Sale Procedures for 363 Sale of Compute North Partially Approved With Timing of Sale to Be Addressed at Supplemental Hearing

October 17, 2022Herrick Restructuring Review

The Herrick Restructuring Review provides insights and information related to restructuring and finance litigation. The Herrick team regularly represents official and ad hoc creditor committees, hedge funds, distressed debt investors, bondholders, and other parties in interest, and often serve as conflicts or special counsel for large-scale complex litigation matters.

In re Compute North Holdings, Inc., No. 22-90273 (Bankr. S.D. Tex.)

  • The bankruptcy court approved a portion of proposed bid procedures for the sale of Compute North.
  • Debtors sought an expedited sale timeline, with bids due by October 27, 2022, but the Compute North UCC objected. The parties agreed the sale timeline would be addressed at an October 21 hearing.
  • Compute North contractual counterparties objected, seeking favorable carveouts and clarifications in the approved sale procedure, which were also pushed to the October 21 hearing.
  • Other provisions of the sale procedure were approved including bid protections for a stalking horse and contract assumption notice procedures.

The Proposed Sale: Compute North Holdings, Inc. is seeking approval of bid procedures for the sale of its assets, to conclude on November 8, 2022. Under the proposal, objections to the sale and/or the assumption notice are due on October 25, 2022; bids will be received on October 27, 2022; with an auction to commence on November 1, 2022, which would be approved at a sale hearing on November 8, 2022. Despite the compressed timeframe, Debtors say it would allow all parties in interest sufficient time to formulate bids. Compute North also sought approval to use one or more stalking horse bidders for the sale, to negotiate a break-up fee of up to 3% with the stalking horse, and to allow secured creditors to make credit bids. Jefferies LLC, as investment banker for the Debtors, is assisting with the marketing and sale process.

Any potential bidder with bona fide interest in purchasing Compute North who is willing to enter into a confidentiality agreement will be considered, but bids must include a 10% good faith cash deposit.

The Objections: A five-member committee of unsecured creditors (the “UCC”) was appointed on October 6, and a meeting of the UCC was held on October 7. The UCC objected to the sale procedures on the ground that the expedited sale ran the risk of chilling bids. Thus, the UCC sought an extended sale timeline to provide interested parties with a full and fair opportunity to participate and submit bids.

Compute North’s other creditors filing objections were less concerned with the expedited schedule and more concerned about preserving individual rights under the sale process.

Generate Lending LLC supported the expedited sale but sought specific protections for itself including advance notice and opportunity to object to certain actions taken by Debtors as part of the sale process. Generate Lending also sought automatic status as a qualified bidder.

Other Compute North creditors filed limited objections seeking specific reservations of a specific party’s contractual rights and other carveouts. Compute North’s largest unsecured creditor sought a one-off modification of the proposed confidentiality agreement. A cryptocurrency minder whose hardware is stored at a Compute North facility sought an express statement that the hardware was not owned by Compute North and could not be sold. And another Compute North secured lender, and party to a joint venture with a Compute North entity, TZ Capital Holdings, LLC, sought similar protections as Generate Lending (advance notice, automatic qualified bidder status), as well as a reservation that its rights under the joint venture agreement could not be modified by the terms of any bidding procedure order.

The Order: The Court approved uncontested aspects of the sale procedure but pushed the final determination of the sale procedures to a hearing on October 21, 2022, to allow the UCC to get up to speed on the cases. The proposed bidding procedures, the meat of the issue, will not be decided until then.

Maximum Recoveries: Despite a number of objections by Compute North creditors, everyone except the UCC supported an expedited sale process as in the best interest of the estate. Although the delayed hearing will make Compute North’s proposed schedule more difficult, the debtors are not complaining. Creditors interested in bidding should review the proposed order in full if they are considering participation.

For more information on this alert or other restructuring & finance litigation matters please contact:

Stephen B. Selbst at +1 212 592 1405 or [email protected]

© 2022 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.