IN RE BOSTON GENERATING, LLC (Bankr.S.D.N.Y. 12-3-2010)

herwise prohibited hereunder including any sale, lease, exchange, transfer or other disposition of the Collateral, whether by foreclosure or otherwise." The reason for the First Lien Agent's position is less clear and the Court will refrain from speculation on this point. Moreover, during closing argument, counsel for the First Lien Agent informed the Court that it was the position of the First Lien Agent that the consent of the First Lien Lenders, though given, was not required pursuant to section 363(f)(2) and that the Sale Transaction could be approved without such consent pursuant to section 363(f)(5).

While the term "exercise of remedies" is used in numerous provisions of the Intercreditor Agreement, it is not defined anywhere in the Intercreditor Agreement. For the purposes of this decision, I accept the Secured Parties' stipulation that there has been no exercise of remedies by the First Lien Agent. However, absent this stipulation, I may have concluded that consent under section 363(f)(2) is an exercise of the rights afforded to a secured creditor and is thus an exercise of remedies. See, e.g., In re Chrysler LLC, 405 B.R. 84, 101-02 (Bankr. S.D.N.Y. 2009). This may have altered my conclusion herein regarding standing and whether or not the objections asserted by the Second Lien Agent and the Second Lien Lenders were a violation of the Intercreditor Agreement.

The stipulation that there is no "exercise of remedies" renders sections 3.1(a) and 3.1(d)(i) inapplicable to the standing issues before the Court. The crux of the issue thus becomes the meaning of sections 3.1(b) and 3.1(g) of the Intercreditor Agreement.

There is little dispute that the Intercreditor Agreement is not a model of clarity with respect to the narrow issues before the Court. The parties all but acknowledged that, were they starting from scratch, the Intercreditor Agreement would be drafted differently. No arguments were made or evidence adduced as to the intent of the Secured Parties and, accordingly, my analysis is limited to interpreting the text of the specific provisions of the Intercreditor Agreement.

Interpreting text requires some discussion and understanding of context. If one were to explain, in lay terms, the purpose and function of an intercreditor agreement between first lien parties and second lien parties, the explanation would include the notion, as the First Lien Agent stated, that first lien lenders would be "in the driver's seat" when it came to decisions regarding collateral. In other words, or to use a different metaphor, the second lien lenders agree not to use their subordinated lien as an offensive weapon against first lien lenders with respect to collateral. Notwithstanding their agreement to be subordinated, second lien lenders do retain certain rights under a typical intercreditor agreement, including the right to appear and be heard in a bankruptcy case as unsecured creditors. This right includes making arguments that an unsecured creditor would have the standing (and the economic interest) to assert and those arguments that are not otherwise expressly waived by the intercreditor agreement. See Ion Media, 419 B.R. at 595.

Statement of Credit Suisse AG, Cayman Islands Branch, in Support of the Debtors' Bidding Procedures and Sale Motion (Docket No. 247) at 10.

The Intercreditor Agreement is an enforceable agreement under section 510(a) of the Bankruptcy Code to the extent that it is a subordination agreement. The Court should not and will not interpret it in a way that re-drafts or re-negotiates the Secured Parties' bargained-for rights. If a secured lender seeks to waive its rights to object to a 363 sale, it must be clear beyond peradventure that it has done so. Under New York law, the First Lien Lenders must point me to some provision that reflects an express or intentional waiver of rights. See Golfo v. Kycia Associates, Inc., 845 N.Y.S.2d 122, 124 (N.Y. App. Div. 2007) (compiling cases); Intercreditor Agreement section 9.11 (stating New York law applies). For example, in the May 2010 issue of the Business Lawyer, the American Bar Association published the Report of the Model First Lien/Second Lien Intercreditor Agreement Task Force which contained a Model Intercreditor Agreement, including commentary (the "ABA Model Intercreditor"). In section 6.2, the ABA Model Intercreditor contains an express waiver of the right to object to a sale pursuant to section 363 of the Bankruptcy Code. It states,

See 65 Bus. Law. 809.

Second Lien Agent, as holder of a Lien on the Collateral and on behalf of the Second Lien Claimholders, will not contest, protest, or object, and will be deemed to have consented pursuant to section 363(f) of the Bankruptcy Code, to a Disposition of Collateral free and clear of its Liens or other interests under section 363 of the Bankruptcy Code if First Lien Agent consents in writing to the Disposition provided that. . . . (i) the liens of the second lien creditors attach to the proceeds of such disposition to the extent so ordered by the court, (ii) the net cash proceeds are applied to reduce the first lien obligations permanently, and (iii) the second lien creditors will not be deemed to have waived any right to bid in connection with such disposition.

Id. at 858-59, 858 n. 67. The language in the Intercreditor Agreement falls short of such clarity.

The First Lien Agent argues that "[s]ection 3.1(b)(i) makes two points abundantly clear: first, that decisions as to whether the Collateral should be sold free and clear of liens are the exclusive province of the First Lien Agent; and second, that the Second Lien Lenders' protection comes not from overruling determinations by the First Lien Agent, but from the attachment of their liens to the proceeds of the sale." The First Lien Agent notes that section 3.1(b)(i) is conjunctive and gives the First Lien Agent "the exclusive right to enforce rights, exercise remedies . . . and make determinations regarding the release, sale, disposition or restrictions with respect to the Collateral" (emphasis added).

Statement of Credit Suisse AG, Cayman Islands Branch, in Support of the Debtors' Bidding Procedures and Sale Motion (Docket No. 247) at 8.

Id. at 10.

The Second Lien Agent argues that, "[a]ll [Section 3.1(b)(i)] means is that the First Lien Lenders do not need to consult with the Second Lien Lenders, which has been obviously the case before and after the Petition Date. But it simply does not prohibit the Second Lien Agent and the Second Lien Lenders from taking action on their own including objecting to a 363 Sale which the First Lien Lenders support." The Second Lien Agent argues, "[i]n light of the absence of an explicit prohibition against filing a 363 sale objection under the Intercreditor Agreement and the fact that general unsecured creditors can object to the Sale Transaction, the conferral under Section 3.1(g) of the Intercreditor Agreement to the Second Lien Agent and the Second Lien Lenders of rights of unsecured creditors must be viewed as granting such parties authorization to file the Objection."

Objection of Second Lien Agent to Motion of the Debtors for Entry of an Order Approving and Authorizing (a) the Sale of Substantially All of the Assets of the Debtors Free and Clear of All Claims, Liens, Liabilities, Rights, Interests and Encumbrances; (b) the Debtors to Enter Into and Perform Their Obligations Under the Asset Purchase Agreement; (c) the Debtors to Assume and Assign Certain Executory Contracts and Unexpired Leases; (d) the Transition Services Agreement; and (e) Related Relief (Docket No. 397) at 11.

Id. at 10.

