THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS' …omnimgt.com/cmsvol2/pub_47156/632829_370.pdf · 2017. 6. 21. · 5. The Original DIP Facility, while funding this losing business

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re:

Chapter 11

LIMITLESS MOBILE, LLC, Case No. 16-12685 (KJC)

Debtor. Related to Docket Nos. 350 and 351

THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS' OBJECTION BOTH TO (A) DEBTOR'S DEBTOR-IN POSSESSION FINANCING

MOTION AND (B) DEBTOR'S MOTION FOR USE OF CASH COLLATERAL

The Official Committee of Unsecured Creditors (the "Committee") of the above-

captioned debtor and debtor-in-possession (the "Debtor"), by and through its counsel, Saul

Ewing LLP, objects (the "Objection") to the Motion of Limitless Mobile, LLC for Entry of

Order: (I) Authorizing It to Increase Amount of Post-Petition Financing Pursuant to Sections

363 and 364 of the Bankruptcy Code, (II) Authorizing It to Revise the Debtor-in-Possession

Credit Agreement, and (III) Granting Administrative Priority Claims to DIP Lender Pursuant to

Section 364 of Bankruptcy Code and Modifying the Automatic Stay to Implement the Terms of

the DIP Order [D.I. 351] (the "New DIP Motion") and the Motion of Debtor Limitless Mobile,

LLC to Extend Authority for Use of Cash Collateral of Existing Secured Lenders [D.I. 350] (the

"New Cash Collateral Motion" and, together with the New DIP Motion, the "New Financing

Motions"), and in support of the Objection respectfully states as follows:

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Case 16-12685-KJC Doc 370 Filed 06/21/17 Page 1 of 20

PRELIMINARY STATEMENT'

1. The Committee agreed to the Original DIP Facility because, even with the

operational losses in the budget, it (a) allowed for a sale process for liquidating assets that the

Debtor no longer needed for its go-forward business (namely, the FCC licenses) and (b) allowed

the Debtor a reasonable period of time (i) to propose a business plan around its remaining

business—basically starting a new business and looking for new customers—and (ii) to form the

basis of a bankruptcy exit plan that distributed the FCC license sale proceeds and provided for a

reorganization around this new business model.

2. The Debtor failed to develop a viable new business model—to date, at least—and

the New DIP Motion does nothing but fund the continuation of large losses creating a large

administrative expense claim of at least $1.3 million (if the Debtor meets its budget) to the

detriment of unsecured creditors.

3. The New DIP Motion benefits only the insider equity holder "lender," Tower

Bridge. Tower Bridge gets to make a de facto capital contribution cloaked as a DIP loan,

granting itself fees and other DIP loan protections and—most troubling—if the go-forward

business fails, Tower Bridge gets repaid as an administrative expense ahead of unsecured

creditors against the previously unencumbered and segregated FCC license sale proceeds.

4. On the other hand, unsecured creditors find themselves suddenly behind no less

than $1.3 million in new administrative claims from the Debtor's operational losses under the

proposed budget for the period covered just by the New DIP Motion.

Capitalized terms not defined in this preliminary statement shall have the same meaning as that ascribed to

them elsewhere in this Objection.

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5. The Original DIP Facility, while funding this losing business venture, also

simultaneously served a good purpose by facilitating the sale process. Through an 18-hour

auction starting on April 13, 2017, after 57 rounds of bidding, the price for the FCC licenses

went from a $10.5 million opening bid amount to over $24 million, with Cellco Partnership,

d/b/a Verizon Wireless as the winning bidder.

6. However, with the sale process complete, the Debtor has been unable to secure

new wholesale customers or cut sufficient expenses on the consumer retail venture. In this New

DIP Motion, the Debtor seeks to double-down on its cash-burning go-forward business, a

business that by the Debtor's own budget and

proj ections.

7. The New DIP Motion is a fantastic deal for the insiders-Tower Bridge. They get

to make a risk-free loan, paid in cash plus interest as an administrative expense claim from

proceeds of collateral that Tower Bridge did not have prepetition.

8. Because Tower Bridge is owned and controlled by insiders of the Debtor, the

Debtor cannot rest on the deferential business judgment standard. Rather, it must show the

"entire fairness" of the transaction. The Debtor cannot come close to meeting this burden.

