Opinion ID: 205909
Heading Depth: 2
Heading Rank: 1

Heading: The Term Sheet and Interim Order

Text: Pursuant to the Term Sheet, LF agreed to lend Arlington a total of $11 million. The parties referred to this overall amount as the “Total DIP Facility.” The $11 million was divided into three separate parts: a $6 million revolving loan (the “Revolver” or the “Interim DIP Facility”), a $1 million “Term Loan A” that would be available after December 31, 2005, and a $4 million “Term Loan B” intended to fund certain real estate purchases by Arlington.1 The Term Sheet set forth interest rates for the three loans and provided for a higher rate of default interest in the event that Arlington defaulted. The agreement also set forth various fees associated with the loan that Arlington agreed to pay. Two of these fees were a $100,000 “Total DIP Facility Commitment Fee” (the “Commitment Fee”) and a $210,000 “Total DIP Facility Funding Fee” (the “Funding Fee”). The Term Sheet provided that these two fees were “payable immediately” to LF. The Term Sheet also provided that LF would be entitled to legal fees and other various expenses it incurred in connection with post-petition financing. The parties submitted the Term Sheet to the Bankruptcy Court for approval on the first day of the bankruptcy 1 Arlington never ended up utilizing either Term Loan A or B, and only ever drew on the Revolver. No. 09-3560 5 proceedings pursuant to 11 U.S.C. §§ 364(c) and (d). The bankruptcy court entered an Interim Order approving the agreement on September 2, 2005, finding that the terms of the DIP financing had been negotiated in good faith and were fair and reasonable. The Interim Order largely adopted the terms of the parties’ Term Sheet, but the two documents were not identical. Notably, while the Term Sheet had provided that Arlington could use the proceeds of the Revolver loan itself to pay the fees it would owe LF, the Interim Order stated that those fees had to be paid with separate funds, not drawn from the Revolver. Like the Term Sheet, the Interim Order provided that the $100,000 Commitment Fee and the $210,000 Funding Fee were “payable im- mediately” to LF. Other fees, in contrast, were payable “upon invoice” from LF. Critically, the Interim Order also contained a paragraph requiring that LF give Arlington notice of any default and three business days to cure it (the “Notice Provision”). As the district court put it, the Notice Provision “created a condition precedent which must have occurred before LF stopped dealing with [Arlington].” Due to the Notice Provision, Arlington could not, conceptually, be in breach of the Interim Order until after it had been given notice and opportunity to cure it.