Section 3.1(g)(iv) of the Intercreditor Agreement allows the Second Lien Agent to "file any pleadings, objections, motions or agreements which assert rights or interests available to unsecured creditors of the Loan Parties arising under any Insolvency or Liquidation Proceeding or Applicable non-Bankruptcy Law, in each case not inconsistent with the terms of this Agreement. . . ." The Second Lien Agent argues the Sale Transaction cannot be approved in accordance with section 363(b) of the Bankruptcy Code. Its objections (other than its arguments relating to section 363(f)) assert rights and interests available to unsecured creditors. Moreover, nothing in the Intercreditor Agreement specifically prohibits the Second Lien Agent from objecting to the Sale Transaction. The Second Lien Agent is not asserting that it has the right to direct the First Lien Agent, nor is it requesting that the First Lien Agent consult with the Second Lien Agent.

Although I believe it goes against the spirit of the subordination scheme in the Intercreditor Agreement to allow the Second Lien Lenders to be heard and to attempt to block the disposition of the Collateral supported by the First Lien Agent, I am now (as I was at the Bid Procedures Hearing) constrained by the language of the Intercreditor Agreement. After extensive briefing and oral argument as well as detailed review of the Intercreditor Agreement, the Court finds no provision which can be read to reflect a waiver of the Second Lien Agent's right to object to a 363 sale motion, either in its capacity as a Secured Party or in its capacity as an unsecured creditor. Here, the perfect storm of a poorly drafted agreement, the ill-defined scope of section 3.1(g)'s retained right to object as an unsecured creditor, and the fact that, pursuant to the Secured Parties' own stipulation, there is "no exercise of remedies" leads me to conclude that the Second Lien Agent and Second Lien Lenders have standing to object to the 363 sale.

This reading of the Intercreditor Agreement is, to say the least, a very close call. While not dispositive, additional facts that enter into the Court's analysis include: (i) the fact that the issue here is a 363 sale of substantially all of the Debtors' assets outside of a plan of reorganization, which, if approved, will effectively deprive the Second Lien Lenders of the opportunity to vote, in an economically meaningful way, on a plan of reorganization and (ii) as the Court found at the Bid Procedures Hearing, the Second Lien Lenders are on the "cusp" of a recovery and are not engaging in the type of obstructionist behavior identified by the Court in Ion Media.

See, generally, Bank of Am. v. North LaSalle St. L.P. (In re 203 North LaSalle St. Psp.), 246 B.R. 325, 331 (Bankr. N.D. Ill. 2000) (stating "§ 510(a), in directing enforcement of subordination agreements, does not allow for waiver of voting rights under § 1126(a)") and Lionel, 722 F.2d at 1070 (discussing the benefits of a plan process).

As will become apparent, however, this is a somewhat hollow victory for the Second Lien Lenders, inasmuch as I have determined, after giving full consideration to the arguments and evidence presented by the Second Lien Agent and the objecting Second Lien Lenders, to approve the Sale Transaction.

II. Sale of the Debtors' Assets under Section 363

In order to determine that the Sale Transaction can be approved, the Court must determine, consistent with well-established Second Circuit law, that section 363 of the Bankruptcy Code can be utilized for the sale of substantially all of the Debtors' assets before confirmation of a plan of reorganization; that the necessary showings for approval of any section 363 sale have been made; that the proposed sale is not a "sub rosa" plan; that the section 363 sale does not run afoul of the District Court Opinions; and that various additional objections asserted by the Second Lien Agent and the objecting Second Lien Lenders; Algonquin; and the UCC have been resolved or addressed.

(a) Utilization of Section 363

Section 363(b) of the Bankruptcy Code provides, in relevant part, that, after notice and a hearing, a debtor-in-possession "may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. § 363(b). In Lionel, the Second Circuit was called upon to determine whether, pursuant to section 363(b) of the Bankruptcy Code, a major asset of a bankruptcy estate could be sold "out of the ordinary course of business and prior to acceptance and outside of any plan of reorganization." See Lionel, 722 F.2d at 1066.

In Lionel, the Second Circuit reviewed the history of a court's administrative power under the Bankruptcy Code to authorize asset sales. Under the Bankruptcy Act, sales prior to confirmation had been limited to wasting assets, situations where the assets were physically perishable or likely to deteriorate in price. Id. at 1067. The Bankruptcy Reform Act of 1978 introduced section 363(b), which does not constrain a court with strict limitations on its ability to authorize a sale of assets and does not confine the use of section 363(b) to emergency situations only. Id. at 1069.

In its decision, the Second Circuit articulated a standard for determining when to authorize a section 363(b) sale "prior to acceptance and outside of any plan of reorganization" which strikes a balance between a debtor's ability to sell its assets and the right of a creditor to an informed vote on a plan of reorganization. The standard recognized some flexibility in allowing the court to do "what is best for the estate" while simultaneously reflecting the Second Circuit's view that section 363 does not grant a bankruptcy judge "carte blanche." Id.

The Lionel Court concluded that there has to be some articulated business justification, other than appeasement of a particular creditor, for the use, sale or lease of a debtor's property outside of the ordinary course of business. Id. at 1070. Thus, a court rendering a section 363(b) determination must "expressly find from the evidence presented . . . a good business reason to grant such application." Id. at 1071. This "good business reason" standard was articulated again in In re Chateaugay Corp. (LTV Corporation), 973 F.2d 141, 143 (2d Cir. 1992), in which the Second Circuit affirmed a sale of substantially all assets of a debtor where the debtor articulated risk of loss of value of the assets.

In Lionel, the Second Circuit found that, in making its determination as to whether to authorize a sale of assets outside of a plan pursuant to section 363 of the Bankruptcy Code, a court should consider all of the "salient factors pertaining to the proceeding" and "act to further the diverse interests of the debtor, creditors and equity holders." Lionel, 722 F.2d at 1071. The Court then set forth a nonexclusive list of factors (the " Lionel Factors") to guide a court in its consideration of the issue, which are the following:

• the proportionate value of the asset to the estate as a whole,

• the amount of elapsed time since the filing,

• the likelihood that a plan of reorganization will be proposed and confirmed in the near future,

• the effect of the proposed disposition on future plans of reorganization,

• the proceeds to be obtained from the disposition vis-a-vis any appraisals of the property,

• which of the alternatives of use, sale or lease the proposal envisions, and

• whether the asset is increasing or decreasing in value.

Id. In his decision in In re General Motors Corp., 407 B.R. 463, 490 (Bankr. S.D.N.Y. 2009) (" GM"), Judge Gerber also suggested that courts consider the following additional factors (the " GM Factors"), in appropriate cases:

• Does the estate have the liquidity to survive until confirmation of a plan?

• Will the sale opportunity still exist as of the time of plan confirmation?