9. At best, the New DIP Loan should be treated as an equity contribution or a

subordinated fee-free unsecured loan that does not harm the Debtor's other stakeholders while

the Debtor and insiders continue to pursue a risky and likely losing business plan. The

Committee gave the Debtor and equity more than six months, since the start of this case, to sell

the FCC licenses and work to restructure a business plan for the balance of the assets. To date,

the Debtor has no viable go-forward business plan and the Debtor's business, in its current state,

continues to fail and burn cash.

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10. Absent the equity sponsor solely taking the risk of the new money investment as a

capital contribution or a loan subordinated to unsecured creditors, the New Financing Motions

should be denied.

GENERAL BACKGROUND

11. On December 2, 2016 (the "Petition Date"), the Debtor commenced its case by

filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code.

12. On December 16, 2016, the Office of the United States Trustee appointed [D.I.

60] the Committee pursuant to section 1102(a)(1) of the Bankruptcy Code. The Committee is

comprised of five members: (a) Cerillion Technologies Ltd.; (b) Comcast Cable

Communications Management, LLC; (c) MNM Wireless, LLC; (d) Crown Castle MU, LLC; and

(e) SBA Towers II LLC. On the same day, the Committee selected Saul Ewing LLP to serve as

its counsel, and Gavin/Solmonese LLC as its financial advisor.

BACKGROUND RELEVANT TO THIS OBJECTION

A. Prepetition Funding and Prepetition Operational Losses

13. Prepetition, the Debtor was a provider of telecommunications services to certain

rural counties in central Pennsylvania. See Declaration of Richard B. Worley in Support of First

Day Motions [D.I. 10] (the "Worley Declaration") IT 7. The Debtor's business consisted of retail

wireless services (i.e., providing mobile-phone and home-internet services to consumers) and

wholesale wireless services (i.e., providing wireless services to national wireless carriers, who in

turn provide services to consumers). $ee id. IT 8.

14. The Debtor's principal valuable assets—which later turned out to be far more

valuable than anyone could have envisioned—were its FCC licenses.

15. Prior to the Petition Date, the Debtor's allegedly secured funding came from two

sources: approximately $11 million from the U.S. Department of Agriculture's Rural Utilities

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Service (the "RUS") and approximately $9 million from Tower Bridge LLM Partners, LLC

("Tower Bridge"). 2 Neither loan was secured by the Debtor's FCC licenses, nor could they have

been under applicable law. See, e.g., In re Application of Walter 0 Cheskey, Trustee for

N.C.P.T. Cellular, Inc. & Triad Cellular L.P., 9 F.C.C. Rcd. 986 (1994) ("The Commission has a

policy against a licensee giving a security interest in a license. The reason for the policy is that

the Commission's statutory mandate requires it to approve the qualifications of every applicant

for a license. If a security interest holder were to foreclose on the collateral license, by operation

of law, the license could transfer hands without the prior approval of the Commission.")

(citations omitted).

16. Tower Bridge is a special purpose lending entity, owned and controlled by

insiders of the Debtor. See, e.g., New DIP Mot. 1! 17 (providing "some participants in [Tower

Bridge] are insiders of the Debtor"); In re Limitless Mobile, LLC, Case No. 16-12685 (KJC),

Transcript of Dec. 8, 2016 Hearing at 4 ("The lender group, members of which are insiders,

including Mr. Worley, has agreed to make this facility available to the debtor . . . ."); Worley

Decl. ¶ 57 ("Tower Bridge, in which I am a participant, has agreed to extend post-petition DIP

financing. .").

17. The Debtor's retail business failed. After no less than $45 million in equity

contributions and $20 million in purportedly secured loans in pursuing a retail business, see id.

22-23, the Debtor's business never turned a profit, see id. ¶ 17-23 (describing the six years in

which the Debtor was building out its network in preparation for its retail-side side network). In

the Debtor's own words, its retail business never got off the "runway to profitability." See id.

2 Pursuant to prior orders and stipulations approved by this Court, the Committee has standing to challenge the liens and claims of Tower Bridge and the RUS. The current deadline for the Committee to assert a

challenge is September 15, 2017,

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1124 ("Due to continued, increased costs and delays in network buildout, which have repeatedly

extended the required runway to profitability, the Debtor cannot sustain its current business

model absent significant infusions of additional capital, which it could not attract because of its

excessive debt burden.").

