BREAKING NEWS: U.S. Department of Justice/EPA, joined by 10 states, oppose final approval of Exide’s $500M DIP loan because of inflexibility of credit facility’s budget that could leave taxpayers to clean up contamination from environmental, other disaster; follows TCEQ’s challenge to loan giving priority to lenders over environmental obligations

By Matt Chiappard

Law360, Wilmington (July 16, 2013, 9:16 PM ET) — Opposition from environmental agencies to final approval of battery manufacturing giant Exide Technologies’ $500 million bankruptcy loan is growing, with the U.S. Environmental Protection Agency and several state regulators arguing Tuesday that the credit facility’s budget may not cover emergencies.

The U.S. government, on behalf of the EPA, argued that the loan terms as they’re written don’t give Exide enough flexibility to respond to any sort of environmental or other disaster, and could force the feds to clean up the contaminated collateral at taxpayer expense.

“The debtor may contend that its hands are tied from acting even in the event of a catastrophic event or emergency because it has no authority to spend cash collateral under an approved budget and there was not sufficient time to obtain such approval from the lenders,” the motion filed in the U.S. Bankruptcy Court for the District of Delaware states. “This court should not bless such an arrangement and the threat to public health and safety that it entails …There is nothing in the Bankruptcy Code that supports providing a debtor with even the possibility of a defense or excuse for noncompliance with law because it has been unable to obtain approval of a budget.”

Environmental agencies from California, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Kansas, Mississippi and Missouri have each joined the objection, according to the motion.

The dispute stems from the interim approval Exide received from the court in June for a $500 million debtor-in-possession credit facility from JPMorgan Chase Bank NA that was split into $275 million term loan and a $225 revolving credit facility.

The loan terms faced some fire from the EPA, which claimed they could prevent Exide from complying with environmental laws, and the company added language that stated nothing in the DIP documents would relieve it from following the regulations, according to the motion.

But the feds said Tuesday that the changes didn’t go far enough and requested the order be struck down unless a provision is added that allows Exide to use cash collateral in the event of an emergency.

The feds’ objection comes two weeks after the Texas Commission on Environmental Qualitytook issue with the loan’s final approval, arguing the loan terms give priority to the DIP lenders over what it said were the company’s environmental obligations.

Exide is in the process of demolishing a battery recycling facility near Dallas, cleaning up a landfill and wastewater system used to treat slag, and bringing about 170 acres of buffering land it agreed to sell to the Frisco Economic Development Corp. and the Frisco Community Development Corp. to residential standards, according to the agency.

The TCEQ wants to see the final DIP order modified to include the obligations, even though Exide has said it will continue with the remediation.

Exide was also hit with environmental regulatory woes pre-petition when a California state agency ordered Exide to stop operations at a battery recycling facility in Vernon, Calif., a move the company had said would cost it $24 million in projected earnings over the next six months, according to court records.

But on July 2, Exide won its request for a preliminary injunction against the shutdown after a California judge ruled it had reduced pollution levels at the facility and would be likely to win its challenge to the action, according to court records.

An objection to the final DIP financing order also came from the official committee of unsecured creditors, which Tuesday blasted the loan terms for being slanted in favor of the lenders and senior secured noteholders at the expense of unsecured creditors.

The committee argued that the milestones under the loan, including ones that require Exide to finalize a business plan by the end of the year and a Chapter 11 plan by March 2014, could force it to hastily throw together a bankruptcy strategy, according to court records.

Attorneys for Exide did not immediately return requests for comment Tuesday.

The Georgia-based company, which is one of the largest producers of lead batteries for the industrial and transportation markets, filed for court protection June 10, citing a triple whammy of rising production costs, intense competition and reduced access to credit.

The U.S. government is represented by Acting Assistant Attorney General Robert G. Dreher, Alan S. Tenenbaum at the U.S. Department of Justice, U.S. Attorney for the District of Delaware Charles M. Oberly III and Assistant U.S. Attorney Ellen Slights.

Exide is represented by Kenneth S. Ziman, J. Eric Ivester, Sarah M. Ward, Peter Atkins, Anthony W. Clark, Christine W. Kim and James J. Mazza Jr. of Skadden Arps Slate Meagher & Flom LLP.

The case is In re: Exide Technologies, case number 1:13-bk-11482, in the U.S. Bankruptcy Court for the District of Delaware.

–Editing by Jeremy Barker.