Kabbage - Amended Disclosure Statement As Filed
- Date
- 2022-12-30
Summary
Exhibit C, the Liquidation Analysis, filed December 30, 2022 as Doc 396-3 in Case 22-10951-CTG, the chapter 11 cases of Kabbage, Inc. d/b/a KServicing and affiliated debtors. The Debtors present a hypothetical chapter 7 liquidation, assuming conversion on or about March 31, 2023, to evaluate the plan under the best interests test of 11 U.S.C. § 1129(a)(7). The notes set out assumptions and exclusions, including chapter-7-specific claims, tax consequences and causes of action relating to the American Express Transaction, which are assigned zero value. High and low recovery tables for a PPP transfer scenario compare chapter 7 and chapter 11 outcomes, showing chapter 7 net liquidation proceeds of $ 393,110 (in thousands) and a 38.9% total recovery. The exhibit closes with notes on recoveries by claim class.
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Case 22-10951-CTG Doc 396-3 Filed 12/30/22 Page 1 of 16
EXHIBIT C
Liquidation Analysis
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Liquidation Analysis
Best Interests Test
The Debtors, together with their financial advisor and legal counsel, have prepared a hypothetical
liquidation analysis (the “Liquidation Analysis”) in connection with the Plan and Disclosure Statement for
purposes of evaluating whether the Plan meets the requirements under section 1129(a)(7) of the Bankruptcy
Code, frequently referred to as the “best interests” of creditors test. Section 1129(a)(7) of the Bankruptcy
Code provides that the Bankruptcy Court may not confirm a chapter 11 plan unless each holder of a claim
or interest in an impaired class either (i) accepts the plan, or (ii) receives or retains under the plan property
of a value, as of the effective date, that is not less than the value such holder would receive or retain if the
debtor were liquidated under chapter 7 of the Bankruptcy Code on the effective date. See 11 U.S.C. §
1129(a)(7).
The Liquidation Analysis is based upon certain assumptions discussed in the Disclosure Statement and in
the accompanying Liquidation Analysis notes (the “Notes”). Capitalized terms used but not otherwise
defined in the Notes shall have the meanings ascribed to them in the Plan or the Disclosure Statement, as
applicable.
The Debtors believe that their creditors will receive at least as much, and likely more, under the Plan than
they would receive in a chapter 7 liquidation.
Basis of Presentation
The Liquidation Analysis represents an estimated range of recoveries for all creditors of the Debtors based
upon a hypothetical liquidation of the Debtors’ assets, assuming that the Debtors’ chapter 11 cases are
converted to cases under chapter 7 of the Bankruptcy Code on the Conversion Date (as defined below) and
a chapter 7 trustee (the “Trustee”) is appointed to oversee the liquidation of the Debtors’ assets. During
such liquidation, all of the Debtors’ remaining assets would be monetized or otherwise distributed, and the
cash proceeds, net of liquidation-related costs, would be distributed to holders of Allowed Claims in
accordance with applicable law. The Liquidation Analysis assumes that, in a chapter 7, operations of the
Debtors will cease and the Trustee will sell or transfer substantially all of the Debtors’ remaining assets
through a liquidation process beginning on or about March 31, 2023 (the “Conversion Date”) and will
subsequently complete the administrative closure of the cases.
The determination of the costs of, and proceeds from, the hypothetical liquidation of assets is a highly
uncertain process involving the extensive use of estimates and assumptions that, although considered
reasonable by the Debtors’ management team and their advisors based upon their business judgment, are
inherently subject to significant business, economic, and competitive uncertainties and contingencies
beyond the control of the Debtors and their management team. The Liquidation Analysis is also based on
the Debtors’ and their advisors’ best judgment of how numerous decisions in the liquidation process would
be resolved. Inevitably, some assumptions in the Liquidation Analysis would not materialize in an actual
chapter 7 liquidation, and unanticipated events and circumstances could materially affect the ultimate
results in an actual chapter 7 liquidation. In addition, the Debtors’ management and their advisors cannot
judge with any degree of certainty the recovery that may result in a chapter 7 liquidation. The Liquidation
Analysis was prepared for the sole purpose of generating a reasonable good faith estimate of the proceeds
that would be generated if the Debtors were liquidated in accordance with chapter 7 of the Bankruptcy
Code. The Liquidation Analysis is not intended, and should not be used, for any other purpose.
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Further, the actual amounts of Claims against the Debtors’ estates could vary materially from the estimates
set forth in the Liquidation Analysis, depending on, among other things, the Claims asserted during chapter
7, including Claims asserted by governmental entities. Accordingly, the Debtors cannot ensure that the
values assumed would be realized or the Claims estimates assumed would not change if the Debtors were
in fact liquidated, nor can assurances be made that the Bankruptcy Court would accept this analysis or
concur with these assumptions in making its determination under section 1129(a) of the Bankruptcy Code.
The Liquidation Analysis should be read in conjunction with the assumptions, qualifications, and
explanations set forth in the Disclosure Statement and the Plan in their entirety, as well as the Notes and
assumptions set forth below.
