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Lumileds Cleared to Borrow $175 Million Despite ‘Rich’ Fee

·2 min read

(Bloomberg) -- Lumileds Holding BV won bankruptcy court approval to borrow $175 million of fresh cash, overcoming skepticism from a federal judge who said a fee tied to the loan seemed too high.

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US Bankruptcy Judge Lisa Beckerman in a hearing Tuesday said she would sign off on the financing package, clearing the way for lighting components company to replenish its depleted coffers. Lumileds had just $6.6 million of cash on hand as of Monday, according to court papers.

Existing lenders who opt to advance fresh credit to the bankrupt company will share a fee totaling nearly 37% of its equity once Lumileds exits Chapter 11 protection. Beckerman initially bristled at the size of the so-called participation fee, calling it “rich” and pressing the company’s advisers on why it is necessary.

The fee is large because the structure of the loan, which may grow to as much as $275 million, requires lenders to take on even more risk than in most bankruptcy financing packages, an attorney for a group of existing lenders said in the hearing. The loan will not be repaid once the company exits bankruptcy, but instead will turn into a so-called exit facility.

“There is a massive amount of risk that comes with that equity,” Scott Greenberg of Gibson Dunn & Crutcher, the lawyer for the group of first-lien lenders, said. “We all hope it will be worth a lot of money someday,” but returns on the stock are likely several years away, he said.

Firms slated to participate in the financing include Anchorage Capital Group, Nut Tree Capital Management and Nuveen Asset Management, according to court papers.

Lumileds, which supplies energy-efficient LED lighting for automotive displays, succumbed to its $1.7 billion debt load and filed for Chapter 11 bankruptcy this week. Its proposed restructuring plan would slash that debt pile by $1.3 billion and force Apollo Global Management LLC to relinquish control of the company.

The case is Lumileds Holding BV, 22-11155, U.S. Bankruptcy Court for the Southern District of New York.

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