Kabbage - Cash Collateral Motion As Filed
- Date
- 2022-10-24
Summary
Doc 143-3, filed October 24, 2022 in In re Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951 (CTG), a jointly administered Chapter 11 case in the United States Bankruptcy Court for the District of Delaware, is Exhibit B, the declaration of a managing director of AlixPartners, LLP, the debtors' financial advisor. It supports the debtors' motion for an order authorizing limited use of cash collateral, granting adequate protection to the secured lender, modifying the automatic stay and granting related relief. The declarant states the debtors borrowed approximately $1.6 billion in Advances and owed the Reserve Bank approximately $536,450,940 in principal as of the Petition Date. It describes the adequate protection package, a Carve-Out for professional fees and a 13-week Cash Collateral Budget, and states the debtors had approximately $11 million of unrestricted cash on hand.
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Case 22-10951-CTG Doc 143-3 Filed 10/24/22 Page 1 of 7
Exhibit B
Rieger-Paganis Declaration
RLF1 28146913v.1
Case 22-10951-CTG Doc 143-3 Filed 10/24/22 Page 2 of 7
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
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In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 (CTG)
:
:
1
Debtors. : (Jointly Administered)
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DECLARATION OF DEBORAH RIEGER-PAGANIS
IN SUPPORT OF MOTION OF DEBTORS FOR ENTRY OF ORDER
(I) AUTHORIZING DEBTORS’ LIMITED USE OF CASH COLLATERAL,
(II) GRANTING ADEQUATE PROTECTION TO SECURED LENDER,
(III) MODIFYING AUTOMATIC STAY, AND (IV) GRANTING RELATED RELIEF
I, Deborah Rieger-Paganis, pursuant to section 1746 of title 28 of the United States
Code, hereby declare that the following is true to the best of my knowledge, information, and
belief:
1. I am a Managing Director at AlixPartners, LLP (“AlixPartners”), an
internationally recognized restructuring and turnaround firm with substantial experience in
providing financial advisory services and has an excellent reputation for services it has rendered
in large and complex chapter 11 cases on behalf of debtors and creditors throughout the United
States. AlixPartners has been retained as Financial Advisor to Kabbage, Inc. d/b/a KServicing and
its debtor affiliates, as debtors and debtors in possession (collectively, the “Debtors” and, together
with their non-Debtor affiliates, the “Company”) in the above-captioned chapter 11 cases
(the “Chapter 11 Cases”).
1
The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license;
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309.
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2. I submit this declaration in support of the Motion of Debtors for Entry of
Order (I) Authorizing Debtors’ Limited Use of Cash Collateral, (II) Granting Adequate Protection
to Secured Lender, (III) Modifying Automatic Stay, and (IV) Granting Related Relief (the
“Motion”). 2
3. I am familiar with and was actively involved in the negotiation of the terms
of the Debtors’ use of Cash Collateral and the adequate protection proposed to be provided by the
Debtors to the Reserve Bank. The proposed use of Cash Collateral is the product of arms’-length
and good faith negotiations between the Debtors and the Reserve Bank. During the negotiations,
the Reserve Bank indicated that their consent would be contingent on the terms of the Proposed
Order. I also worked with the Debtors and their advisors to formulate the Cash Collateral Budget,
which is attached to the Proposed Order and represents a reasonable forecast of available cash and
expenses to be incurred during the applicable period.
Debtors’ Indebtedness
4. The total amount of the Advances borrowed by the Debtors pursuant to the
Program Agreements is approximately $1.6 billion. As of the Petition Date, the Debtors were
indebted to the Reserve Bank (i) in the aggregate principal amount of approximately $536,450,940
in respect of outstanding Advances under the Program Agreement (each as defined below) plus
(ii) accrued and unpaid interest, costs, and expenses including, without limitation, attorney’s fees,
agent’s fees, other professional fees and disbursements and other obligations owing under the
Program Agreements (collectively, the “Indebtedness”).
2
Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Motion.
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Debtors’ Proposed Use of Cash Collateral
5. For purposes of the Cash Collateral Budget, the Cash Collateral available
to the Debtors during the Budget Period constitutes Agreed Cash Amounts held by the Debtors in
the Synovus Servicing Account and Primis Account as of the Petition Date and actually and
subsequently paid to the Debtors after the Petition Date; provided that absent further prior written
consent from the Reserve Bank, the aggregate total Cash Collateral available during the Budget
Period is subject to the Cash Collateral Cap. I understand that with respect to Pledged PPPLF
Loan payments received directly by the Reserve Bank from the SBA, the Reserve Bank will remit
any funds that constitute Agreed Cash Amounts up to the Cash Collateral Cap (less any Agreed
Cash Amounts received directly and retained by the Debtors, if any) consistent with the terms of
the Cash Collateral Budget and the Proposed Order.