B. Postpetition Operational Losses Under the Original DIP Facility

18. After consuming $65 million in equity contributions and financing prepetition, the

Debtor filed this case to wind down its retail operations, sell most of its FCC licenses, and

emerge as a reorganized debtor with a wholesale-only business. See, e.g., id. ¶11 26 (providing

that the Debtor "believes it can effectuate an orderly winddown of a significant portion of its

retail-side business, sell some of its retail-side assets, make distributions to creditors, and emerge

with a viable wholesale operation"); 27 ("The Debtor intends to seek confirmation of a chapter

11 plan providing for the winddown of a significant portion of the retail business and

reorganization and continuation of the wholesale business as a going concern. . . .").

19. The Debtor's operational losses and the other costs of administering the estate

were funded through the Debtor's $5 million DIP facility from Tower Bridge and the Debtor's

use of alleged cash collateral of Tower Bridge and the RUS. This funding was through a facility

(the "Original DIP Facility") approved by orders of the Court, approving the Original DIP

Facility [D.I. 111] and approving the use of cash collateral [D.I. 110], in January 2017.

20. The Debtor made modest attempts to reduce its operational costs by rejecting

approximately 140 tower agreements [D.I. 174] and 5 retail store leases [D.I. 154], formerly used

in connection with its retail business. However, these rejections have not come close to right-

6 664806.7 06/21/2017


sizing the Debtor's operational cash flow: From the Petition Date to June 9, 2017, the Debtor lost

over $3.6 million from operations, 3 summarized below:

Monthly Operating Cashflow

Petition Date to June 17, 2017

December-16 $ (653,301)

January-17 $ (583,067)

February-17 $ (868,179)

March-17 $ (525,951)

April-17 $ (428,269)

May-17 $ (512,037)

June-17 (through June 9) $ (65,595)

Total: $ (3,636,399)

In other terms, during this bankruptcy case, the Debtor has lost almost $600,000 per month from

operating its business.

21. Even though the Debtor was suffering significant operational losses while in

chapter 11, the Committee agreed to the Original DIP Motion because it facilitated a sale process

and allowed the Debtor plenty of time to propose a quick and simple hybrid

liquidation/reorganization plan that would distribute the license-sale proceeds and reorganize the

Debtor's go-forward business.

22. The sale process was a success. After 18 hours and 57 rounds of bidding, the

auction on April 13, 2017 went from a $10.5 million opening bid amount to over $24 million,

with Cellco Partnership, d/b/a Verizon Wireless as the winning bidder. The sale was approved

by order of the Court on April 26, 2017 [D.I. 324], with the sale to close after approval by the

FCC.

Approximately 140 tower agreements were rejected effective January 30, 2017, The Debtor paid prorated tower costs for December 2016 that same month, and paid January 2017 tower costs in February.

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23. Meanwhile, the Debtor squandered the opportunity to propose a plan, wasting

valuable time and money as the estate burned through its funding under the Original DIP

Facility. Prior to the sale, the Debtor and its professionals were understandably focused on the

sale. However, in the two months since the sale was approved, the Debtor has not proposed a

plan or disclosure statement, and has not even shared a draft plan with the Committee, even after

multiple requests from the Committee. These past two months would have been the perfect time

for the Debtor to propose a plan, with the Debtor having nothing more to do with regard to the

sale (at this point, the Debtor is merely a bystander as Verizon's FCC application awaits

approval), and the Debtor having only a sliver of operations. Case in point: Since the sale order

was entered, the Debtor has not filed any substantive motion, merely filing fee applications [D.I.

327, 328, 334] and various certifications relating to its professionals fees, a monthly operating

report [D.I. 336], and a certification submitting a two-page order relating to return of backup bids

[D.I. 348]. During these two months of no substantive docket activity, the Debtor has burned

through over $1 million of the DIP funding through operational losses.

C. Operational Losses Under the New DIP Facility

24. Through the New DIP Motion, the Debtor seeks to double down on this cash-

burning go-forward business. According to the budget attached to the New DIP Motion, during

the four months covered by the funding sought through the New DIP Motion, the Debtor will use

over $1.3 million of the $2 million—almost two-thirds—to fund operational losses, summarized

below:

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Monthly Operating Cashflow

July 2017 through 0 cober 2017

July-17 $ (337,305)

August-17 $ (323,339)

September-17 $ (358,674)

October-17 $ (303,099)

Total: $ (1,322,417)

25. Notably, under the budget attached to the New DIP Motion, the Debtor projects

no new sources of revenue. The Debtor's stated goal is to expand its wholesale business. The

budget is—in effect—the Debtor's admission that it will not have made any progress toward that

goal in a year. According to the Debtor, during the year it will be before this Court (December 2,

2016, the Petition Date, through October 2017), it will not have found one new customer, and

will not have otherwise generated any new revenue sources.

