive no notice or cure period.
• Subject to the applicable default provisions, Porter may terminate funding, accelerate obligations, withhold payments, take possession of and sell collateral, foreclose on the real property, collect rents or seek a receiver; the debtor remains liable for any deficiency and is entitled to any surplus. Porter may waive defaults or forbear in writing without surrendering later remedies.

Waivers, releases and indemnities

• Upon entry of the final financing order, administrative expenses cannot be charged against purchased receivables or Porter's liens on those receivables under sections 506(c), 552(b) or similar law without Porter's prior written consent. The receivables agreement also waives marshaling rights.
• The receivables agreement releases Porter and its officers, employees and designees from liability for acts under the agreement except willful misconduct, and excludes liability for lost profits and special or consequential damages.
• The receivables agreement conditions lien releases on a general release of Porter even after repayment; the deed of trust requires cancellation upon full payment of secured obligations and termination of funding commitments.
• The financing agreement requires the debtor to indemnify Porter and its officers, directors, employees and agents for claims arising from the agreement, collateral and related obligations, and waives environmental indemnity and contribution claims against Porter. The receivables agreement separately requires indemnification for third-party transaction claims and avoidance or preference claims, with notice of the latter within two business days after discovery.