Liquidation Analysis Notes
The three major components of the liquidation process are as follows:
i. Generation of cash proceeds from the sale of assets;
ii. Costs related to the liquidation process, such as personnel costs, Claims reconciliation
costs, estate wind-down costs, and Trustee and professional fees; and
iii. Distribution of net proceeds generated from asset sales to claimants in accordance with the
priority scheme under chapter 7 of the Bankruptcy Code.
The Liquidation Analysis is based on forecasted principal balances of the Debtors’ outstanding loan
portfolios as of the Conversation Date. Estimates are assumed to be representative of the Debtors’ assets
and liabilities as of the Conversion Date. The Liquidation Analysis should be read in conjunction with the
following Notes and assumptions:
1. Conversation Date
The Liquidation Analysis has been prepared assuming the Debtors convert these chapter 11 cases to a
chapter 7 case on the Conversion Date, and the Bankruptcy Court appoints a Trustee to oversee the
liquidation of the Debtors’ estates, during which time the Trustee would wind down the Debtors’ operations,
seek to transfer the Debtors’ loan servicing obligations, monetize the Debtors’ remaining assets, and
distribute the proceeds from such monetization, net of liquidation-related costs, to creditors in accordance
with applicable law.
2. Claims Excluded in the Liquidation Analysis
The cessation of business in a liquidation is likely to trigger certain Claims that otherwise would not exist
under the Plan proposed by the Debtors, such as unpaid chapter 11 administrative expenses, and certain
executory contract and unexpired lease rejection Claims. Such Claims could be significant and some may
be administrative expenses while others may be entitled to priority in payment over General Unsecured
Claims. These chapter-7-specific Claims are excluded from the Liquidation Analysis. Also excluded from
the Liquidation Analysis are estimates for the tax consequences, both federal and state, that may be triggered
upon the liquidation and/or sale of assets in the manner described. Such tax consequences may be material.
In addition, the Liquidation Analysis does not reflect recoveries resulting from any causes of actions
including, any potential fraudulent transfers or avoidance actions, including but not limited to any Causes
of Action relating to the American Express Transaction, which are assumed to have zero value for purposes
of the Liquidation Analysis.
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3. Preparation of the Liquidation Analysis
In preparing the Liquidation Analysis, the Debtors estimated Allowed Claims based upon the Debtors’
latest review of liabilities in the Debtors’ books and records and claims filed by the general bar date. The
Allowed Claims estimate in this Liquidation Analysis does not include any potential claims by
governmental entities that have yet to be, or may never be, filed given that the governmental bar date has
not yet passed. The Debtors’ estimate of Allowed Claims set forth in the Liquidation Analysis should not
be relied upon for any other purpose, including determining the value of any distribution to be made on
account of Allowed Claims under the Plan.
When considering the generation of cash proceeds and the distribution thereof, the Debtors believe that the
present value of distributions, to the extent available, may be further reduced because such distributions in
a chapter 7 may not occur until after the liquidation period assumed in the analysis. Moreover, in the event
that litigation becomes necessary to resolve Claims asserted in a chapter 7, distributions to creditors may
be further delayed, which both decreases the present value of those distributions and increases
administrative expenses that could diminish the liquidation proceeds available to creditors. The effects of
this potential delay on the value of distributions under the Liquidation Analysis have not been considered
in this analysis.
After consideration of the effects that a chapter 7 liquidation would have on the ultimate proceeds available
for distribution to creditors, the Debtors have determined, as summarized in the following charts and Article
X.C of the Disclosure Statement, that the Plan will provide creditors with a recovery that is not less than
creditors would receive pursuant to a liquidation of the Debtors’ assets under chapter 7 bankruptcy
proceeding.
Disclaimer
THE LIQUIDATION ANALYSIS WAS PREPARED SOLELY AS A GOOD-FAITH ESTIMATE
OF THE PROCEEDS THAT MAY BE GENERATED AS A RESULT OF A HYPOTHETICAL
CHAPTER 7 LIQUIDATION OF THE DEBTORS’ ASSETS. THE LIQUIDATION ANALYSIS
RELIES ON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT ARE INHERENTLY
SUBJECT TO SIGNIFICANT LEGAL, ECONOMIC, COMPETITIVE, AND OPERATIONAL
UNCERTAINTIES AND CONTINGENCIES BEYOND THE DEBTORS’ AND THEIR
ADVISORS’ CONTROL. ADDITIONALLY, VARIOUS DECISIONS ARE BASED UPON
CERTAIN ASSUMPTIONS, WHICH ARE SUBJECT TO CHANGE.
THERE CAN BE NO GUARANTEE THAT THE ASSUMPTIONS AND ESTIMATES
EMPLOYED IN DETERMINING THE HYPOTHETICAL LIQUIDATION VALUES OF THE
DEBTORS’ ASSETS REFLECT THE ACTUAL VALUES THAT WOULD BE REALIZED IF THE
DEBTORS WERE TO UNDERGO AN ACTUAL LIQUIDATION, AND SUCH ACTUAL VALUES
COULD VARY MATERIALLY FROM THOSE SHOWN HEREIN. NEITHER THE DEBTORS
NOR THEIR ADVISORS MAKE ANY REPRESENTATION OR WARRANTY THAT THE
ACTUAL RESULTS OF A LIQUIDATION OF THE DEBTORS UNDER CHAPTER 7 OF THE
BANKRUPTCY CODE WOULD OR WOULD NOT APPROXIMATE EITHER THE
ASSUMPTIONS ON WHICH THIS LIQUIDATION ANALYSIS IS BASED OR THE RESULTS
OF THE LIQUIDATION ANALYSIS REFLECTED HEREIN.