26. According to documents provided to the Committee on a professional-eyes-only

basis, the Debtor's financial performance will not improve in the near future. In 2018, the

Debtor expects to in operations.

27. After 2018, . After years of

operational losses, (a) $65 million in prepetition funding and equity contributions, leading to an

insolvent business filing for chapter 11, (b) $5 million in total operational losses under the Old

DIP and the New DIP, and (c) , the Debtor expects I

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REDACTED

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28. The Committee doubts the Debtor's projections, and informally requested

documents supporting these financial projections on June 2, 2017, and served formal discovery

(requests for production of documents and a deposition notice) on the Debtor on June 14, 2017.

The Committee subsequently agreed to limit its discovery requests to documents relating to the

new wholesale contracts, new contract proposals, and draft proposals that would support II

As of the date of this Objection, the Debtor

has not produced any documents, other than the go-forward financial projections noted above.

D. Assets in Liquidation and the Current Claims Pool 4

29. The only assets of the Debtor that have been liquidated are the FCC license sale

proceeds (in the process of liquidation) and $90,700 in proceeds from a sale of unused

telecommunications equipment [D .1. 239].

Liquidated Assets

License Sale Proceeds (Net of MVP Success Fee) $ 23,720,200.00

Telecycling Sale $ 90,700.00

Total Liquidated Assets $ 23,810,900.00

30. Several secured claims have been filed or scheduled, and several administrative

and/or priority claims were filed by the proof of claim deadline. The most significant secured,

administrative, and/or priority claims are an $8.9 million prepetition allegedly secured claim of

Tower Bridge, a —$9.3 prepetition allegedly secured claim of the RUS, a $5 million

administrative claim relating to the Original DIP Facility, and a —$3.7 million asserted secured

4 This section is intended to illustrate for the Court's benefit the asserted claims and distributable assets. The Committee reserves all rights, and nothing contained in this section or otherwise in this Objection shall prejudice the Committee's rights including, without limitation, the right to object to any filed or scheduled claim, or the Cornmittee's right to take any position on the distribution of any sale proceeds or any other

assets.

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claim of the Pennsylvania Department of Revenue. The significant secured, administrative,

and/or priority claims asserted in this case are summarized below.

Unpaid Admin / Secured Claims

Tower Bridge Scheduled Prepetition Secured Claim $ 8,900,000.00

RUS Prepetition Loan (Claim #92) $ 9,294,025.00

Tower Bridge Original DIP $ 5,000,000.00

Penn. Dept. of Revenue (Claim #24) $ 3,712,748.66

Approx. Aggregate Misc. Priority/Admin PO C s $ 67,000.00

Dauphin County Tax Claim (Claim #87) $ 36,025.97

Total Asserted Admin/Secured $ 27,009,799.63

31. With $23,810,900 in liquidated assets, and $27,009,799.63 in secured,

administrative, and/or priority claims, any recovery to unsecured creditors is primarily riding on

(a) the Committee's challenge to the prepetition liens and claims of the RUS and Tower Bridge,

and (b) recovering and liquidating additional assets and claims in this case. For example, if the

RUS' and Tower Bridge's secured claims are challenged and relegated to general unsecured

claims, the Committee estimates that almost $15 million of the sale proceeds would be freed

from the erstwhile secured claims of the RUS and Tower Bridge, enough to quickly and

efficiently wind down this estate, confirm a plan, and fund a significant distribution to general

unsecured creditors.

32. However, the Debtor's lack of urgency in this case (wasting two months post-sale

without filing, or even proposing, a plan) and the Debtor's request for an additional $2 million in

DIP funding from Tower Bridge (putting at least $1.3 million in unpaid administrative claims

ahead of unsecured creditors), places unsecured creditors' recovery in jeopardy. Potential

unsecured creditor recoveries erode with each day of delay in confirming a plan. If the New DIP

Motion is approved, the loss will be more dramatic, with at least $1.3 million in potential

12 664806.7 06/21/2017


unsecured creditor recoveries going to pay for the Debtor's operational losses, paid in 100-cent

dollars to Tower Bridge as an administrative claims.