• If not, how likely is it that there will be a satisfactory alternative sale opportunity, or a stand-alone plan alternative that is equally desirable (or better) for creditors? and

• Is there a material risk that by deferring the sale, the patient will die on the operating table?

In GM, Judge Gerber noted that each of the Lionel Factors, and the additional ones he suggested, support the ultimate questions that the Lionel Court identified: Is there an "articulated business justification" and a "good business reason" for proceeding with the sale without awaiting the final confirmation of a plan? See id. In addition, per Lionel, a court must consider if those opposing the sale produced evidence that would rebut the articulated business justification. Lionel, 722 F.2d at 1071.

The Court finds that the Debtors have an articulated business justification and a good business reason for selling their assets pursuant to section 363. I am going to review those Lionel and GM Factors that were central to this dispute and bear most heavily on my analysis.

Lionel Factors:

1. The Likelihood That a Plan of Reorganization Will Be Proposed and Confirmed in the Near Future

There is no basis on which the Court can find that a plan will be proposed and can be confirmed in the near future, let alone by April 30, 2011, which is the date on which the Debtors project they will run out of cash.

Matlin's proposed plan, which is reflected on a term sheet submitted on November 13 and clarified on November 14, is not confirmable. The Matlin "plan" has the support of no constituency, indeed no party, other than Matlin — not even CarVal and Fortress, who helped lead the charge of the Second Lien Lenders at the Bid Procedures Hearing. The Court finds persuasive the views of Mr. Wolf as to why the Matlin plan would be very difficult to confirm and does not reflect a commercially reasonable course of action for the Debtors. In his declaration, Mr. Wolf expressed the following concerns about the Matlin proposal:

[(a)] no lock-up of Fortress and CarVal; (b) no consent of the First Lien Lenders to the plan or even to take equity in partial satisfaction; (c) no plan support agreement from [Matlin]; (d) no consent to a priming [or pari passu] DIP loan; (e) DIP Financing subject to [Matlin]'s determination that there is a demonstrated need for financing; (f) unclear whether the proposed DIP financing is sufficient [to meet the Debtors' liquidity needs]; (g) no plan, just a plan term sheet; . . . (j) the view of the financial advisors to both the Special Committee and the Debtors, respectively, that [Matlin] had not demonstrated that the [Matlin] proposal was feasible.

Mr. Zhugayer, the independent financial advisor for the Special Committee, testified that it would have been "commercially reckless" to abandon the Constellation bid and embark on a free fall bankruptcy in order to give Matlin an opportunity to secure support from additional creditors. The Court agrees with Mr. Zhugayer.

There has been no evidence adduced as to any other prospective plan of reorganization.

2. The Proceeds to Be Obtained from the Disposition vis-a-vis Any Appraisals of the Property

The value of the Debtors' assets is at the very heart of this case. Since the beginning of the case, the Second Lien Agent and objecting Second Lien Lenders have argued that the Debtors are not getting fair market value for their assets. While there are no appraisals per se of the Debtors' assets, several data points indicate the potential value of their assets. First, there is the Sale Transaction, which represented the highest and best offer after a robust, open, and fair process in which substantial marketing and due diligence materials were widely distributed. Second, there is the bid submitted by the runner-up bidder in the pre-petition auction ("Bidder B"), whose bid was very close in amount to Constellation's bid. Third, there is Matlin's plan proposal, which Matlin asserts reflects a value of $1.35 billion. And finally, there is the valuation opinion of Mr. Judah Rose, which reflects a $1.38 billion discounted cash flow ("DCF") valuation of the Debtors' assets. Based on the entirety of the record, the Court finds that the Sale Transaction is the best determination of the value of the Debtors' assets.

(a) The $1.1 Billion Cash Sale Transaction

There is a great deal of evidence that the JPM sale process, both pre-petition and post-approval of the Bid Procedures, was well-executed and robust. No evidence was adduced during the Sale Hearing that alters the Court's finding in the Bid Procedures Decision that the sale process was properly executed to obtain the highest price. If anything, the robust post-petition marketing improved the overall sale process. JPM was knowledgeable about those parties that might be interested in purchasing the Debtors' assets. Information about the Debtors' business and regulatory upside was appropriately highlighted. Because the Debtors' sale process was heavily marketed and potential buyers were presented with abundant information, the sale process reflects a true test of value.

Mr. Carsten Woehrn, the lead banker on the JPM team that ran the sale process, was contemporaneously engaged on the sale process that was being conducted for the Comparable transaction discussed infra. The Second Lien Lenders argue that this dual representation undercut and impaired the Debtors' sale process. While not ideal, the fact that Mr. Woehrn was "wearing two hats" does not persuade the Court that the Debtors' sale process was negatively affected, or that JPM's discharge of its duties to the Debtors was compromised.

(b) Bidder B's Pre-Petition Bid

Bidder B was actively engaged in the pre-petition auction process. Bidder B is a sophisticated party who has the industry, regulatory, and financial expertise to evaluate the Debtors' assets and has sufficient capital to purchase the Debtors' assets. Bidder B made a cash bid very similar to, though slightly lower than, the Constellation bid. During the Bid Procedures Hearing, the Second Lien Lenders argued that the Debtors should have done more to continue the bidding process after Bidder B declined to top Constellation's bid. The existence and amount of Bidder B's bid provides another data point regarding the value of the Debtors' assets.

(c) Matlin's Plan Proposal

Matlin asserts that its proposal reflects an implied valuation of $1.35 billion. The record does not contain any evidence that supports this valuation. Among other things, no attempt was made to value the common stock component of the Matlin proposal. The most that can be said, based on the record of the Sale Hearing, is that Matlin purports to be willing to invest $250 million of cash to purchase preferred stock junior to $750 million of new secured debt in the reorganized Debtors.

Additionally, no other Second Lien Lender has agreed to participate in Matlin's proposal. CarVal and Fortress, who separately engaged ICF and Mr. Rose to advise them, have not signed on as co-proponents of the Matlin proposal. The lack of committed support for the Matlin proposal casts serious doubt on the implied value Matlin ascribes to it. See, e.g., In re Chemtura Corp., ___ B.R. ___, 2010 Bankr. LEXIS 3773, *123, 2010 WL 4272727, *16 (Bankr. S.D.N.Y. Oct. 21, 2010) (finding that lack of interest in proposals at certain values lends support to conclusion that value is too high).

(d) The Rose Valuation

Judah Rose, Managing Director of ICF and the Second Lien Agent's industry expert, was an impressive witness. It cannot be gainsaid that Mr. Rose is a leading expert on the energy industry generally and, in particular, on electric power. His declaration reflects a valuation that is detailed, thorough, and professional. Mr. Rose concluded, based on a DCF analysis, that the Debtors' assets are worth $1.38 billion.

