Jonathan Foster Testified at Trial as an Expert Witness on Behalf of Invesco in a Dispute with an Ad Hoc Group of Other Debtholders in Robertshaw, a Leading Controls Manufacturer

New York, New York, June 10, 2024 (Source: Reorg) – On May 24, the second day of trial over Invesco’s challenges to Robertshaw’s December 2023 first-out payoff transaction took place, with Judge Christopher Lopez presiding. The transaction in question eliminated Invesco’s “Required Lender” status and granted the ad hoc group of first-out lenders and sponsor One Rock the right to credit-bid for the debtors’ assets. The day’s proceedings included testimony from Neal Goldman, Robertshaw’s independent director, regarding his approval of the transaction and expert testimony from Jonathan Foster and Randall Eisenberg on the transaction’s value for Robertshaw.

Foster opined that in general, Invesco’s rights as a required lender before the December 2023 transaction were valuable because they allow Invesco to insist on concessions from the company. Such rights include entitlement to lead “high yield” DIP financing and make a stalking horse credit bid with break-up protections. Foster acknowledged that required lender status could change under the SPCA but pointed out that any change would need to comply with the terms of the SPCA. On this point, Foster testified that the change to Invesco’s required lender status and the prepayment of its first-out loans using the capital contribution from RS Funding were not consistent with the SPCA.

In addition, Foster testified that the December 2023 transaction was the “economic equivalent” of a financing transaction where the company incurred debt. From this viewpoint, Foster took issue with the debtors’ expert report from Randall Eisenberg of AlixPartners, the debtors’ financial advisor. According to Foster, Eisenberg’s report overstates the value of the December 2023 transaction for the company and its turnaround plan.

Foster explained that the December 2023 transaction only enabled the debtors to execute the turnaround plan sooner. The transaction itself did not generate the “entire value” of the turnaround plan, Foster said. Rather, he explained, the value of the December 2023 transaction relative to the turnaround plan would be the value of the weeks in which the company was about to implement its strategic initiatives more quickly.

In addition, Foster criticized Eisenberg for failing to conduct any sensitivity analysis regarding the value of the debtors’ turnaround plan. He pointed out that Eisenberg’s analysis is based on management projections, which have historically been “overly optimistic.”

On cross-examination Foster conceded that his scope of work did not include a calculation of Invesco’s damages on account of the December 2023 transaction or a specific valuation of Invesco’s required lender status. Foster also agreed that the December 2023 transaction provided an additional eight weeks of runway for the company. Although opposing counsel tried to pin down Foster on the value of this additional runway, including additional time for the company to implement its turnaround initiatives, Foster maintained that those efforts could have occurred inside, outside or independent of bankruptcy.

The trial will resume on May 28. Judge Lopez denied Invesco’s motion for leave to amend its counterclaims to assert monetary damages claims against the ad hoc group and One Rock, and reserved ruling on Invesco’s motion for direct standing until after the trial concludes.

 

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Contact

Jonathan F. Foster
Managing Director
Telephone: +1 212 223 0618
Email: jfoster@currentcap.com