OBJECTION

A. The Debtor Cannot Meet Its Burden to Show the "Entire Fairness" of the New DIP

Motion.

33. No rational, unaffiliated lender would agree to lend $2 million to a business that is

expected to quickly bleed two-thirds of that funding in operational losses, has not secured any

new customers after a year of solely focusing on finding new customers, and is expected to lose

an additional $4.7 million the following year. But Tower Bridge is not an unaffiliated lender. It

is owned and controlled by insiders of the Debtor.

34. This is a fantastic deal, from the perspective of the Debtor's insiders-Tower

Bridge. At worst, Tower Bridge will be paid in 100-cent dollars plus 3.5% in interest from the

proceeds of the FCC licenses, assets on which Tower Bridge could not be granted security

interests under applicable law. The $1.3 million in operational loses come out of the unsecured

creditors' hide, not Tower Bridge's. Through the New DIP Facility, Tower Bridge gains access

to $1.3 million in proceeds from assets that were not available as its collateral prepetition. This

is a "playing with house money" bet, from Tower Bridge's perspective.

35. Normally, a chapter 11 debtor's business decisions are subject to the deferential

business judgment standard. See, e.g., In re Los Angeles Dodgers LLC, 457 B.R. 308, 313

(Bankr. D. Del. 2011).

The business judgment rule is a standard of judicial review designed to protect the wide latitude conferred on a board of directors in handling the affairs of the corporate enterprise. The rule refers to the judicial policy of deferring to the business judgment of corporate directors in the exercise of their broad discretion in making corporate decisions. Under the rule, courts will not second-guess a business decision, so long as corporate management exercised a minimum level of care in arriving at the decision. The business judgment rule under Delaware law and the law of numerous

13 664806.7 06/21/2017


other jurisdictions establishes a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests

of the company.

Id. (deciding the standard of judicial review for a Delaware limited liability company in chapter

11) (citing Aronson v. Lewis, 473 A.2d 805, 811-12 (Del. Supr. 1984), Pogostin v. Rice, 480

A.2d 619, 624 (Del. Supr. 1984)). Indeed, the Debtor bangs the "business judgement" drum hard

in the New DIP Motion. See New DIP Mot. ¶ 20 ("In the sound exercise of its business

judgment and fiduciary duties, the Debtor has determined to proceed under the Extended DIP

Facility offered by the DIP Lender."); 11 26 ("Bankruptcy courts grant a debtor considerable

deference in acting in accordance with its business judgment"); 11 27 ("[T]he Amended DIP

Credit Agreement reflects the exercise of [the Debtor's] sound business judgment.").

36. However, a debtor cannot rely on the deferential business judgment standard if a

party can show one of four elements: "(1) the directors did not in fact make a decision, (2) the

directors' decision was uninformed; (3) the directors were not disinterested or independent; or

(4) the directors were grossly negligent." Id. If the opposing party shows one of these elements,

a debtor must show the "entire fairness" of the transaction—"fair dealing and fair price." Los

Angeles Dodgers LLC, 457 B.R. at 314.

37. Here, the Debtor is clearly not "disinterested" or "independent" from Tower

Bridge; Tower Bridge is owned and controlled by insiders of the Debtor. See, e.g., DIP

Extension Mot. ¶ 17 (providing "some participants in [Tower Bridge] are insiders of the

Debtor"); In re Limitless Mobile, LLC, Case No. 16-12685 (KJC), Transcript of Dec. 8, 2016

Hearing at 4 ("The lender group, members of which are insiders, including Mr. Worley, has

agreed to make this facility available to the debtor . . . ."); Worley Decl. ¶ 57 ("Tower Bridge, in

which I am a participant, has agreed to extend post-petition DIP financing . . . ."). As an insider

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transaction, the proposed DIP loan is subject to "rigorous scrutiny" by this Court, and the Debtor

must show the "entire fairness" of the proposed DIP funding. See Pepper v. Litton, 308 U.S.