There are numerous critical assumptions that underlie Mr. Rose's DCF valuation. First, there are economic assumptions that form the basis of the appropriate discount rate. Second, there are regulatory and economic assumptions about the Debtors' future revenue.

Small changes in assumptions result in substantial differences in value. See In re Chemtura Corp., 2010 WL 4272727 at *6. For example, in order to perform his DCF analysis, Mr. Rose formed a view of the discount rate. He estimated the discount rate using the Capital Asset Pricing Model with an implied weighted after-tax cost of capital of 10.4%. Key economic assumptions that underlie his DCF valuation include, inter alia: the risk-free rate of return, nominal equity rate of return, nominal debt rate of return, and debt-to-equity ratio. Other than the risk-free rate of return, which is commonly dictated by U.S. Treasury prices, the other variables involve substantial judgment on which reasonable minds can disagree. The evidence demonstrates that a small variation in the assumptions causes a large swing in value.

The Debtors highlight how Mr. Rose's revenue projections far exceed the Debtors' own projections, particularly with respect to projected forward capacity prices. Mr. Rose testified that the most important determinant of value is the forward capacity price. Forward capacity prices are currently low because capacity far exceeds demand. Where capacity exceeds demand, power generators are economically willing to sell at their marginal cost. However, economically rational power generators will not build new plants until the forward capacity price equals the cost of new entry. Assuming demand growth and steady capacity, at some point, demand will grow to exceed capacity and a new power plant will need to be built (a point Mr. Rose refers to as "Equilibrium"). Equilibrium is the point at which Mr. Rose estimates prices will increase from the current price of approximately $3/kW-month (with a corresponding 2011 projected EBITDA of $69 million) to approximately $16/kW-month (with a corresponding 2018 projected EBITDA of $283 million).

The key variable in determining Equilibrium is demand growth. Mr. Rose believes that for the years 2012, 2013, and 2014, ISO-NE summer peak demand growth will be 2.8%, 2.8%, and 1.9%, respectively. ISO-NE's projections for the same period are 1.6%, 1.2%, and 1.3%, respectively. These seemingly small differences cause multi-year shifts in the Equilibrium date. Shifting Equilibrium by one year changes the value of the Debtors' assets by approximately $100 million.

Mr. Rose believes ISO-NE's demand growth projections are wrong. He testified that ISO-NE has historically under-forecasted demand, while his forecasts have been historically correct. Nonetheless, ISO-NE uses its forecasts to set prices and policy. Mr. Rose posits that when actual future demand proves ISO-NE wrong, prices will be even higher, as ISO-NE will have failed to encourage appropriately timed new entry into the market.

Equilibrium is also accelerated by decreasing capacity. Mr. Rose believes that older power plants that currently sell capacity into the forward capacity market will be retired in the near future. He posits that increasingly onerous environmental regulation will make older polluting plants uneconomical and they will thus be retired. One of these plants is Mystic 7 and is owned by the Debtors. Thus, a buyer of the Debtors' assets will be able to influence market capacity. The retirement of these plants will further decrease capacity.

Mr. Rose's demand and price projections are heavily contingent on a wide range of factors, including future regulatory reform, the timing of regulatory reform, demand for electricity (which is, in itself, contingent on broad economic factors), environmental regulation, retirement of competing plants, cost of plant operation, energy costs, construction costs, and other costs of new entry. Changes to these variables result in dramatically different forward capacity prices and dramatic swings in value.

Given Mr. Rose's firm view that the Debtors' assets are worth $1.38 billion, what is the explanation for the quarter billion dollar gap between his valuation and the amount of the Sale Transaction? Simply put, Mr. Rose believes he is right and the market is wrong. It is generally accepted, however, that absent a showing that there has been a clear market failure, the behavior in the marketplace is the best indicator of enterprise value. See, e.g., In re Chemtura Corp., 2010 WL 4272727 at *16 n. 106; Bank of America Nat. Trust and Sav. Ass'n v. 203 North La Salle Partnership, 526 U.S. 434, 457 (1999) (acknowledging "the best way to determine value is exposure to a market" rather than a determination by a bankruptcy judge); In re Granite Broad. Corp., 369 B.R. 120, 143 (Bankr. S.D.N.Y. 2007) ("there is no dispute that in many circumstances the best evidence of value is what a third party is willing to pay in an arm's length transaction"); VFB LLC v. Campbell Soup Co., 482 F.3d 624, 633 (3d. Cir. 2007) ("[a]bsent some reason to distrust it, the market price is `a more reliable measure of the stock's value than the subjective estimates of one or two expert witnesses.'" (citation omitted)). Mr. Zughayer echoed this view in his testimony during the Sale Hearing, stating, "the market is very efficient . . . as long as you go to a broad enough swathe of potential buyers, the market will tell you what the asset is worth." As Chief Judge Gonzalez noted in Chrysler, "the true test of value is the sale process itself." In re Chrysler LLC, 405 B.R. at 98.

Mr. Rose posits that the market failure, in this case, is the failure to understand or anticipate future regulatory changes. His analysis "assumes the value of the power plants is the value realizable via a sale process that adequately accommodates the expected reforms of the ISO-NE capacity market. These reforms are currently being conducted by [FERC]. . . . FERC is scheduled to [issue its reform order] before March 1, 2011. . . . The goal is to provide adequate information to the set of potential purchasers of the EBG plants [on] the expected impacts of the forthcoming FERC Order." Mr. Rose explains the difference between the $1.1 billion Sale Transaction and his valuation by stating, "First, the sale occurred before the market participants, especially the marginal buyer, had time to properly consider the impacts of the FERC reforms. . . . Second, Boston Generating and its professionals failed to provide adequate information about the potential increased revenues of the plant due to the fast moving reform process." The Court disagrees with Mr. Rose on these critical points, for the following reasons.

Declaration of Judah Rose, dated November 15, 2010 at ¶ 15. The Declaration of Judah Rose was admitted into evidence at the Sale Hearing.

Id. at ¶ 26.

First, the Debtors and their professionals did provide adequate information to potential bidders about the possibility of increased revenues that could result from FERC reforms. JPM's management presentation presented to bidders clearly highlight regulatory upside, specifically stating that "[p]roposed modifications to Forward Capacity Market . . . provide potential upside." The record at the Bid Procedures Hearing also includes detailed testimony and documentary evidence regarding potential regulatory developments elicited by Algonquin's counsel. Interested parties, both strategic and financial — and including Bidder B — were sophisticated and experienced investors and industry participants who had the financial and regulatory expertise to analyze the public FERC docket.

Exhibit 41 (Sale Hearing) at p. 11.