6. As adequate protection to the Reserve Bank for the Debtors’ use of Cash
Collateral, the Reserve Bank will receive, to the extent of any diminution in value, valid perfected
first-priority replacement liens on all of the Debtors’ unencumbered property and assets owned or
held as of the Petition Date and all property acquired or obtained after the Petition Date, including
without limitation, proceeds of claims and causes of actions arising under chapter 5 of the
Bankruptcy Code, and junior liens on all of the Debtors’ property and assets encumbered as of the
Petition Date, as well as, among other things, a commitment by the Debtors to continue to service
the PPP Loans constituting PPPLF Collateral; work cooperatively with the Reserve Bank to timely
implement direct payments from the SBA to the Reserve Bank on all PPP Loans constituting
PPPLF Collateral, including delivering instructions to the SBA to direct all payments on KS PPP
Loans to the Reserve Bank; provide real-time weekly reporting to the Reserve Bank on all amounts
in the Synovus Servicing Account, including whether any payments in connection with the KS
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PPP Loans have been deposited in, or transferred from the Synovus Servicing Account; and to pay
the reasonable and documented fees of the Reserve Bank’s professionals not to exceed the amounts
set forth in the Cash Collateral Budget. In addition, the Debtors agreed to certain stipulation
regarding the amount, validity, enforceability, perfection, and priority of the claims and liens of
the Reserve Bank.
7. The Debtors are permitted to use Cash Collateral in compliance with the
Cash Collateral Budget subject to Permitted Variances. I worked with the Debtors and their
advisors to formulate the Cash Collateral Budget, which was shared with and agreed upon by the
Reserve Bank and its advisors, and represents a reasonable forecast of available cash and expenses
to be incurred during the applicable period. The Debtors’ right to use the Cash Collateral is also
subject to certain Termination Events (as defined in the Proposed Order).
8. In addition, the Debtors negotiated a Carve-Out for professional fees during
these Chapter 11 Cases to be used to pay the fees of the Clerk of the Court, the United States
Trustee, professionals retained by any statutory committee of unsecured creditors, and
professionals retained by the Debtors in the Chapter 11 Cases. Based on my experience, the terms
of the Carve-Out are customary and do not deviate from widely accepted standard terms.
The Debtors’ Need for Cash Collateral
9. Beginning in September 2022, the Debtors and the Reserve Bank engaged
in extensive arms’-length negotiations regarding the terms and conditions of the Debtors’
consensual use of Cash Collateral. In connection with negotiations of the Cash Collateral Order,
the Debtors have formulated an initial 13-week forecast, set forth in the Cash Collateral Budget,
which includes all reasonable and foreseeable expenses to be incurred by the Debtors for the
applicable period. As of the Petition Date, the Debtors had approximately $11 million of
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unrestricted cash on hand. Given the Debtors are not generating any material cash throughout the
Chapter 11 Cases, the Cash Collateral will enable the Debtors to continue to operate their business
in the ordinary course of business, including to service the PPP Loans that are pledged as PPPLF
Collateral throughout the Chapter 11 Cases and pay any related fees and expenses associated with
the administration of the Chapter 11 Cases.
10. Based on the Company’s Cash Collateral Budget, access to Cash Collateral,
as well as existing cash on hand, is necessary to continue servicing and maintaining operations in
the ordinary course and ensure the viability of the Company without significant deterioration to
the detriment of all stakeholders. Absent the use of Cash Collateral, the Debtors will be forced to
completely halt their business operations by abruptly transferring their servicing obligations to
third parties, resulting in disruption to loan processing; the relief requested in the Cash Collateral
Motion undoubtedly preserves the value of the Debtors’ estates. I believe that the proposed use of
Cash Collateral pursuant to the terms of the Proposed Order is therefore in the best interest of the
Debtors, their estates, and stakeholders.
11. It is my belief, based on my general experience in the restructuring industry
and my experience with the Debtors’ business, that the relief sought therein is necessary and
appropriate to provide the Debtors with access to Cash Collateral, that along with cash on hand
throughout the Chapter 11 Cases (including but not limited to future proceeds on account of the
Debtors’ Legacy Loans3 and the KS PPP Loans), will enable them to continue to service their loan
portfolio, and maintain operations in the ordinary course.
3
As defined in the Declaration of Deborah Rieger-Paganis In Support of Debtors’ Chapter 11 Petitions and First
Day Relief [Docket No. 13].
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I declare under penalty of perjury that I have reviewed the Debtors’ requests included in
the Cash Collateral Motion, including the terms of the Cash Collateral Budget, and based on my
experience, they are fair and reasonable and reflect the Debtors’ exercise of prudent business
judgment.
Date: October 24, 2022
New York, New York
/s/ Deborah Rieger-Paganis
Deborah Rieger-Paganis
Managing Director
AlixPartners, LLP
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