295, 306 (1939) (finding that a dominant or controlling shareholder is a fiduciary, whose

"dealings with the corporation are subjected to rigorous scrutiny and where any of their contracts

or engagements with the corporation is challenged the burden is on the.. .stockholder not only to

prove the good faith of the transaction but also to show its inherent fairness from the viewpoint

of the corporation and those interested therein."); see also In re Winstar Cmmcn's, Inc., 554 F.3d

382, 412 (3d Cir. 2009) ("A claim arising from the dealings between a debtor and an insider is to

be rigorously scrutinized by the courts.") (citation and internal quotation marks omitted); WHBA

Real Estate Ltd. P'ship v. Lafayette Hotel P'ship (In re Lafayette Hotel P'ship), 227 B.R. 445,

454 (S.D.N.Y. 1998) ("[S]ince there is an incentive and opportunity to take advantage . . .

insiders' loans in a bankruptcy must be subject to rigorous scrutiny."), aff'd, 198 F.3d 234 (2d

Cir. 1999); Citicorp Venture Capital, Ltd. v. Comm. of Creditors Holdings Unsecured Claims (In

re Papercraft Corp.), 211 B.R. 813, 823 (W.D. Pa. 1997) ("[I]nsider transactions are subjected to

rigorous scrutiny and when challenged, the burden is on the insider not only to prove the good

faith of a transaction but also to show the inherent fairness from the viewpoint of the corporation

and those with interests therein."), aff'd, 160 F.3d 982 (3d Cir. 1998),

38. The Debtor cannot show fair dealing / fair price here. As good a deal as this is for

the insiders-Tower Bridge (risk-free loan plus interest, paid from proceeds of collateral that they

did not have prepetition), it is bad for unsecured creditors. The unsecured creditors suddenly

find themselves worse off by $1.3 million in new unpaid administrative claims, as they are being

forced to pay the cost of the Debtor's decision to continue this cash-draining business and the

Debtor's delay in confirming a plan. If the insiders-Tower Bridge believe in this go-forward

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business and want to continue it, they should pay for it, not force the unsecured creditors to pay

for it.

39. The New DIP Motion benefits the insiders-Tower Bridge to the detriment of

unsecured creditors. Because the Debtor fails to meet its burden to show the "entire fairness" of

the proposed financing, the New DIP Motion should be denied. See In re Los Angeles Dodgers

LLC, 457 B.R. at 314 (holding that proposed DIP loan benefited insider, and denying DIP

motion because debtor failed to show the entire fairness of the transaction). Even under the more

deferential business judgment standard, the New DIP Motion does not pass muster, where the

Debtor here proposes to take a real, distributable asset of the estate (the license proceeds) and

speculate on a go-forward business with significant operating losses and no viable business plan.

This would be one of those "rare cases [where] a transaction [is] so egregious on its face" that

the Debtor's conduct cannot be the product of a valid exercise of business judgment. Kaufman

v. Belmont, 479 A.2d 282, 288 (Del. Ch. 1984) ("In rare cases a transaction may be so egregious

on its face that board approval cannot meet the test of business judgment, and a substantial

likelihood of director liability therefore exists.") (citation and internal quotation marks omitted).

B. The DIP Facility Is a De Facto Equity Investment By Tower Bridge, and Should Be

Treated as Such.

40. The doctrine of equitable subordination allows a court to subordinate a claim to

fall behind claims of legitimate creditors because of some inequitable conduct. See In re

SubMicron Sys. Corp., 432 F.3d 448, 454 (3d Cir. 2006). The related doctrine of

recharacterization allows a court to take what is nominally a "debt," determine that the asserted

"debt" is in substance an investment, and recharacterize the claim as such. Id. at 456 ("[T]he

characterization as debt or equity is a court's attempt to discern whether the parties called an

instrument one thing when in fact they intended it as something else.").

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41. If this Court were examining the $2 million New DIP Facility as a prepetition

transaction, instead of the Debtor's current request for postpetition DIP funding, the Committee

submits that it would be recharacterized as an equity investment and/or subordinated to the

claims of legitimate creditors. For example, the Debtor's go-forward wholesale business (i.e.,

the remaining business after sale of the FCC licenses) is clearly undercapitalized, lacking any

significant assets, further funding, or projected revenue sufficient to weather the projected $1.3

million operational losses expected for the remainder of 2017, and the projected

in 2018. This fact would support recharacterization. $ee id. at 457 ("When a

corporation is undercapitalized, a court is more skeptical of purported loans made to it because

they may in reality be infusions of capital.") (citations and internal quotation marks omitted).