Second, although armed with unfettered access to Mr. Rose's knowledge and expertise, CarVal and Fortress did not bid on the Debtors' assets. Mr. Rose was retained by the Second Lien Agent, CarVal, and Fortress during the sale process. The First Lien Agent introduced email correspondence between CarVal and Fortress, on the one hand, and Mr. Rose, on the other hand, in which CarVal and Fortress: (i) discuss bidding on the Debtors' assets, (ii) receive Mr. Rose's views on the very regulatory issues Mr. Rose posits that the market misunderstands, and (iii) demonstrate a high level of knowledge about the FERC issues, including issues specific to the Boston power market discussed extensively in Mr. Rose's testimony. Thus, potential bidders

with sufficient capital and demonstrated interest had actual knowledge of the key regulatory issues identified by Mr. Rose. They chose not to top Constellation's bid.

See In re Granite Broad. Corp., 369 B.R. at 140-141, noting that, in appropriate circumstances, "`[p]eople who must back their beliefs with their purses are more likely to assess the value of the [asset] accurately than are people who simply seek to make an argument.'" (quoting In re Central Ice Cream Co., 836 F.2d 1068, 1072 n. 3 (7th Cir. 1987)); In re Chemtura Corp., 2010 WL 4272727 at *16 n. 110 (same); In re Central Ice Cream Co., 836 F.2d at 1072 n. 3 ("[a]stute investors survive in competition; those who do not understand the value of assets are pushed aside. There is no similar process of natural selection among expert witnesses and bankruptcy judges.").

In the Court's view, contrary to Mr. Rose's opinion, there was no market failure. Parties did obtain and process relevant information. In response to a direct question from the Court, Mr. Rose could not explain why no bidders (including his own clients) would pay more than $1.1 billion for the Debtors' assets. He reasoned that they did not understand the regulatory and economic environment, or that the market did not have the time (or the ability) to fully digest the complexities of the regulatory environment. In sum, Mr. Rose seems to be of the view that it was unlikely that anyone understood the issues other than him.

Lastly, Mr. Rose (and the Second Lien Lenders) touted the allegedly most comparable plant (the "Comparable") in support of his valuation. The Comparable's facility is similar to the Debtors' combined cycle plants in certain respects, as articulated by Mr. Rose, but it is also different in certain ways identified by Mr. Rose and in ways of which Mr. Rose was not aware. At the Sale Hearing, Mr. Rose conceded that power plants are not commodities, and his valuation explicitly states that comparable transactions are not the best way to value power plants. While the Comparable provides another data point, its existence does not change the Court's conclusion regarding the value of the Debtors' assets; certain confidential testimony given by Mr. Rose regarding the Comparable also does not change the Court's conclusion.

There was no evidence presented on which the Court could base a conclusion that Mr. Rose can accurately predict market outcomes. In order to draw a conclusion as to the predictive validity of Mr. Rose's model, the Court would require evidence of how often the model accurately predicted market outcomes and how often it did not. In other words, there should be no cherry-picking of the data, i.e., pointing to one piece of data that supports a particular conclusion, while ignoring other data that may contradict that conclusion. See Oxford English Dictionary Online (November 2010), available at www.oed.com (defining "cherry-pick" as "to choose selectively (the most beneficial or profitable items, opportunities, etc.) from what is available"). At best, Mr. Rose's view of the Comparable reflects a piece of anecdotal evidence of questionable applicability to the Sale Transaction.

Finally, it bears noting that Mr. Rose's valuation was presented after the Bid Deadline. The Second Lien Lenders, however, had retained Mr. Rose during the pre-petition marketing process; Mr. Rose attended the Bid Procedures Hearing; and Mr. Rose indicated that he would have been willing to testify to value at the Bid Procedures Hearing, if asked. I do not fault Mr. Rose for the timing of his valuation. However, there is no credible explanation for why his valuation was introduced so late in the process. The Second Lien Agent apparently made a purposeful decision not to bring Mr. Rose's valuation forward until the thirteenth hour. Here, where the Second Lien Lenders have relentlessly complained about the Debtors' process, it is worth noting how they chose to conduct themselves on this critical issue.

Based on the entirety of the evidence, the Court finds that the market price, represented by the Sale Transaction, is the best valuation for the Debtors' assets.

3. Whether the Asset is Increasing or Decreasing in Value

In Lionel, the Second Circuit stated that this factor is to be the most important one, see Lionel, 722 F.2d at 1071; I find that it favors the proposed sale of the Debtors' assets. The Debtors' liquidity in 2010 allowed them to engage in a robust marketing process and to position their assets for sale well ahead of the projected point in time when they would be perceived to be a distressed seller. In light of the time between negotiating a new transaction and obtaining FERC approval, the Debtors' negotiating leverage will decrease if they are forced to sell their assets under duress arising from liquidity issues. Decreased leverage inevitably leads to a lower price, worse terms, or both.

Mr. Rose asserted his belief that delay increases the value of the Debtors' assets because it will increase clarity on future regulatory reform. The Court disagrees. This argument was extensively explored at the Bid Procedures Hearing. The Court's findings in the Bid Procedures Decision still stand, and, as discussed infra, the value of the Debtors' assets may indeed have already declined.

According to Mr. Rose, this occurs for three reasons. First, any delay allows for improvements in the information provided to the market, especially if a delay extends the sale past March 1, 2011, the expected timing for the completion of the FERC regulatory reform process. Second, there might be additional power plant sales transactions in the interim which might provide information on the value. Third, the prices for capacity and energy are forecasted to increase over time given the expected reforms, and, as one approaches the date of this market improvement and reduced regulatory uncertainty, the large amount of discounting in Mr. Rose's DCF analysis is lessened.

GM Factors:

1. Does This Estate Have the Liquidity to Survive Until Confirmation of a Plan?

Mr. Hunter projects that, if the Debtors continue to operate through 2011, they will run out of cash on or about April 30, 2011. This testimony was credible and consistent with his testimony at the Bid Procedures Hearing and confirms the Debtors' business judgment that they are liquidity-constrained and will have a negative cash position as of April 2011.

Certain objectors, including Matlin and the Second Lien Agent, argue that the Debtors have sufficient cash to operate until confirmation of a plan, which includes either a sale or a stand-alone restructuring. The Court disagrees. It is not reasonable to believe that these Debtors, in light of their current liquidity situation and capital structure, can confirm a plan without a great deal of litigation, and they certainly cannot confirm a plan in the near future. Given the costs and time associated with confirming a plan under these circumstances, I find that the Debtors do not have the liquidity to survive until confirmation of a plan.