THIS ANALYSIS HAS NOT BEEN EXAMINED OR REVIEWED BY INDEPENDENT
ACCOUNTANTS AND HAS NOT BEEN PRODUCED IN ACCORDANCE WITH STANDARDS
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PROMULGATED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS.
NOTHING CONTAINED IN THIS LIQUIDATION ANALYSIS IS INTENDED TO BE, OR
CONSTITUTES, A CONCESSION, ADMISSION, OR ALLOWANCE OF ANY CLAIM BY THE
DEBTORS. THE ACTUAL AMOUNT OR PRIORITY OF ALLOWED CLAIMS IN THE
CHAPTER 11 CASES COULD MATERIALLY DIFFER FROM THE ESTIMATED AMOUNTS
SET FORTH AND USED IN THIS LIQUIDATION ANALYSIS. THE DEBTORS RESERVE ALL
RIGHTS TO SUPPLEMENT, MODIFY, OR AMEND THE LIQUIDATION ANALYSIS SET
FORTH HEREIN.
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Liquidation Analysis for PPP Transfer Scenario
High Recovery Case:
Consolidated Liquidation Analysis: High Chapter 7 Ch.11
Estimate as of March 31, 2023 Consolidated.a Estimate as of March 31, 2023 Consolidated.a
($000s) $ % $
Gross Liquidation Proce e ds
1 Unrestricted Cash $ 12,536 $ 12,536
2 Restricted Cash 2,100 2,100
3 Pledged PPPLF Loans (Unliquidated) 389,116 421,128
4 Causes of Action - -
5 Legacy Loan Assets 1,100 1,100
Total Asse ts and Ne t Proce e ds for Distribution $404,852 $436,864
6 (-) Wind Down Costs (2,436) (4,262)
7 (-) Reserves / Contingencies (3,500) (3,500)
8 (-) Chapter 11 Professional Fees - (3,745)
9 (-) Chapter 7 T rustee Fees (495) -
10 (-) Chapter 7 Professional Fees (3,200) -
11 (-) Fees on Sale of Legacy loan Portfolio (110) (110)
12 (-) Chapter 7 Litigation (Reserve) (2,000) -
Ne t Liquidation Proce e ds $ 393,110 $ 425,247
Claims Recovery Claim Consolidated. a
Claim Consolidated.a
Class Claim Kabbage Inc.a $ % Kabbage Inc.a $ %
13 Administrative & Priority T ax Claims $ 32 $ 32 100.0% $ 32 $ 32 100.0%
14 Class 1 - Priority Non-T ax Claims - - N/A - - N/A
15 Class 2 - Other Secured Claims 2,100 2,100 100.0% 2,100 2,100 100.0%
16 Class 3 - Reserve Bank Claims 431,315 390,978 90.6% 427,397 423,115 99.0%
17 Class 4 - General Unsecured Claims 577,920 - 0.0% 31,450 - 0.0%
18 Class 5 - Intercompany Claims - - N/A - - N/A
19 Class 6 - Intercompany Interests N/A - N/A N/A - N/A
20 Class 7 - Subordinated Securities Claims - - N/A - - N/A
21 Class 8 - Kservicing Equity Interests N/A - N/A N/A - N/A
Total Re cove ry $ 1,011,368 $ 393,110 38.9% $ 460,980 $ 425,247 92.2%
Note s : a Kabbage, Inc. d/b/a KServicing; Kabbage Canada Holdings, LLC; Kabbage Asset Securitization LLC;
Kabbage Asset Funding 2017-A LLC; Kabbage Asset Funding 2019-A LLC; Kabbage Diameter, LLC
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Low Recovery Case:
Consolidated Liquidation Analysis: Low Recovery Chapter 7 Ch.11
Estimate as of March 31, 2023 Consolidated.a Estimate as of March 31, 2023 Consolidated.a
($000s) $ % $
Gross Liquidation Proce e ds
1 Unrestricted Cash $ 12,536 $ 12,536
2 Restricted Cash 2,100 2,100
3 Pledged PPPLF Loans (Unliquidated) 389,116 389,116
4 Causes of Action - -
5 Legacy Loan Assets 1,100 1,100
Total Asse ts and Ne t Proce e ds for Distribution $404,852 $404,852
6 (-) Wind Down Costs (2,436) (4,262)
7 (-) Reserves / Contingencies (3,500) (3,500)
8 (-) Chapter 11 Professional Fees - (3,745)
9 (-) Chapter 7 T rustee Fees (495) -
10 (-) Chapter 7 Professional Fees (3,200) -
11 (-) Fees on Sale of Legacy loan Portfolio (110) (110)
12 (-) Chapter 7 Litigation (Reserve) (2,000) -
Ne t Liquidation Proce e ds $ 393,110 $ 393,235
Claims Recovery Claim Consolidated.a Claim Consolidated.a
Class Claim Kabbage Inc.a $ % Kabbage Inc.a $ %
13 Administrative & Priority T ax Claims $ 32 $ 32 100.0% $ 32 $ 32 100.0%
14 Class 1 - Priority Non-T ax Claims - - N/A - - N/A
15 Class 2 - Other Secured Claims 2,100 2,100 100.0% 2,100 2,100 100.0%
16 Class 3 - Reserve Bank Claims 431,315 390,978 90.6% 427,397 391,103 91.5%
17 Class 4 - General Unsecured Claims 577,920 - 0.0% 102,981 - 0.0%
18 Class 5 - Intercompany Claims - - N/A - - N/A
19 Class 6 - Intercompany Interests N/A - N/A N/A - N/A
20 Class 7 - Subordinated Securities Claims - - N/A - - N/A
21 Class 8 - Kservicing Equity Interests N/A - N/A N/A - N/A
Total Re cove ry $ 1,011,368 $ 393,110 38.9% $ 532,510 $ 393,235 73.8%
Note s : a Kabbage, Inc. d/b/a KServicing; Kabbage Canada Holdings, LLC; Kabbage Asset Securitization LLC;
Kabbage Asset Funding 2017-A LLC; Kabbage Asset Funding 2019-A LLC; Kabbage Diameter, LLC
Notes to the Liquidation Analysis for PPP Transfer
The following Notes describe the assumptions that were made with respect to assets and wind down costs
and other expenses of the Trustee.