By way of another example, a $2 million loan allowing an insider-lender to grab proceeds of

collateral that it did not previously enjoy from the hands of unsecured creditors would be

"misconduct . . . result[ing] in injury to the creditors or conferr[ing] an unfair advantage on the

claimant," supporting equitable subordination. See Citicorp Venture Capital, Ltd. v. Comm. of

Creditors Holding Unsecured Claims, 160 F.3d 982, 986-87 (3d Cir. 1998). Tower Bridge's

insider status is another factor that would support a finding of equitable subordination and

recharacterization. See In re SubMicron Sys. Corp., 432 F.3d at 455 n.8 (listing various factors

for recharacterization, including the creditor's status as an insider of the debtor); In re 80 Nassau

Assocs., 169 B.R. 832, 838 (Bankr. S.D.N.Y. 1994) ("Traditionally, equitable subordination did

not apply to ordinary creditors. [I]t has been limited to cases involving (1) fraud, illegality or

breach of fiduciary duty, (2) undercapitalization, and (3) control or use of the debtor as an alter

ego for the benefit of the claimant.").

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42. If this Court would have a basis to subordinate or recharacterize the $2 million in

additional funding if it were a prepetition transaction (which the Committee submits it would),

then the Court should not bless this $2 million as a true "loan" now by granting the New DIP

Motion. Instead, if Tower Bridge chooses to contribute $2 million to the go-forward business, it

should be treated as an equity investment or subordinated to the claims of general unsecured

creditors. The New DIP Motion, and, specifically, its request for an allowed $2 million

administrative claim for the New DIP Loan, should be denied.

C. If the Court Approves Any Financing, It Should Not Be Accorded Administrative

Expense Status and the Court Should Make No Good Faith Finding.

43. The Debtor proposes that the $2 million New DIP Facility, like the $5 million

Original DIP Facility, be treated as an administrative expense under 503(b)(1) of the Bankruptcy

Code. See Proposed Order Ill 9. Administrative expense status for postpetition unsecured

financing is contemplated under section 364(b) of the Bankruptcy Code, but only if supported by

a finding that the financing is "an actual, necessary cost" of preserving the estate. See In re

Villalobos, No. BAP NV-11-1061-HKWJU, 2011 WI, 4485793, at *7 (B.A.P. 9th Cir. Aug. 19,

2011) ("Debt incurred under § 364(b) is allowable as an administrative expense under

§ 503(b)(1) only if it is an actual, necessary cost or expense of preserving the estate. An order

granted pursuant to § 364(b) must be supported by such a finding.") (internal quotation marks

omitted); In re Club Dev. & Mgmt. Corp., 27 B.R. 610, 611-12 (B.A.P. 9th Cir. 1982) (same).

The New DIP Facility merely funds the Debtor's remaining business, which, at best, will not be

profitable for several years, and, in fact, may never be viable. Keeping a cash-draining business

alive for the benefit of the insiders-lender cannot be an "an actual, necessary cost of preserving

the estate." The only real, tangible aspects of the "estate" here are the dollars liquidated through

18 664806.7 06/21/2017


the Debtor's asset sales. As such, the New DIP Facility should not be treated as an

administrative expense.

44. The Debtor seeks a "good faith" finding under section 364(e) of the Bankruptcy

Code. It is fundamental that financing should not be authorized unless it is extended in good

faith. See In re EDC Holding Co., 676 F.2d 945 (7th Cir. 1982); New York Life Ins. Co. v.

Revco D.S. Inc. (In re Revco D.S., Inc), 901 F. 2d 1359 (6th Cir. 1990) (express finding of good

faith is required). The party seeking to establish good faith bears the burden of proof. In re

Revco D.S., Inc., 901 F.2d 1359, 1366 (6th Cir. 1990) (good faith under section 364(e) should

not be presumed); In re Colad Group, Inc., 324 B.R. 208, 225 (Bankr. W.D.N.Y. 2005) (finding

that debtor failed to carry affirmative burden to establish good faith of the proposed financing

transaction). The Debtor fails to meet its burden for a good faith finding for the reasons stated

above.

[The remainder of this page is intentionally left blank.]

19 664806.7 06/21/2017


WHEREFORE, for the reasons set forth above, the Committee objects to the relief

sought in the Financing Motions, and respectfully requests that this Court: (i)(a) deny the

Financing Motions as proposed or (b) limit and condition the relief sought by the Debtor in the

Financing Motions to the extent provided for herein; and (ii) grant such other and further relief as

the Court may deem just and proper.

