Where attorneys’ fees incurred by the oversecured creditor were reasonable and necessary to protect its interest in the bankruptcy cases, and the debtors agreed the rates were reasonable, the creditor was entitled to recover its fees under section 506(b) of the Bankruptcy Code.
The issue before the court concerns the reasonable amount of fees and expenses payable to an oversecured lender in connection with the satisfaction of its secured claim.
Pursuant to section 506(b) of the Bankruptcy Code, an oversecured creditor is entitled to “reasonable fees, costs, or charges provided for under the agreement … under which such claim arose.” “To substantiate a claim for fees pursuant to Section 506(b), the creditor must show that: (a) the creditor is oversecured; (b) the underlying agreement provides for such fees and costs; and (c) the fees and costs are reasonable.”
The parties agree that Fortress is oversecured. As such, Fortress is entitled to recover any fees, costs or charges provided for under its loan documents to the extent that such fees, costs, and charges are reasonable.
The debtors objected to the reasonableness of the fees incurred by Fortress’s lead counsel. At the March 11, 2021, hearing, this issue was further narrowed as the debtors withdrew their objection to the hourly rates charged by lead counsel. This left as the only unresolved issue whether the tasks performed by lead counsel were reasonable.
The court finds that the fees incurred by both lead counsel and local counsel were reasonable and necessary for Fortress to protect its interest in these bankruptcy cases. The work performed by lead counsel and local counsel was a part of its global effort to protect the rights and claims of Fortress, by first analyzing the debtors’ initial plan of reorganization and initial financing proposal, by next investigating possible alternative transactions and by finally ensuring that the first lien obligations were paid in full.
While the debtors alleged that not all of the work performed by lead counsel was reasonable or necessary to accomplish such ends, the debtors did not provide any evidence concerning what the debtors believe a reasonable fee would be. The court finds that lead counsel and local counsel have met their burden of proof and, in the exercise of its discretion, the court declines to disallow any of the requested fees.
Fortress also seeks to recover $2.125 million on account of Jefferies’s monthly fee of $125,000 and the transaction fee of $2 million. Fortress may only recover such fees under section 506(b) of the Bankruptcy Code if both (i) the first lien credit agreement, as modified by the forbearance agreement, provides for such fees and (ii) if such fees are reasonable. The court finds that neither element is met and, as such, will disallow the Jefferies fees in full.
The court finds that the first lien credit agreement provides that the debtors shall reimburse Fortress for certain enumerated fees and expenses, none of which apply here. Finding no basis within the first lien credit agreement for the inclusion of Jefferies’s fees, the question then becomes whether Fortress may be reimbursed for Jefferies’s fees pursuant to section 5(b) of the forbearance agreement. That hinges on whether Jefferies is a “financial advisor” within the meaning of the forbearance agreement. The court finds Jefferies is not. Finally, even if the first lien credit agreement, as modified by the forbearance agreement, allowed for the payment of reasonable fees owed to Jefferies, the court finds that $2.125 million is an unreasonable fee.
The final category of fees for which Fortress sought payment was the expense reimbursement. Fortress is seeking repayment of the allegedly “unpaid” professional fees incurred by Antares (the prior administrative agent). Because Antares no longer had any right to repayment under the credit agreement as of the effective time, Antares had no such rights that it could convey to Fortress. Accordingly, Fortress did not acquire the expense reimbursement from Antares and it has no entitlement to recover payment of such from the debtors.
Lastly, the court rejects Fortress’s argument that the Jefferies fees and the expense reimbursement are nonetheless recoverable under section 506(b) of the Bankruptcy Code as required indemnification obligations pursuant to section 9.6 of the first lien credit agreement.
Request for fees and expenses granted in part, denied in part.
In re: Alpha Media Holdings LLC, No. 21-30209, March 26, 2021. EDVA Bankr. at Richmond (Huennekens). VLW No. 021-4-001. 24 pp.