2. Will the Sale Opportunity Still Exist As of the Time of Plan Confirmation?

There is no evidence that the Sale Transaction will remain available, and the Second Lien Agent concedes that it "probably" will not exist at the time a plan is confirmed. Constellation can terminate the Asset Purchase Agreement if the Court does not enter a sale order reasonably satisfactory in form and substance to Constellation on or before November 24, 2010. See In re General Motors Corp., 407 B.R. at 491 (discussing approval of the Adelphia section 363 sale where intercreditor disputes made it impossible to confirm a plan in time to save the sale opportunity). Moreover, evidence was presented that natural gas prices have declined since August 7, 2010 and (all other things being equal) this decline decreased the value of the Debtors' assets. Should Constellation remain interested in buying the Debtors' assets, there can be no assurance (and it seems highly unlikely) that it would continue to agree to pay $1.1 billion in cash for the assets. The Second Lien Lenders bemoan the fact that Bidder B did not submit a topping bid for the Debtors' assets. Bidders routinely move on to the next transaction when it suits their interests to do so. It is a real possibility that Constellation may move on as well.

The fact that the Sale Transaction probably will not exist at the time of a plan confirmation — whenever that might occur — weighs in favor of approving the Sale Transaction.

3. How Likely Is It that There Will Be a Satisfactory Alternative Sale Opportunity, or a Stand-Alone Plan Alternative That Is Equally Desirable (or Better) for Creditors?

As discussed above, the record reflects that, on the Bid Deadline, Matlin tendered a "proposal" to the Debtors. The infirmities of the proposal were identified and discussed with Matlin as reflected in the declaration filed by Mr. Wolf. In addition, both Mr. Wolf and Mr. Hunter testified that the Matlin proposal does not reflect a confirmable plan of reorganization. The Court agrees. No other potential bidder submitted a Qualified Bid to the Debtors by the Bid Deadline which would lead me to conclude that an equally desirable or better alternative exists now or will materialize in the future.

4. Is There a Material Risk That, by Deferring the Sale, the Patient Will Die On the Operating Table?

The evidence presented by the Debtors leads the Court to conclude that, if the Debtors were to abandon the Sale Transaction (deferral not being a realistic option), there is a material risk that, although the Debtors may not "die," their condition would significantly deteriorate. The Debtors do not have sufficient liquidity to continue operating without DIP financing, and, even if they were to obtain such financing, there is no guarantee that they would be able to obtain a different purchaser with a higher and better offer during the period in which financing remains intact. As the Court observed in the Bid Procedures Decision, if the Debtors were to wait until they were severely cash-constrained, there well could be degradation in the value of their assets simply because buyers may perceive that the Debtors needed to sell the assets immediately.

For all of the foregoing reasons, the Court concludes that there exists an articulated business justification and a good business reason to grant the Sale Motion now and not wait for confirmation of a plan of reorganization.

(a) Compliance with Standards for Approval of Section 363 Sales

Having concluded that the requisite articulated business justification and good business reason exist for the Sale Transaction, the Court now must determine whether the routine requirements for section 363 sales, and appropriate exercise of the business judgment rule, have been satisfied. Specifically, in addition to determining that the Debtors have complied with the business judgment rule, the Court must be satisfied that (i) proper notice has been given to all creditors and interested parties; (ii) the proposed sale price is fair and reasonable; and (iii) the purchaser is proceeding in good faith. See, e.g., In re General Motors Corp., 407 B.R. at 493-94.

The Court is satisfied that each of these factors has been met. First, the Debtors provided appropriate notice of the sale to all interested parties. Second, consistent with the Court's findings herein, the proposed purchase price is fair and reasonable. The Debtors conducted a robust marketing process, and, despite testimony otherwise as to the potential value of the Debtors' assets, the Debtors received no higher and better offers.

I next turn to the question of whether the purchaser, Constellation, has acted in good faith. The Court finds that, both for the purpose of approval of the sale and for the purpose of the protections provided by section 363(m) of the Bankruptcy Code, Constellation is a good faith purchaser. No party has questioned Constellation's good faith in this process, and the evidence establishes that the negotiations between Constellation and the Debtors were conducted with integrity and at arms' length.

Consistent with the Court's Bid Procedures Decision, I again find that the Debtors have satisfied the business judgment rule. The business judgment rule entails "(1) a business decision, (2) disinterestedness, (3) due care, (4) good faith, and (5) according to some courts and commentators, no abuse of discretion or waste of corporate assets." In re General Motors Corp., 407 B.R. at 495 (citation omitted).

Both Matlin and the Second Lien Agent have, in essence, argued that the Debtors have not exercised due care or good faith in proposing the current Sale Transaction. Matlin in effect argues that the Debtors are pursuing a federal foreclosure at the sole request of the First Lien Lenders. Matlin further argues that the Debtors have abrogated their fiduciary duties by failing to abandon the Sale Transaction to continue to negotiate the plan of reorganization proposed by Matlin. The Court disagrees. To the contrary, as Chief Judge Gonzalez noted in Chrysler, "to suggest that the Debtors should have pursued proposals that could not have been consummated . . . is to suggest that the Debtors should have breached their fiduciary duty." In re Chrysler LLC, 405 B.R. at 105.

The Debtors, in discharging their fiduciary obligations, must balance the interests of all creditors. See In re Integrated Resources, 147 B.R. 650, 658 (S.D.N.Y. 1992). In the Bid Procedures Decision, the Court found that the Debtors discharged their fiduciary duties to all creditors in good faith and satisfied the business judgment standard. Nothing has come to light since that decision, including the new evidence adduced by the Second Lien Lenders regarding the tax implications and timing of the sale process via-a-vis the interests of USPG and its equity holders, that causes the Court to change its determination in that regard. For the reasons articulated herein, the Court finds that the Debtors have demonstrated that the Special Committee's decision to move forward with the Sale Transaction now is a valid exercise of business judgment and that each of the factors of the business judgment test have been met.

(c) "Sub Rosa" Plan

The Second Lien Agent and objecting Second Lien Lenders contend that, by proposing the Sale Transaction, the Debtors have proposed the implementation of a forbidden "sub rosa" plan. The Court finds that they have not.

Caselaw in this Circuit and this District recognizes that "the debtor and the Bankruptcy Court should not be able to short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan `sub rosa' in connection with a sale of assets." See In re General Motors Corp., 407 B.R. at 495 (citing In re Iridium Operating LLC, 478 F.3d 452, 466 (2d Cir. 2007)); see also In re Chrysler LLC, 405 B.R. at 97. Here, the proposed sale of the Debtors' assets is not a "sub rosa" plan of reorganization. The Debtors' assets are simply being sold; the First Lien Lenders will receive most of the proceeds in accordance with their lien priority; and remaining consideration will be subsequently distributed under a plan. As the Court has held, the proposed Sale Transaction has a proper business justification and is not calculated to evade the plan confirmation process.