Dated: June 21,2017 SAUL EWING LLP 7

By: Lucia Bl\lirley (DE Bar No. 4892) 1201 N. Market Street, Suite 2300 P.O. Box 1266 Wilmington, DE 19899 Telephone: (302) 421-6898 Fax: (302) 421-5864 [email protected]

-and-

Sharon L. Levine Melissa A. Martinez One Riverfront Plaza 1037 Raymond Boulevard, Suite 1520 Newark, NJ 07102-5426 Telephone: (973) 286-6713 Fax: (973) 286-6821 [email protected] [email protected]

Counsel to the Official Committee of Unsecured

Creditors of Limitless Mobile, LLC

20 664806.7 06/21/2017


IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re:

LIMITLESS MOBILE, LLC,

Debtor.

Chapter 11

Case No. 16-12685 (KJC)

CERTIFICATE OF SERVICE

I, Lucian B. Murley, hereby certify that on June 21, 2017, I caused a copy of The

Official Committee of Unsecured Creditors' Objection Both to (A) Debtor's Debtor-in-

Possession Financing Motion and (B) Debtor's Motion for Use of Cash Collateral

[REDACTED] to be served electronically with the Court and served through the Court's

CM/ECF system upon all registered electronic filers appearing in this case who consented to

electronic service and via First Class Mail on the parties on the attached service list.

SAUL EWING LLP

By: /

Lucian B. Murley (No. 4892)

1201 N. Market Street, Suite 2300

P.O. Box 1266

Wilmington, DE 19899

(302) 421-6898

Dated: June 21, 2017

664806,7 0612112017

Case 16-12685-KJC Doc 370-1 Filed 06/21/17 Page 1 of 2

LIMITLESS MOBILE, LLC Service List

Martin J. Weis, Esquire

Jesse N. Silverman, Esquire

Dilworth Paxson LLP One Customs House — Suite 500

704 King Street

P.O. Box 1031

Wilmington, DE 19899-1031

Hannah Mufson McCollum, Esquire

Office of the United States Trustee

J. Caleb Boggs Federal Building 844 King Street, Suite 2207


Ronald S. Gellert, Esquire

Evan W. Rassman, Esquire

Gellert Scali Busenkell & Brown, LLC

1201 North Orange Street, Suite 300


Kevin J. Mangan, Esquire

Morgan L. Patterson, Esquire Womble Carlyle Sandridge & Rice, LLP

222 Delaware Avenue, Suite 1501


Regina Stang° Kelbon, Esquire

Blank Rome LLP 1201 N. Market Street, Suite 800


State of Delaware

Office of the Attorney General

Attn: Jennifer R. Noel, Esquire

Carvel State Office Building 820 N. French Street, 6th Floor


Ellen W. Slights, Esquire United States Attorney's Office

District of Delaware 1007 N. Orange Street, Suite 700

P.O. Box 2046

Wilmington, DE 19899-2046

Lawrence G. McMichael, Esquire

Catherine G. Pappas, Esquire

Dilworth Paxson LLP

1500 Market Street, Suite 3500 E

Philadelphia, PA 19102

Amir Rajwany, COO

Limitless Mobile

2574 Interstate Drive Harrisburg, PA 17110

Julian D. Corelli, Esquire

William R. Wagner, Esquire

Pepper Hamilton LLP

3000 Two Logan Square Eighteenth and Arch Streets

Philadelphia, PA 19103-2700

George M. Lutz, Esquire Hartman, Valerian°, Magovern & Lutz

1100 Berkshire Blvd., Suite 301

Wyomissing, PA 19610

Joseph H. Lemkin, Esquire

Timothy P. Duggan, Esquire

Stark & Stark, P.C.

P.O. Box 5315

Princeton, NJ 08543

Gregory F. Vizza, Esquire

Blank Rome LLP

One Logan Square 130 North 18th Street

Philadelphia, PA 19103-6998

664806,7 06/21/2017

Case 16-12685-KJC Doc 370-1 Filed 06/21/17 Page 2 of 2

THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS' …omnimgt.com/cmsvol2/pub_47156/632829_370.pdf · 2017. 6. 21. · 5. The Original DIP Facility, while funding this losing business

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