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Law360 (May 12, 2020, 8:14 PM EDT ) A secured lender of milk processor Borden Dairy Co. objected Tuesday to proposed plans to pay more than $4 million in bonuses to key employees, calling the payments "absurd" in light of the debtor's financial state and the global economic situation caused by the COVID-19 pandemic.
In its objection, PNC Bank NA said the motions for a Key Employee Incentive Plan and Key Employee Retention Plan were filed on short notice and that the debtor is seeking to have them approved just days before an asset sale bid deadline, effectively adding roughly $4.3 million to its employee obligations as it pursues a sale of its assets.
Even without the proposed bonuses, PNC argues, Borden Dairy is facing a liquidity shortfall of more than $20 million due to administrative expenses and professional fee estimates for the remainder of its bankruptcy case. And given the worldwide economic crunch precipitated by the coronavirus pandemic, PNC Bank said the debtor is not justified in seeking to provide bonuses to its workers at a time when many employees are receiving additional hazard pay.
"Additional pay increases now will only strain liquidity," the objection said. "Such a move by management is absurd at a time when the company is being marketed for sale. It is even more absurd in this historic recession when millions of Americans are either losing their jobs or taking pay cuts."
Borden Dairy proposed the payments Friday and asked to have the motion heard on a shortened basis on May 27, just days before the June 1 bid deadline. The retention bonuses would cover 44 employees with about $2.3 million in payments, while the incentive plan would cover eight senior executives with another $2 million in payments based on earnings benchmarks.
PNC said the current budget does not provide for these payments, and the Bankruptcy Code does not allow for Borden to incur such obligations.
Representatives for PNC and Borden could not immediately be reached late Tuesday for comment.
Borden Dairy hit Chapter 11 in early January after out-of-court restructuring efforts failed to meet the Jan. 6 deadline imposed by its lenders, according to a declaration from Chief Financial Officer Jason Monaco. He said its debt obligations combined with increased operating costs and declining milk product consumption drove it into insolvency.
Borden's debt structure consists of about $95 million owed to PNC Bank as senior secured lender, with $70 million in revolving debt and $25 million in term loan debt, along with $175 million of term loan debt held by KKR.
Borden Dairy Co. and its affiliates are represented by M. Blake Cleary, Kenneth J. Enos, Elizabeth S. Justison and Betsy Feldman of Young Conaway Stargatt & Taylor LLP, and D. Tyler Nurnberg, Seth J. Kleinman and Sarah Gryll of Arnold & Porter.
PNC is represented by Josef W. Mintz, Regina Stango Kelbon, John E. Lucian and Gregory F. Vizza of Blank Rome LLP.
The case is In re: Borden Dairy Co. et al., case number 1:20-bk-10010, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Jeff Montgomery. Editing by Alanna Weissman.
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