III. Sale Free and Clear Pursuant to Section 363(f)

Section 363(f) of the Bankruptcy Code authorizes a debtor to sell property under section 363(b) "free and clear of any interest in such property of an entity other than the estate" if one of the following conditions is satisfied:

1) applicable nonbankruptcy law permits the sale of such property free and clear of such interest;

2) such entity consents;

3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;

4) such interest is in bona fide dispute; or

5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

11 U.S.C. § 363(f). The Second Lien Agent argues that none of the five conditions of section 363(f) has been satisfied. The Debtors and the First Lien Agent argue that the Court can

If the Court were to have held that the Second Lien Agent did not have standing or had standing only to object as an unsecured creditor, the Second Lien Agent arguably would not be able to assert its 363(f) objection.

nonetheless approve the Sale Transaction under section 363(f)(3), or alternatively, under section 363(f)(5). The Court finds that both sections 363(f)(3) and section 363(f)(5) are satisfied.

(a) Section 363(f)(3)

The Second Lien Agent argues that the Sale Transaction cannot satisfy the requirements of section 363(f)(3) with respect to the liens of the Second Lien Lenders. In support of its position, the Second Lien Agent primarily relies on Clear Channel Outdoor, Inc., v. Knupfer (In re PW, LLC), 391 B.R. 25 (9th Cir. B.A.P. 2008) (" Clear Channel"). Clear Channel interpreted the term "value," as used in section 363(f)(3), to refer to the face amount of the lien. Accordingly, the Second Lien Agent argues that, in order to satisfy section 363(f)(3), the proceeds of the Sale Transaction must exceed the aggregate amount of the First Lien Debt and the Second Lien Debt, which amounts to approximately $1.45 billion.

I decline to follow Clear Channel; rather, on the whole, the Court finds cases such as In re Beker Industries Corp., 63 B.R. 474 (Bankr. S.D.N.Y. 1986) to be more persuasive than Clear Channel in their interpretations of a less than perfect statutory provision. As this Court held in Beker Industries, section 363(f)(3) should be interpreted to mean that "the price must be equal to or greater than the aggregate value of the liens asserted against it, not their amount." Id. at 476 (emphasis added).

Admittedly, the reasoning of Beker is not free from doubt inasmuch as the words "equal to" do not, in fact, appear in section 363(f)(3). The key to Beker, however, is its focus on the value of the asserted liens, as opposed to their amount, and its recognition that Congress, in enacting the Bankruptcy Code, consistently focused on protecting the value of a lienholder's collateral and ensuring that a lienholder would not be deprived of its rights in collateral without appropriate compensation. Such is the case here, where a robust sale process, if consummated, will lead to sale proceeds being distributed in accordance with lien priority.

The "value" of a lien is to be determined by reference to section 506(a) — that is, it is the amount by which the lienholder's claim is actually secured. See Beker, 63 B.R. at 475; see also United Sav. Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 372 (1988) ("The phrase `value of such creditor's interest' in § 506(a) means `the value of the collateral.'" (citations omitted)). As this Court previously held, the best evidence of the value of the Debtors' assets is the $1.1 billion Constellation bid. Based on Mr. Hunter's testimony, the proceeds of the Sale Transaction may be insufficient to pay the First Lien Debt in full; if that is the case, then the Second Lien Lenders' claims are not secured. Under Beker and the many decisions of other Bankruptcy Courts following its reasoning, I find that section 363(f)(3) is satisfied. To hold otherwise would effectively mean that most section 363 sales of encumbered assets could no longer occur either (a) absent consent of all lienholders (including those demonstrably out of the money) or (b) unless the proceeds of the proposed sale were sufficient to pay the face amount of all secured claims in full. If section 363(f)(3) and (as discussed below) section 363(f)(5) are read in the manner suggested by the Second Lien Lenders, it seems unlikely that a Court, under any circumstance, could approve a non-consensual section 363 sale. As both a practical matter and a matter of statutory construction, that cannot be the case. It is hard to imagine that Congress intended to so limit a debtor's power to dispose of encumbered assets, particularly where such disposition otherwise satisfies the requirements of section 363(b).

(b) Section 363(f)(5)

The Second Lien Agent argues that the Debtors have not met their burden to prove that the Second Lien Lenders could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of their liens. It relies on Clear Channel, where the Court held that (i) the fact that a lender could be satisfied with money in respect of credit extended and (ii) the existence of cramdown under section 1129(d) did not mean there were legal or equitable proceedings that could compel satisfaction of a junior lien for less than payment in full. Clear Channel, 391 B.R. at 45-47. As noted above, this Court declines to follow Clear Channel. Section 363(f)(5) does not require that the sale price for the property exceed the value of the interests. As recognized in a post- Clear Channel decision from a Bankruptcy Court in the Ninth Circuit, the existence of judicial and nonjudicial foreclosure and enforcement actions under state law can satisfy section 363(f)(5). See In re Jolan, Inc., 403 B.R. 866, 870 (Bankr. W.D. Wash. 2009). Numerous legal and equitable procedures exist by which the Second Lien Lenders could be forced to accept less than full payment of the Second Lien Debt. Thus, the Court finds that because the Second Lien Lenders could be compelled under state law to accept general unsecured claims to the extent the sale proceeds are not sufficient to pay their claims in full, section 363(f)(5) is satisfied.

See also Frank A. Oswald and Andy Winchell, " Missing the Forest for the Trees in § 363: How the Ninth Circuit's Bankruptcy Appellate Panel Neglected the Big Picture in the Clear Channel Decision" No. 4 Norton Bankr. L. Adviser 2 (April 2009).

Under New York law, a junior lienholder (either in a foreclosure of real property or of collateral under the Uniform Commercial Code) is entitled to nothing more than the surplus cash generated in a sale. See, e.g., N.Y. U.C.C. §§ 9-608, 9-615; see also N.Y. Real Prop. Acts. Art. 13. Similar laws exist in Massachusetts.

IV. Objections of the Official Committee of Unsecured Creditors

The UCC argues that if the Sale Transaction is approved, the proceeds should be placed in escrow pending the expiration of the UCC's challenge period. The proposed sale order provided for the distribution of substantially all the proceeds to the First Lien Lenders to pay down the First Lien Debt, but it also provided for a holdback of funds sufficient to cover the alleged amount of certain claims the UCC may seek standing to assert pursuant to In re STN Enterprises, 779 F.2d 901, 904 (2d Cir. 1985) and its progeny. The Sale Transaction proceeds withheld will ultimately fund distributions under a plan of liquidation. The objections of the UCC have thus been addressed.

V. Additional Objections

(a) Entire Fairness

Matlin argues that an entire fairness standard, rather than a business judgment standard, should be applied to the Sale Transaction because, inter alia, members of the Debtors' Board, other than Mr. Wolf, were affiliated with USPG (the Debtors' non-debtor ultimate parent). Matlin alleges that those Board members stood to gain financially from tax benefits flowing to USPG from the sale of the Debtors' assets. The essence of Matlin's argument is that the Debtors' sales process was "tainted" because the Debtors' USPG-affiliated board members had "personal and economic allegiances to entities other than the Debtors." Matlin thus argues that an entire fairness standard is applicable to the Sale Transaction. In addition, Matlin urges that the "belated constitution" of the Special Committee with the power to make the ultimate decision to move forward with the Sale Transaction is insufficient to "overcome entire fairness."

