As soon as it was announced that a group spearheaded by The Rock would be purchasing the XFL for $15 million, the committee of unsecured creditors filed an objection with the bankruptcy court in attempt to block the proposed sale. The group argues that the transaction is not within the best interests of the company and its creditors.
The unsecured creditors claim that the XFL would not benefit from the sale. “The primary objective of selling assets in a bankruptcy proceeding is to maximize an estate’s value and recoveries for the debtor’s constituents. The Committee, however, cannot reasonably determine whether that objective has been achieved in connection with the Sale to the Proposed Buyer given the Debtor’s failure to value significant assets that are now being included in the Sale, but were not contemplated as part of the assets to be purchased in the form asset purchase agreement prepared by the Debtor.” Essentially, the committee argues that the proposed sale includes assets not previously disclosed to prospective purchasers prior to the sale to Johnson. The Rock, his business partner Dany Garcia and Red Bird Capital agreed to purchase the league for $15 million in addition to $8.5 million which would offset outstanding secured liabilities.
Unsecured Creditors Objection by MMA Payout on Scribd
However, the objection states that the transaction also would come with $1.8 million in accounts receivable which would further decrease the amount. Thus, the actual purchase amount would be around $13.2 million (see footnote below).
It would be unlikely that the unsecured creditors would receive any money from the sale which is one of the reasons why they object. Moreover, they believe that Johnson’s previous affiliation with McMahon may have facilitated the purchase.
The committee argues that the contemplated sale does not satisfy the “Sound Business Purpose Test” which requires 1) a sound business purpose for the sale; 2) a fair sale price; 3) adequate and reasonable notice; and 4) good faith on behalf of the purchaser. The group of unsecured creditors wants Alpha Entertainment to show how its proposed sale satisfies the test.
Specifically, the unsecured creditors take aim of the “Purchased Assets” that the new group would acquire which would include “all Causes of Action belonging to the Debtor” as defined below:
The committee states that they were not aware of this acquisition until the “evening of July 30, 2020.
Similar to a previous objection on the expedition of the sale, the committee is concerned with the “purported secured claim” of Vince McMahon.
Payout Perspective:
A hearing on this objection shall take place this Monday and should be a highly volatile situation as the unsecured creditors are fighting for their right to recoup in this action. However, with the sale to The Rock, it raises questions about the acquisition and what is being couched as a bargain price to a preferred purchaser by the unsecured creditors. Moreover, Alpha Entertainment will need to explain the extra assets included in the purchase which is the bone of contention.
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