Mobilicity's sale to Rogers Communications Inc. is complete, but the drama appears to continue among the small wireless carrier's creditors as they argue over the distribution of funds from the deal.
Before the $465-million deal – which Mobilicity announced three weeks ago after securing buy-in from the federal government through the transfer of a swath of spectrum licences to Wind Mobile – the company had been under court-supervised creditor protection since September, 2013.
Along the bumpy road to a sale, there were several disputes involving creditors, particularly Catalyst Capital Group Inc. and the ad hoc committee of bondholders who together held most of the company's debt.
Rogers agreed to pay $440-million in cash and assume $25-million in trade liabilities. The deal closed on July 2, but new court filings show the distribution of those funds has stalled.
As part of the transaction, Rogers negotiated a separate payment to Catalyst, which held first-lien bonds with a principal amount owing of $69.8-million. Rogers has now paid a total of $344.5-million – referred to as the "cash amount" – to Mobilicity's court-appointed monitor, Ernst & Young Inc., indicating Catalyst received total proceeds of about $95.5-million.
Catalyst, the Toronto-based private equity firm run by Newton Glassman, agreed to release any claim against the remaining cash Rogers paid for the transaction.
Now, the remaining secured and unsecured creditors – many of which are Canadian and U.S. investment firms that typically run mutual funds – seem to be at odds about how exactly that amount will be distributed.
In previous court filings in the creditor protection proceeding, Catalyst said it was concerned that certain bondholders held multiple classes of debt and that it could put them in a conflict of interest.
In court filings on Tuesday, the monitor said it has not yet been able to resolve some disputes over how to pay Mobilicity's secured and unsecured creditors.
Since Mobilicity's assets have been sold, the distribution of the proceeds is being managed by Data & Audio-Visual Enterprises Holdings Inc. (known as "Holdings" in the court documents).
The terms of the sale agreement guarantee payment of the "total amounts owing" under the remaining first-lien notes (not owned by Catalyst) as well as the company's second-lien debt and its debtor-in-possession (DIP) financing. As of June 30, that comes to a total of about $220-million.
The monitor is supporting an order to pay off the DIP notes immediately (the amount owing is just under $2-million), but payment of the rest of the secured debt remains unsettled. There are disputes over a "pre-payment premium" related to the first-lien debt as well as over the amount of interest properly owing on the second-lien notes.
Plus, Mobilicity's unsecured debt totals more than $300-million, and the monitor said it has learned of new unsecured claims since the Rogers deal was announced.
"A combination of practical issues and a lack of consensus on the mechanics of the distribution resulted in a decision by [Holdings] not to seek a distribution of any of the cash amount at this time, other than to the holders of the DIP notes," Ernst & Young said in the filings on Tuesday.
The monitor also said it recommends paying off a portion of the remaining first- and second-lien debt quickly, at least to help reduce ongoing interest charges, adding that it "intends to continue to facilitate discussions to this end."
Representatives of Holdings were in court on Wednesday seeking approval of the distribution of funds to pay off the DIP financing as well as the transfer of signing authority solely to Bill Aziz, who is the chief restructuring officer and only remaining officer with a day-to-day administrative role.
A spokesman for Holdings declined to comment on the disputes between creditors on Wednesday.