In Phonic, Inc (INPC)

[Bigstud is here]

InPhonic Gets OK to Borrow $2.3M
Associated Press 12.12.07, 12:44 PM ET
WILMINGTON, Del. - Web-based wireless seller InPhonic Inc. has won court approval to borrow $2.3 million in bankruptcy financing from a private-equity firm that is seeking to buy the company.

Judge Kevin Gross approved the financing at a hearing Tuesday, but warned creditors, the company and private-equity firm Versa Capital Management that they "are running very serious risks." The Washington, D.C.-based company, lawyers say, is losing more than $3 million a week, and the interim loan is only enough to cover this week's payroll.

Gross said if the parties don't reach an accord by Thursday, InPhonic (nasdaq: INPC - news - people )'s Chapter 11 bankruptcy could be converted to a shoestring Chapter 7 liquidation proceeding.

InPhonic filed for Chapter 11 protection last month.

No other bidders have stepped forward to top Versa's offer, which consists of canceling debt, rather than coming up with new cash for creditors.

InPhonic attorney Thomas Califano said Versa is the only entity that has offered aid to keep the company running. The company, he said, has had no offer of help from creditor "committee members like Yahoo (nasdaq: YHOO - news - people ) and Google (nasdaq: GOOG - news - people ) who have more money in the cushions of their couch than would be required" to keep InPhonic alive.

Creditors say it's time for InPhonic to cut its losses and that, since there's no hope for a reorganization, Versa should be forced to exercise its remedies as secured lender to foreclose on the company outside of Chapter 11.

Versa entered the picture shortly before InPhonic's bankruptcy filing, by acquiring about $90 million worth of secured bank debt. It's offering to exchange most of that debt to buy InPhonic in bankruptcy.

According to Versa, unsecured creditors could still get something out of the case. It says it will leave creditors with about $300,000 to try to pursue lawsuits against InPhonic's former leaders, who admitted earlier this year that accounting errors would require restatement of 2006 financial results.

The Chapter 11 filing means creditors would be entitled to the first payout from lawsuits against InPhonic's officers and directors. InPhonic carries about $35 million in insurance for misdeeds by officers and directors, Califano said.

A court-approved Chapter 11 sale offers a neater solution and other advantages to the buyer, when compared with a foreclosure outside bankruptcy. Bankruptcy sales allow buyers to walk away with assets free and clear of prior claims, but a foreclosure could leave Versa battling other InPhonic creditors. Versa says it's not a predator, but a "rescue financier."

Creditors don't like the Chapter 11 sale plan, which they say would leave them with less than they would get if the case was a Chapter 7 liquidation. Versa is the only entity with something to gain from taking over InPhonic in Chapter 11 and that a takeover will only plunge InPhonic further into debt, said Claudia Z. Springer, attorney for the creditors committee.

"We don't want this hole to get any bigger than it currently is," said Springer, who is with the law firm of Reed Smith.

http://www.forbes.com/feeds/ap/2007/12/12/ap4432093.html