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Diamond Secured Creditors Committee Object to Proposed Financing

The official committee of secured creditors has filed an objection to Diamond Glass' financing motion and the terms of the company's proposed financing. In the objection, filed yesterday, the creditors claim that "the Debtors have not met their burden of establishing a legally sufficient basis for allowing extraordinary relief in the form of the proposed roll-up of $34 million of Pre-Petition Deb into Post-Petition Debt." In addition, the creditors claim that Diamond's proposed financing "should not provide that Guggenheim is exempt from the equitable doctrine of marshaling, particularly where, as here, the other asset from which Guggenheim may seek payment, is $10 million cash provided by the Debtors' largest equity holder as collateral which is believed to be currently held by Guggenheim."

Within the objection, the creditors also claim that because Diamond noted in the April 2 hearing that its busy season runs from April through September (CLICK HERE for related story), "it is possible that [it] will be able to operate until a sale closes without the necessity of the debtor in possession financing." Therefore, the creditors argue, the company "cannot satisfy [its] burden of proof to justify the roll-up of Pre-Petition Debt into the DIP facility."

In addition, the creditors allege that the roll-up (of the debt) will not benefit the general creditor body.

"The roll-up would maximize Guggenheim's return in these cases by giving it almost unfettered control," the creditors write. " Moreover, if the Court allows the roll-up, Guggenheim would be entitlted to additional interest payments from the Debtors totaling approximately $800,000."

The document also notes that Guggenheim "apparently has the ability to obtain payment of approximately $10 million from the largest equity holder, Kenneth Levine" (CLICK HERE for related story).

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