Files Complaint in Diamond Bankruptcy Case; Alleges "Levine
Guaranty" No Longer Enforceable
Ken Levine, Diamond's largest shareholder and former co-chairperson
of the company, has filed a complaint against Guggenheim Corporate
Funding LLC, Diamond's senior secured lender in its bankruptcy case.
In the complaint, Levine alleges that "the Levine Guaranty,"
under which he committed to guaranty up to $6 million(later increased
to $10 million) of Guggenheim's original loan, has been released
and rendered unenforceable as of November 7, 2007, due to Guggenheim's
actions, and that his obligations under the aforementioned agreement
are satisfied once Diamond repays its original $35 million pre-petition
According to the complaint, filed today in the U.S. Bankruptcy
Court for the District of Delaware as part of the Diamond bankruptcy
case, Levine claims that in November 2007, Guggenheim and Diamond
increased Diamond's debt to the former by $10 million-from $35 million
to $45 million without obtaining Levine's consent as guarantor.
"Specifically, in January 2007, Guggenheim agreed to act as
agent to a group of lenders (the "Lenders") who in turn
agreed to make available loans of up to $35 million to the Debtors,"
reads the complaint. "Mr. Levine, who is the Debtor's principal
stockholder (and at the time was also CEO), agreed to guaranty up
to $6 million (later increased to $10 million) of the up to $35
It continues, "It was all parties' intent that Mr. Levine
would guaranty a portion of a maximum $35 million loan. But on November
7, 2007, several weeks after Mr. Levine stepped down as CEO, Guggenheim
and the Debtors amended the Credit Agreement to provide for an additional
loan of approximately $10 million. Mr. Levine, as guarantor of the
original $35 million obligation under the Credit Agreement, never
consented to this additional loan. Indeed, Guggenheim sought his
consent and Mr. Levine refused. Yet Guggenheim and the Lenders loaned
the money anyway and now contend that, by the amendment to the Credit
Agreement (to which Mr. Levine is not a party), Mr. Levine became
responsible to guaranty up to $10 million if the Debtors default
on a now significantly (29 percent) larger loan."
Levine is asking that the court "clarify the parties' rights
and prevent Guggenheim and [Diamond] from unilaterally increasing
his risks under the Levine Guaranty."
HERE for full text of complaint.
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