Thursday, February 19, 2015

Salus Response to RadioShack Unsecured Creditors' Motion

1. Salus generally supports the Committee’s position that an investigation into a number of the issues raised in the Motion is warranted given the unique set of circumstances leading up to the commencement of these cases. The Motion, however, lodges some very serious (and patently false) accusations against Salus, which require an immediate response.

2. Most significantly, the Committee states without any support that “upon information and belief,” Salus was a purchaser, “in CDS transactions, of protection on RadioShack debt.” The Committee speculates that Salus’ “refus[al] to consent to RadioShack’s plan to close 1,100 stores in the spring of 2014, as well as [its] decision to send two notices of default, may have been motivated by these CDS positions.”

3. Salus does not know what “information” underpins the Committee’s “belief”, but to be clear – and to disabuse the Committee of its misguided speculation – Salus did not, at any time, purchase or hold CDS positions with respect to any of the Debtors’ debt obligations. The contention that Salus made any decision based on CDS positions is simply false.

4. The Committee’s assertion that “the equity-like return (LIBOR +11%) and minimal covenants on the Term Loan warrants investigation into whether the Term Loan could be recharacterized as equity” is meritless. The Committee offers no (zero) authority in support of its novel “recharacterization” theory. Salus is not a director, officer or shareholder of the Debtors. Salus is not, and never has been, a purchaser or holder of any CDS protection in relation to any Debtor. The Committee has no good cause (in fact, it has no cause at all) for the discovery it seeks because the issues the Committee claims it wants to investigate have no bearing on Salus. The single allegation regarding what the Committee calls an “equitylike return” on the term loan does not warrant the approval of a 2004 examination with respect to Salus or the other term lenders. See, e.g., In re East West Resort Dev. V, 2014 Bankr. LEXIS 3930, *20-21 (Bankr. D. Del. 2014) (the scope of a 2004 examination is “broad” but “there are limits”); In re Kelton, 389 B.R. 812, 820 (Bankr. S.D. Ga. 2008) (“The UST must show good cause exists to conduct a Rule 2004 examination”).

5. Notwithstanding the Committee’s baseless attack – which easily could have been avoided if the Committee attempted to contact Salus before filing the Motion – Salus is willing to produce evidence to address the Committee’s concerns. However, to avoid the cost and burden of responding to subpoenas, document requests and depositions under Bankruptcy Rule 2004, Salus believes the parties should endeavor to address such concerns cooperatively and without the need for formal discovery.

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