All scenarios assume that neither the Trustee—in a chapter 7 wind down, or the Wind Down Estates—in a
chapter 11 wind down, will service the PPP loans after the Conversion Date or the Effective Date of the
Plan, as applicable.
“Transfer Costs” represent expenses associated with transferring the Debtors’ PPP Loan servicing
obligations to an alternate loan servicer. In a chapter 7, the Liquidation Analysis assumes the Trustee would
seek to transfer the Debtors’ loan servicing obligations to a third-party alternate servicer. In order to do so,
a significant data engineering process would be undertaken by the Trustee and its professionals and any
operating employees. Such a process would include preparation of all data and systems for the alternate
servicer to be able to take over servicing the loan portfolio. The Liquidation Analysis assumes the transfer
process would require considerable labor and cost. In a chapter 11, the transfer of loans can be completed
at a cost (estimated for purposes only of this Liquidation Analysis at approximately $250,000 per portfolio)
prior to the Effective Date of the Plan.
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“Alternate Servicer Costs” represent the estimated servicing fees charged by a third-party alternate servicer
that would take on servicing obligations from the Debtors for the benefit of the Reserve Bank and the
Partner Banks, as applicable.
A. Assets:
1. Unrestricted Cash
Unrestricted Cash represents the estimated unrestricted cash balance at the Conversion Date. The
Liquidation Analysis assumes a 100% recovery on the Unrestricted Cash.
2. Restricted Cash
Restricted Cash represents cash held in escrow by Celtic Bank, the remaining amount of which Celtic
is obligated to remit to the Debtors within five business days of the termination of the agreement
pursuant to which Celtic and the Debtors partnered to originate the Legacy Loans.
3. Pledged PPPLF Loans (Unliquidated)
Pledged PPPLF Loans assumes a forecasted outstanding balance of the Federal Reserve’s PPPLF Loan
principal and interest at the Conversion Date less estimated “excess amounts” associated with the $100k
Issue, Form 940 Issue, and E-Tran Issue loan populations; in the event such excess amounts are honored
by the SBA, the Pledged PPPLF Loans balance will increase. Forecasted loan balances are based on
projected timing of loan payoff factoring in forgiveness status and borrower payment activity
status. Reduction of the loan balance by the estimated excess amounts is intended to reflect a range
associated with the potential risk that the SBA may not forgive, or honor its guarantee to purchase, the
full amount of a particular PPPLF Loan with a potential $100k Issue, Form 940 Issue, and/or E-Tran
Issue. For the avoidance of doubt, the Debtors believe that the entire balance of all PPP Loans in its
portfolios remain eligible for forgiveness and guaranty purchase by the SBA and the SBA may
ultimately forgive or guarantee purchase the full amount. The risk of failure of the SBA to forgive or
purchase such excess amounts is assumed only for purposes of the Liquidation Analysis.
4. Causes of Action
Due to the inherently uncertain nature of litigation, the Liquidation Analysis assumes $0 on account of
the Debtors’ causes of action in either chapter 7 or chapter 11. Nothing herein shall be interpreted to
be an admission or opinion with respect to the nature, validity, or value of causes of action the Debtors
may have against any person or entity.
5. Legacy Loan assets
Legacy Loan assets represent the potential sale of the Legacy Loans. The assumed sale price is 10%
of the principal balance for the remaining Legacy Loan portfolio as of the Conversion Date and is
intended to reflect the Debtors’ assignment of value for a de minimis recovery. The Debtors have
conservatively assumed recoveries would be the same in either chapter 7 or chapter 11. The analysis
assumes that the agency referred loans could not be easily monetized, and no value is attributed to them
in the event of a sale.
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B. Wind Down Costs and Other Expenses:
6. Wind Down Costs
Wind Down costs represent expenses associated with winding down the Debtors’ estate after the
Conversion Date or the Effective Date of the Plan, as applicable. In both chapter 7 and chapter 11,
Wind Down costs include tax payments, tax advisors, software, and other administrative costs. In
chapter 11, additional costs related to payroll, staffing firms, and IT infrastructure consultants would
be expected in connection with a corporate wind down.
