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Law360 (April 15, 2020, 8:18 PM EDT) -- Holders of season ticket packages for the bankrupt XFL will have to wait a month before they are able to get refunds for their payments after a Delaware judge said Wednesday she couldn't authorize those refunds on the first day of the case.
During a hearing conducted by phone and video conference, U.S. Bankruptcy Judge Laurie Selber Silverstein said only relief that would avoid immediate and irreparable harm could be approved by the court, and ticket holder refunds would have to wait for a second-day hearing after parties receive proper notice of the motion.
The debtor asked to pay $3.5 million in refunds to season ticket holders for the alternative football league who opted to roll over their payments after the season was canceled in March due to the outbreak of COVID-19. The rollover applied their payments to tickets for next season in the hopes that the league could be revived after the pandemic subsides, but the Chapter 11 filing earlier this week foreclosed that possibility, according to the debtor.
"We believe it's appropriate to start this process and get the refunds out the door," debtor attorney Matthew P. Milana of Young Conaway Stargatt & Taylor LLP. "We do believe it's justified, and we do believe it's necessary to maintain goodwill at the business, which will provide value in the near term and in a potential sale process."
Judge Silverstein said she appreciated the company's position but explained that the Bankruptcy Code didn't allow for such spending at the beginning of a case without input from other parties who didn't receive notice of the motion, including any potential committee of unsecured creditors.
"I think it's a laudable goal, but I think it will be a laudable goal 21 days from now or whenever we have the second-day hearing if there are no objections," the judge said. "My inclination is this should be noticed out, and it should be done on a second day given the nature of this bankruptcy and the fact we will still be at a point where that value can be maintained."
Other ticket holders who didn't opt to roll over their ticket payments have already received refunds, according to the debtor.
The court had similar concerns with a proposed $3.5 million debtor-in-possession financing package being provided by XFL founder, majority owner and prepetition lender Vince McMahon, the CEO of World Wrestling Entertainment. Judge Silverstein said the debtor had more than $5 million in cash on hand and that its spending projections called for expenditures that wouldn't exhaust those funds.
Even the interim request to draw $750,000 under the proposed DIP package wasn't needed given the company's cash position and its access to its lender's cash collateral ahead of a second-day hearing, the court said.
"We're talking about financing for this debtor, which is liquidating, to get to a second-day hearing," Judge Silverstein said. "The full amount of the DIP financing can be considered and approved if appropriate, and parties will then have the time to weigh in on the terms and have an opportunity to review it."
She said the cash collateral portion of the request would provide access to about $1.5 million in additional funds to the debtor and that she would approve that access.
McMahon's attorney James A. Wright III of K&L Gates LLP said he would need to check with his client before he could say the changes to the proposed DIP would be acceptable to McMahon. But he said he didn't think it would be a problem to make the advances after consideration at a second-day hearing.
XFL's parent company, Alpha Entertainment LLC, filed for Chapter 11 protection Sunday less than a month after the cancellation of the remainder of its season due to the COVID-19 outbreak. At the time of the cancellation, the eight-team football league had played half of its 10-week schedule, according to court filings.
Its only prepetition secured debt came in the form of a $7 million bridge loan provided by McMahon in late March, which was intended to bolster the league's liquidity in the face of the shutdown. By April 10, however, debtor attorneys said leadership was forced to cease operations and terminate most of its employees.
While in Chapter 11, the XFL intends to run a sale process for the assets, the most valuable of which are intellectual property, including the XFL brand and slogan: "For the Love of Football." Bidding procedures to govern that sale and marketing process are slated to be filed early next week, according to the debtor.
McMahon first tested the waters of professional football in 2001 when he partnered with NBC to start the original iteration of the XFL. It held games for one season before folding. McMahon created the debtor, Alpha Entertainment LLC, in 2018 to explore reviving the venture, which had completed five weeks of games before suspending its season.
The XFL's eight teams were the D.C. Defenders, the Dallas Renegades, the Houston Roughnecks, the Los Angeles Wildcats, the New York Guardians, the St. Louis BattleHawks, the Seattle Dragons and the Tampa Bay Vipers.
A second-day hearing in the case is scheduled for May 13.
Alpha is represented by Michael R. Nestor, Matthew B. Lunn, Kenneth J. Enos, Travis G. Buchanan, Shane M. Reil and Matthew P. Milana of Young Conaway Stargatt & Taylor LLP.
McMahon is represented by James A. Wright III of K&L Gates LLP.
The case is In re: Alpha Entertainment LLC, case number 1:20-bk-10940, in the U.S. Bankruptcy Court for the District of Delaware.
--Additional reporting by Rose Krebs. Editing by Haylee Pearl.
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