Party City Wins Access to $75 Million of Fresh Cash in Bankruptcy

Jeremy Hill, Bloomberg News

A pedestrian walks past a Party City store in San Francisco, California, U.S., on Wednesday, Sept. 22, 2020. Halloween is a key holiday for Party City, but with Americans wearing different kinds of masks and keeping their distance, its scary season could extend well beyond the end of the October. Photographer: David Paul Morris/Bloomberg , Bloomberg

(Bloomberg) -- Party City Holdco Inc. won approval to borrow $75 million after its bankruptcy judge settled a fight among creditors including Mudrick Capital Management.

US Bankruptcy Judge David R Jones in a hearing Wednesday said he would approve the loan, which is the first draw of a proposed $150 million financing package. The cash will allow the beleaguered party supplies retailer to keep paying employees and vendors while working on a plan to restructure more than of $1.4 billion of debt.

Mudrick, a Party City creditor, objected to the financing because in order to participate in the deal — the debt bears interest at more than 14% and comes with potentially lucrative fees — the hedge fund would have been required to fully support a restructuring plan proposed by a majority first-lien noteholder group that includes Capital Group Cos Inc. and Silver Point Capital.

“This is just not how the process is supposed to work,” Robert Novick, a lawyer for Mudrick, said in the hearing. The existing restructuring proposal has “so many holes in it” and the new financing would allow the first-lien noteholder group to “dilute everyone to oblivion” because it contains an open-ended equity conversion provision, he said.

Judge Jones overruled Mudrick’s objection, but asked the majority noteholder group to let Mudrick participate in the financing while reserving its right to oppose the restructuring proposal at a later date. The creditor group agreed to the adjustment.

The case is Party City Holdco Inc., 23-90005, U.S. Bankruptcy Court for the Southern District of Texas.