7. Reserves / Contingencies
Reserves / Contingencies represents reserves for contingent liabilities related to taxes, payroll,
subpoenas, document preservation and other potential costs associated with winding down the estates
after the Conversion Date or the Effective Date of the Plan, as applicable.
8. Chapter 11 Professional Fees
Represents costs incurred by the Debtors on a post-Effective Date basis for services rendered by their
current chapter 11 professionals related to the winding down of the Debtors’ estates. The Liquidation
Analysis assumes there are no unpaid pre-Effective Date professional fees accounted for in either
chapter 7 or chapter 11.
9. Chapter 7 Trustee Fees
Under section 704 of the Bankruptcy Code, a Trustee must, among other duties, collect and convert
property of the estates as expeditiously as is compatible with the best interests of parties in interest,
which could result in potentially distressed recoveries. The related chapter 7 Trustee fees are calculated
based upon the statutory scale set forth in section 326(a) of the Bankruptcy Code, which provides for
fees equal to 25% of the first $5,000 of distributions; 10% of the next $45,000 of distributions; 5% of
the next $950,000 of distributions; and 3% of distributions in excess of $1,000,000. The Liquidation
Analysis assumes that return of Pledged PPPLF Loans to the Reserve Bank on account of Reserve Bank
Claims is excluded from the total distributions for purposes of calculating chapter 7 trustee fees
pursuant to Bankruptcy Code section 326(a).
10. Chapter 7 Professional Fees
Represents costs incurred by the Trustee following the Conversion Date for professionals, including a
financial advisor, counsel, and noticing agent to complete bankruptcy noticing, required during the
wind down period.
11. Fees on Sale of Legacy loan Portfolio
Represents the assumed costs, in either a chapter 7 or a chapter 11, associated with conducting a
marketing process for the sale of the Legacy Loan assets.
12. Chapter 7 Litigation (Reserve)
Represents the assumed costs associated with potential litigation regarding the chapter 7 liquidation.
C. Recovery Analysis:
13. Administrative and Priority Tax Claims
Represents the priority tax claims based on the company’s books and records and/or asserted by federal
and state agencies.
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14. Class 1 - Priority Non-Tax Claims:
The estimated claim amount for Priority Non-Tax Claims is currently assumed to be zero.
15. Class 2 - Other Secured Claims:
The estimated claim amount for Other Secured Claims consists primarily of Celtic Bank’s claims
against amounts held in escrow which constitute Restricted Cash for purposes herein. In chapter 7, the
allowed amount of Celtic Bank’s Other Secured Claim is estimated to be $2,100,000, which is the
entirety of the cash held in escrow. In chapter 11, it is assumed that a portion of that cash is released to
the Debtors’ estates, and the allowed amount of the Claim will consist of the difference between the
total Restricted Cash (i.e., the amounts held in escrow) and the amount released to the Debtors’ estates.
16. Class 3 - Reserve Bank Claims:
The estimated claim amount for Reserve Bank Claims consists of the Reserve Bank Secured Claims
and the Reserve Bank Priority Claims as of the Conversion Date. The claim amount also includes
Transfer Costs and Alternative Service Provider Costs, as well as any unreimbursed professional fees.
The Reserve Bank Claims were estimated solely for purposes of this Liquidation Analysis, and do not
limit the actual claims that may be asserted by the Reserve Bank in respect of the Program Agreements.
17. Class 4 - General Unsecured Claims:
The estimated General Unsecured Claims consist of claims by or related to CRB, CB, vendors,
borrowers, the putative class action plaintiffs, unsecured tax obligations, and executory contract
rejection damages.
The estimated recovery for holders of General Unsecured Claims is based on an assumed pro rata share
of distributable value available to such holders after distribution to senior claims.
In chapter 7, the Liquidation Analysis assumes that (i) the CRB claims consist of the value of the
outstanding principal of all CRB Loans as of the Conversion Date as well as Transfer Costs or Alternate
Servicer Costs, and (ii) the CB claims consist only of Transfer Costs and Alternate Servicer Costs.1
In chapter 11, the Liquidation Analysis assumes that (i) the CRB claims consist of estimated “excess
amounts” associated with the $100k Issue, Form 940 Issue, and E-Tran Issue loan populations,2 as well
as claims associated with Transfer Costs and Alternate Servicer Costs, and (ii) the CB claims consist
only of Transfer Costs and Alternate Servicer Costs.
18. Class 5- Intercompany Claims:
1 Pursuant to the Settlement Agreement by and between KServicing and CB, as approved by the Bankruptcy Court
pursuant to the 9019 Order, CB released all of its claims against KServicing arising out of the PPP, among other
things, prior to the effective date of the Settlement Agreement (November 9, 2022).
2 Estimated excess amounts are intended to reflect a range associated with the potential risk that the SBA may not
forgive, or honor its guaranty to purchase, the full amount of a particular PPP Loan with a potential $100k Issue,
Form 940 Issue, and/or E-Tran Issue. For the avoidance of doubt, the Debtors believe that the entire balance of all
PPP Loans in its portfolios remain eligible for forgiveness and guaranty purchase by the SBA and the SBA may
ultimately forgive or guaranty purchase the full amount. The risk of failure of the SBA to forgive or purchase such
excess amounts is assumed only for purposes of the Liquidation Analysis.