Objection of MatlinPatterson Global Advisers LLC to the Motion of the Debtors for Entry of an Order Approving and Authorizing the Sale of Substantially All of the Assets of the Debtors Free and Clear of Claims, Liens, Liabilities, Rights, Interests and Encumbrances (Docket No. 404) at ¶¶ 2, 26, 33.

Matlin argues that "when management is tainted by conflicts of interest, Delaware law imposes a heavy burden on them to justify their decisions as entirely fair" and that, per the decision in Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983), in order to satisfy the "entire fairness" standard, the Debtors need to demonstrate both fair process and fair price.

Id. at ¶ 25.

Contrary to Matlin's assertions, the Court finds that the Debtors' USPG-affiliated Board members did not have personal and economic allegiances to entities other than the Debtors that infected their decisions regarding disposition of the Debtors' assets. Substantial testimony and deposition designations were introduced, both at the Bid Procedures Hearing and the Sale Hearing, that revealed, not surprisingly, that the Debtors and USPG engaged in tax planning. This tax planning focused on what other actions could be taken to produce the optimal tax results in the event of a 2010 sale of the Debtors' assets. Absent some other tax event (e.g., a deconsolidation or liquidation) the Sale Transaction will produce certain "negative" tax consequences. Matlin and the Second Lien Agent specifically argue that the timing of the Sale Transaction was motivated by securing tax benefits for USPG. The Court does not agree. The record does not support such a finding. Mr. Hunter, for example, stated that USPG would have been equally happy from a tax perspective to close the Sale Transaction in 2010 or 2011; indeed, under some tax scenarios, it may have been better to close the Sale Transaction in 2011. The documents, deposition designations, and testimony adduced by the Second Lien Agent on this point fail to convince the Court that there was a conflict regarding the timing of the sale process that infected the decision of the Board, or that the Board acted based on personal or economic allegiances to entities other than the Debtors.

Mr. Hunter testified that the timing of the Sale Transaction was motivated by concerns about the Debtors' liquidity and by advice rendered to the Debtors by their advisors concerning market conditions. The Debtors' Board, including those Board members affiliated with USPG, determined to sell the Debtors' assets in 2010 because they believed it would lead to the highest and best recovery for creditors and not for any improper purpose.

Finally, as to the actions of the Special Committee, the Court has already found that the Special Committee made an informed and reasonable choice to move forward with the Sale Transaction. The Court's conclusions in the Bid Procedures Decision regarding Mr. Wolf's active engagement, knowledge, and experience were, if anything, bolstered by the testimony at the Sale Hearing. The Special Committee received independent advice after the Bid Procedures were approved that assisted it in responding to post-petition bids. The Special Committee's

approval of the Sale Transaction provides "belt and suspenders" to an otherwise supportable decision of the Debtors' Board.

Accordingly, an entire fairness standard does not apply here. Additionally, even if an entire fairness standard were applicable, I find that the sale process and price are fair, for the reasons stated above.

(b) Distribution of "Amounts Due" to the Second Lien Agent

Under the distribution terms of the proposed sale order, substantially all of the Sale Transaction proceeds will be distributed immediately to the First Lien Agent and the First Lien Lenders. The proposed sale order did not reserve for "amounts due" to the Second Lien Agent as such term is used in section 4.1 of the Intercreditor Agreement.

The First Lien Agent and Second Lien Agent have disagreed about the interpretation of section 4.1 of the Intercreditor Agreement. Section 4.1, if applicable, directs that all "amounts due" to the First Lien Agent and the Second Lien Agent be paid before any interest or principal to First Lien Lenders. The First Lien Agent asserts that section 4.1 does not apply in the instant case because there has been no "exercise of remedies." The Second Lien Agent argues that section 4.1 applies to all distributions of Collateral.

The Court declines to determine in this decision what are essentially disputed priority rights between the First Lien Lenders and the Second Lien Lenders. Such decisions are more appropriately rendered during the plan process, or via adversary proceeding between the Secured Parties. See, e.g., Contrarian Funds, LLC v. Westpoint Stevens Inc. (In re Westpoint Stevens Inc.), 333 B.R. 30, 51-52 (Bankr. S.D.N.Y. 2005). The Debtors should establish a reserve funded from the Sale Transaction proceeds in an amount that reasonably estimates the alleged "amounts due" to the Second Lien Agent (including fees and expenses of counsel and advisors), pending agreement by the Secured Parties or further order of the Court on this issue.

CONCLUSION

After having given due consideration, among other things, to the factors set forth in Lionel and in General Motors, the Court finds that all relevant standards have been established to grant the relief requested by the Debtors. Further, the Court finds that (i) the Sale Transaction is consistent with the District Court Opinions and the Bankruptcy Code, (ii) the Sale Transaction does not implement a "sub rosa" plan; (iii) the assets in the Sale Transaction can be sold free and clear of liens, claims, interests, and encumbrances pursuant to section 363(f) of the Bankruptcy Code; and (iv) the protections of a good faith purchaser pursuant to section 363(m) shall apply to Constellation.

The Sale Motion is granted in its entirety, and the Debtors' entry into and performance under and in respect of the Asset Purchase Agreement and the Sale Transaction are hereby approved. All objections, if any, to the Sale Motion or the relief requested therein that have not been withdrawn, waived, or settled as announced to the Court at the Sale Hearing or by stipulation filed with the Court, and all reservation of rights included therein, are hereby overruled, except as expressly provided in the final order approving the Sale Transaction entered on November 24, 2010 (the "Sale Order").

Order Authorizing (A) the Sale of Substantially All of the Assets of the Debtors Free and Clear of All Claims, Liens, Liabilities, Rights, Interests and Encumbrances; (B) the Debtors to Enter Into and Perform Their Obligations Under the Asset Purchase Agreement; (C) the Debtors to Assume and Assign Certain Executory Contracts and Unexpired Leases; (D) Approving the Transition Services Agreement; and (E) Granting Related Relief (Docket No. 494).

Consistent with and pursuant to the Court's bench ruling on November 24, 2010, this opinion shall supersede such bench ruling, the text of which was filed as an exhibit to the Sale Order; as indicated on the record on November 24, 2010, the filing of this opinion today shall not affect the time period for filing a notice of appeal pursuant to Federal Rule of Bankruptcy Procedure 8002 or the stay imposed by Federal Rules of Bankruptcy Procedure 6004(h) and 6006(d), which began to run on November 24, 2010.

The Court is aware that two notices of appeal and certain related motions were filed between November 30, 2010 and December 2, 2010. The Court has not reviewed any of these pleadings prior to issuing this opinion.

Dated: New York, New York

December 3, 2010