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To the Debtors’ knowledge, there are currently no Class 5 Claims. The Debtors estimate that there will
no Class 5 recoveries in both the high recovery and low recovery scenario.
19. Class 6 - Intercompany Interests:
The Debtors estimate that there will no Class 6 recoveries in both the high recovery and low recovery
scenario.
20. Class 7 - Subordinated Securities Claims:
The Debtors estimate that there will no Class 7 recoveries in both the high recovery and low recovery
scenario.
21. Class 8 – KServicing Equity Interests:
The Debtors estimate that there will no Class 8 recoveries in both the high recovery and low recovery
scenario.
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Liquidation Analysis for Post-Effective Date Servicing Scenario
High Recovery Case:
Consolidated Liquidation Analysis: High Chapter 7 Ch.11
Estimate as of March 31, 2023 Consolidated.a Estimate as of March 31, 2023 Consolidated.a
($000s) $ % $
Gross Liquidation Proce e ds
1 Unrestricted Cash $ 12,904 $ 12,904
2 Restricted Cash 2,100 2,100
3 Pledged PPPLF Loans (Unliquidated) 389,116 421,128
4 Causes of Action - -
5 Legacy Loan Assets 1,100 7,853
Total Asse ts and Ne t Proce e ds for Distribution $405,220 $443,985
6 (-) Wind Down Costs (2,436) (10,727)
7 (-) Reserves / Contingencies (3,500) (9,500)
8 (-) Chapter 11 Professional Fees - (4,120)
9 (-) Chapter 7 T rustee Fees (495) -
10 (-) Chapter 7 Professional Fees (3,200) -
11 (-) Fees on Sale of Legacy loan Portfolio (110) -
12 (-) Chapter 7 Litigation (Reserve) (2,000) -
Ne t Liquidation Proce e ds $ 393,479 $ 419,638
Claims Recovery Claim Consolidated. a
Claim Consolidated.a
Class Claim Kabbage Inc.a $ % Kabbage Inc.a $ %
13 Administrative & Priority T ax Claims $ 32 $ 32 100.0% $ 32 $ 32 100.0%
14 Class 1 - Priority Non-T ax Claims - - N/A - - N/A
15 Class 2 - Other Secured Claims 2,100 2,100 100.0% 200 200 100.0%
16 Class 3 - Reserve Bank Claims 431,315 391,347 90.7% 427,147 419,406 98.2%
17 Class 4 - General Unsecured Claims 577,920 - 0.0% 30,950 - 0.0%
18 Class 5 - Intercompany Claims - - N/A - - N/A
19 Class 6 - Intercompany Interests N/A - N/A N/A - N/A
20 Class 7 - Subordinated Securities Claims - - N/A - - N/A
21 Class 8 - Kservicing Equity Interests N/A - N/A N/A - N/A
Total Re cove ry $ 1,011,368 $ 393,479 38.9% $ 458,330 $ 419,638 91.6%
Note s : a Kabbage, Inc. d/b/a KServicing; Kabbage Canada Holdings, LLC; Kabbage Asset Securitization LLC;
Kabbage Asset Funding 2017-A LLC; Kabbage Asset Funding 2019-A LLC; Kabbage Diameter, LLC
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Low Recovery Case:
Consolidated Liquidation Analysis: Low Recovery Chapter 7 Ch.11
Estimate as of March 31, 2023 Consolidated.a Estimate as of March 31, 2023 Consolidated.a
($000s) $ % $
Gross Liquidation Proce e ds
1 Unrestricted Cash $ 12,904 $ 12,904
2 Restricted Cash 2,100 2,100
3 Pledged PPPLF Loans (Unliquidated) 389,116 389,116
4 Causes of Action - -
5 Legacy Loan Assets 1,100 7,853
Total Asse ts and Ne t Proce e ds for Distribution $405,220 $411,973
6 (-) Wind Down Costs (2,436) (10,727)
7 (-) Reserves / Contingencies (3,500) (9,500)
8 (-) Chapter 11 Professional Fees - (4,120)
9 (-) Chapter 7 T rustee Fees (495) -
10 (-) Chapter 7 Professional Fees (3,200) -
11 (-) Fees on Sale of Legacy loan Portfolio (110) -
12 (-) Chapter 7 Litigation (Reserve) (2,000) -
Ne t Liquidation Proce e ds $ 393,479 $ 387,627
Claims Recovery Claim Consolidated.a Claim Consolidated.a
Class Claim Kabbage Inc.a $ % Kabbage Inc.a $ %
13 Administrative & Priority T ax Claims $ 32 $ 32 100.0% $ 32 $ 32 100.0%
14 Class 1 - Priority Non-T ax Claims - - N/A - - N/A
15 Class 2 - Other Secured Claims 2,100 2,100 100.0% 1,100 1,100 100.0%
16 Class 3 - Reserve Bank Claims 431,315 391,347 90.7% 427,147 386,495 90.5%
17 Class 4 - General Unsecured Claims 577,920 - 0.0% 102,481 - 0.0%
18 Class 5 - Intercompany Claims - - N/A - - N/A
19 Class 6 - Intercompany Interests N/A - N/A N/A - N/A
20 Class 7 - Subordinated Securities Claims - - N/A - - N/A
21 Class 8 - Kservicing Equity Interests N/A - N/A N/A - N/A
Total Re cove ry $ 1,011,368 $ 393,479 38.9% $ 530,760 $ 387,627 73.0%
Note s : a Kabbage, Inc. d/b/a KServicing; Kabbage Canada Holdings, LLC; Kabbage Asset Securitization LLC;
Kabbage Asset Funding 2017-A LLC; Kabbage Asset Funding 2019-A LLC; Kabbage Diameter, LLC
Notes to the Liquidation Analysis —Post-Effective Date PPP Servicing
The following Notes describe the assumptions that were made with respect to assets and Wind Down costs
and other expenses of the Trustee.
Both chapter 11 scenarios assume that the Wind Down Estates continue to service the Legacy Loan and
PPP Loan portfolios until maturity. The chapter 7 scenario assumes that the Trustee will not service the
PPP Loans after the Conversion Date or the effective date of the Plan, as applicable.
A. Assets:
1. Unrestricted Cash
Unrestricted Cash represents the estimated unrestricted cash balance at the Conversion Date. The
Liquidation Analysis assumes a 100% recovery on the Unrestricted Cash.
2. Restricted Cash
Restricted Cash represents cash held in escrow by Celtic Bank, the remaining amount of which Celtic
is obligated to remit to the Debtors within five business days of the termination of the agreement
pursuant to which Celtic and the Debtors partnered to originate the Legacy Loans.
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3. Pledged PPPLF Loans (Unliquidated)
Pledged PPPLF Loans assumes a forecasted outstanding balance of the Federal Reserve’s PPPLF Loan
principal and interest at the Conversion Date less estimated “excess amounts” associated with the $100k
Issue, Form 940 Issue, and E-Tran Issue loan populations; in the event such excess amounts are honored
by the SBA, the Pledged PPPLF Loans balance will increase. Forecasted loan balances are based on
projected timing of loan payoff factoring in forgiveness status and borrower payment activity
status. Reduction of the loan balance by the estimated excess amounts is intended to reflect a range
associated with the potential risk that the SBA may not forgive, or honor its guaranty to purchase, the
full amount of a particular PPPLF Loan with a potential $100k Issue, Form 940 Issue, and/or E-Tran
Issue. For the avoidance of doubt, the Debtors believe that the entire balance of all PPP Loans in its
portfolios remain eligible for forgiveness and guaranty purchase by the SBA and the SBA may
ultimately forgive or guarantee purchase the full amount. The risk of failure of the SBA to forgive or
purchase such excess amounts is assumed only for purposes of the Liquidation Analysis.
4. Causes of Action
Due to the inherently uncertain nature of litigation, the Liquidation Analysis assumes $0 on account of
the Debtors’ causes of action in either chapter 7 or chapter 11. Nothing herein shall be interpreted to
be an admission or opinion with respect to the nature, validity, or value of causes of action the Debtors
may have against any person or entity.
5. Legacy Loan Assets
Legacy Loan assets represent the potential sale of the Legacy Loans in chapter 7 and ordinary course
collection of those loans in chapter 11. The assumed sale price is 10% of the principal balance for the
remaining Legacy Loan portfolio as of the Conversion Date and is intended to reflect the Debtors’
assignment of value for a de minimis recovery. The analysis assumes that the agency referred loans
could not be easily monetized, and no value is attributed to them in the event of a sale. In chapter 11,
the analysis assumes forecasted collections on the Legacy Loan portfolios over the course of period in
which the Debtors continue to service the loans.
B. Wind Down Costs and Other Expenses:
6. Wind Down Costs
Wind Down Costs represent expenses associated with winding down the Debtors’ estate post-transfer
of any loan servicing in chapter 7, while in chapter 11 Wind Down Costs represent the overhead costs
of servicing the loan portfolios, not directly or indirectly attributable to any particular portfolio and are
borne by the estate. In both chapter 7 and chapter 11, this includes items such as tax payments and, tax
advisors, software, and other administrative costs. In chapter 11, additional costs related to payroll,
staffing firms, and IT infrastructure consultants would be expected, and well as the full cost of Company
overhead and expenses not directly or indirectly attributable to servicing any individual loan portfolio.
7. Reserves / Contingencies
Reserves / Contingencies represents reserves for contingent liabilities related to taxes, payroll,
subpoenas, document preservation and other potential costs associated with winding down the estates
after the Conversion Date or the Effective Date of the Plan, as applicable.
8. Chapter 11 Professional Fees
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Represents costs incurred by the Debtors on a post-effective date basis for services rendered by their
current chapter 11 professionals related to the winding down of the Debtors’ estates. The Liquidation
Analysis assumes there are no unpaid pre-effective date professional fees accounted for in either chapter
7 or chapter 11.
9. Chapter 7 Trustee Fees
Under section 704 of the Bankruptcy Code, a Trustee must, among other duties, collect and convert
property of the estates as expeditiously as is compatible with the best interests of parties in interest,
which could result in potentially distressed recoveries. The related chapter 7 Trustee fees are calculated
based upon the statutory scale set forth in section 326(a) of the Bankruptcy Code, which provides for
fees equal to 25% of the first $5,000 of distributions; 10% of the next $45,000 of distributions; 5% of
the next $950,000 of distributions; and 3% of distributions in excess of $1,000,000. The Liquidation
Analysis assumes that return of Pledged PPPLF Loans to the Reserve Bank on account of Reserve Bank
Claims is excluded from the total distributions for purposes of calculating chapter 7 trustee fees
pursuant to Bankruptcy Code section 326(a).
10. Chapter 7 Professional Fees
Represents costs incurred by the Trustee following the Conversion Date for professionals, including a
financial advisor, counsel, and noticing agent to complete bankruptcy noticing, as well as tax advisors
and tax counsel required during the wind down period.
11. Fees on Sale of Legacy loan Portfolio
Represents the assumed costs, in chapter 7, associated with conducting a marketing process for the sale
of the Legacy Loan assets. The sale, and therefore the costs associate with such sale, are assumed to
occur only in chapter 7, since the Wind Down Estates will continue to service the Legacy Loans and
receive collections following a chapter 11.
12. Ch.7 litigation (Reserve)
Represents the assumed costs associated with potential litigation regarding the chapter 7 liquidation.
C. Recovery Analysis:
13. Admin and Priority Tax Claims
Represents the priority tax claims asserted by federal and state agencies.
14. Class 1 - Priority Non-Tax Claims:
The estimated claim amount for Priority Non-Tax Claims is currently assumed to be zero.
15. Class 2 - Other Secured Claims:
The estimated claim amount for Other Secured Claims consists primarily of Celtic Bank’s claims
against amounts held in escrow which constitute Restricted Cash for purposes herein. In chapter 7, the
allowed amount of Celtic Bank’s Other Secured Claim is estimated to be $2,100,000, which is the
entirety of the cash held in escrow. In chapter 11, it is assumed that a portion of that cash is released to
the Debtors’ estates, and the allowed amount of the Claim will consist of the difference between the
total Restricted Cash (i.e., the amounts held in escrow) and the amount released to the Debtors’ estates.
16. Class 3 - Reserve Bank Claims:
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The estimated claim amount for Reserve Bank Claims consists of the Reserve Bank Secured Claims
and the Reserve Bank Priority Claims as of the Conversion Date. The claim amount also includes
Transfer Costs and Alternative Service Provider Costs in chapter 7. No transfer costs are included in
chapter 11 as the Company will be providing loan servicing. The claim in chapter 11, includes direct
and indirect servicing costs, which are assumed to be the same as the Alternative Service Provider
Costs. The Reserve Bank Claims were estimated solely for purposes of this Liquidation Analysis and
do not limit the actual claims that may be asserted by the Reserve Bank in respect of the Program
Agreements. In both scenarios, the claim also includes any unreimbursed professional fees.
17. Class 4 - General Unsecured Claims:
The estimated General Unsecured Claims consist of claims by or related to CRB, CB, vendors,
borrowers, the putative class action plaintiffs, unsecured tax obligations, and executory contract
rejection damages.
The estimated recovery for holders of General Unsecured Claims is based on an assumed pro rata share
of distributable value available to such holders after distribution to senior claims.
In chapter 7, the Liquidation Analysis assumes that (i) the CRB claims consist of the value of the
outstanding principal of all CRB Loans as of the Conversion Date as well as Transfer Costs or Alternate
Servicer Costs, and (ii) the CB claims consist only of Transfer Costs and Alternate Servicer Costs.
In chapter 11, the Liquidation Analysis assumes that (i) the CRB claims consist of estimated “excess
amounts” associated with the $100k Issue, Form 940 Issue and E-Tran Issue loan populations,3 as well
as claims associated with Alternate Servicer Costs, and (ii) the CB claims consist only of Alternate
Servicer Costs.
18. Class 5- Intercompany Claims:
To the Debtors’ knowledge, there are currently no Class 5 Claims. The Debtors estimate that there will
no Class 5 recoveries in both the high recovery and low recovery scenario.
19. Class 6 - Intercompany Interests:
The Debtors estimate that there will no Class 6 recoveries in both the high recovery and low recovery
scenario.
20. Class 7 - Subordinated Securities Claims:
The Debtors estimate that there will no Class 7 recoveries in both the high recovery and low recovery
scenario.
21. Class 8 – KServicing Equity Interests:
The Debtors estimate that there will no Class 8 recoveries in both the high recovery and low recovery
scenario.
3 Estimated excess amounts are intended to reflect a range associated with the potential risk that the SBA may not
forgive, or honor its guaranty to purchase, the full amount of a particular PPP Loan with a potential $100k Issue,
Form 940 Issue, and/or E-Tran Issue. For the avoidance of doubt, the Debtors believe that the entire balance of all
PPP Loans in its portfolios remain eligible for forgiveness and guaranty purchase by the SBA and the SBA may
ultimately forgive or guaranty purchase the full amount. The risk of failure of the SBA to forgive or purchase such
excess amounts is assumed only for purposes of the Liquidation Analysis.
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