Court File and Parties

Court File No.: CV-24-00715202-00CL Date: 2024-02-29 Superior Court of Justice - Ontario

Re: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, C. C-36 , AS AMENDED AND IN THE MATTER OF HORNBLOWER CRUISES AND EVENTS CANADA LTD., HORNBLOWER CANADA ENTERTAINMENT LIMITED, HORNBLOWER CANADA CO., HORNBLOWER CANADIAN HOLDINGS, INC. AND HORNBLOWER CRUISES AND EVENTS, INC. APPLICATION OF HORNBLOWER GROUP, INC. UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT , R.S.C. 1985, C. C-36, AS AMENDED

Applicant

Before: Chief Justice Geoffrey B. Morawetz

Counsel: Alex MacFarlane, Roger Jaipargas and Nick Hollard, for the Applicant Hornblower Group Inc. Raj Sahni and Aiden Nelms, for the Proposed Information Officer (Grant Thornton Ltd.) Caitlin McIntyre, for GLAS Trust Company LLC Martino Calvaruso, for Deutsche Bank AG

Heard and Determined: February 27, 2024 Reasons: February 29, 2024

Endorsement

[1] At the conclusion of the hearing, the requested relief was granted with reasons to follow. These are the reasons.

[2] This application is brought by Hornblower Group, Inc. (“Hornblower Group” or the “Applicant”) pursuant to Part IV of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”) and section 106 of the Courts of Justice Act (“CJA”), as amended, for certain relief, including, inter alia, orders recognizing certain proceedings in the United States of America (the “US Proceedings”) commenced on February 21, 2024 (the “Petition Date”) by the Applicant and certain of its affiliates (the “Chapter 11 Debtors”) under Chapter 11 of Title 11 of the United States Code (the “US Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “US Court”), and recognizing certain orders of the US Court made in the US Proceedings (the “First Day Orders”). The Applicant also seeks other ancillary relief.

[3] On February 21, 2024, Hornblower Group, in its capacity as the proposed foreign representative, sought and obtained from this Court the Interim Stay Order, among other things, granting a stay of proceedings in respect of the Hornblower Cruises and Events Canada Ltd. (“Hornblower Cruises”), Hornblower Canada Entertainment Limited (“Hornblower Entertainment”), Hornblower Canada Co. (“Hornblower Canada”) (collectively, the “Canadian Debtors” and each a “Canadian Debtor”), Hornblower Canadian Holdings, Inc. and Hornblower Cruises and Events, Inc. (collectively, the “US Debtors”, and together with the Canadian Debtors, the “Debtors”), and Hornblower Group, as well as their respective directors and officers, in Canada.

[4] Hornblower Group now seeks the following relief:

(a) an order (the “Initial Recognition Order”) granting certain relief, including, inter alia:

(i) declaring that Hornblower Group is a “foreign representative” as defined in section 45 of the CCAA in respect of the US Proceedings;

(ii) declaring that the centre of main interest for each of the Debtors is the United States of America and recognizing and declaring the US Proceedings as a “foreign main proceeding” under Part IV of the CCAA with respect to each of the Debtors

(iii) recognizing the US Proceeding as a “foreign main proceeding” in respect of the Debtors;

(iv) staying all proceedings that might be taken against the Debtors or Hornblower Group under the Bankruptcy and Insolvency Act R.S.C. 1985, c. B-3, as amended, or the Winding-Up and Restructuring Act, R.S.C. 1985, c. W-11, as amended;

(v) restraining further proceedings and any action, suit or proceeding against the Debtors or Hornblower Group; and

(vi) prohibiting the commencement of any action, suit or proceeding against the Debtors or Hornblower Group; and

(b) an order (the “Supplemental Order”) granting certain relief, including, inter alia:

(i) recognizing in Canada and enforcing certain of the First Day Orders (as defined below) as set out in the Affidavit of Jonathan Hickman sworn February 26, 2024 (the “Supplemental Affidavit”);

(ii) appointing Grant Thornton Limited (“GTL”) as information officer (in such capacity, the “Information Officer”) in respect of this proceeding;

(iii) granting stays and protections in respect of the Debtors and Hornblower Group, and their respective directors and officers; and

(iv) granting the Administration Charge, D&O Charge, Senior DIP Charge, and Junior DIP Charge (each as defined in the Supplemental Affidavit).

[5] Capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Affidavit of Jonathan Hickman, sworn February 21, 2024 (the “Hickman Affidavit”) and the Supplemental Affidavit.

[6] The evidentiary basis for the requested relief is set out in the Hickman Affidavit and the Supplemental Affidavit.

[7] There was no opposition to the requested relief and the Information Officer supported the position of Hornblower Group, as set out in its Pre-Filing Report.

[8] The Debtors, including the Canadian Debtors, are part of a worldwide travel and tourism group of companies (“Hornblower” or the “Company”), providing sightseeing boat tours and ferries, walking tours, rail excursions, outback adventures, and a wide array of tourist experiences.

[9] The Canadian Debtors carry on operations in Niagara Falls, Toronto, and Gananoque (the “Canadian Business”). Since 2014, pursuant to its contract with the Niagara Parks Commission (the “Operating Agreement”), Hornblower Canada has been the exclusive provider of boat tours in Niagara Falls on the Canadian side of the border.

[10] Over the past few decades, Hornblower has grown significantly. However, the COVID-19 pandemic had a profoundly adverse effect upon the travel and tourism industry.

[11] Between 2020 and 2023, the Chapter 11 Debtors’ aggregate debt load increased from $630 million in 2019 to $1.2 billion in 2023, and its annual cash interest expense grew from $38 million to $115 million over the same time period. This increase in leverage and debt service has proven difficult for the Company to shoulder.

[12] On February 20, 2024, the Chapter 11 Debtors and an ad hoc group of lenders under the Chapter 11 Debtors’ secured debt facilities (the “Ad Hoc Group”) entered into a restructuring support agreement (the “Restructuring Support Agreement”) which contemplates a restructuring of the Chapter 11 Debtors through a prearranged Chapter 11 plan, as well as sale and/or winding-down of the Company’s American Queen Voyages (“AQV”) business.

[13] On February 21, 2024, each of the Chapter 11 Debtors filed voluntary petitions for relief pursuant to Chapter 11 of the US Code (collectively, the “Petitions” and each a “Petition”) with the US Court.

[14] As part of the first day motions (the “First Day Motions”) that were heard by the US Court on February 21, 2024, the US Court made certain First Day Orders, including an order appointing Hornblower Group as the foreign representative of the Debtors (the “Foreign Representative Order”) to, among other things, seek recognition of the US Proceedings in Canada. Pursuant to the Foreign Representative Order, the US Court requested the assistance of the Ontario Superior Court of Justice (Commercial List) (the “Canadian Court” or the “Court”) in aiding and supporting the US Proceedings.

[15] The US Court has granted an order approving certain debtor-in-possession financing facilities (collectively, the “DIP Facilities”, the loans thereunder, the “DIP Loans”.

[16] The Hornblower Group submits that immediate access to additional liquidity through the DIP Facilities is required to allow the Chapter 11 Debtors to efficiently effectuate a restructuring through the US Proceedings, while continuing their operations in the normal course. The DIP Facilities will provide the Chapter 11 Debtors with access to up to $134 million of net liquidity. The terms of the DIP Facilities are described in further detail in the Supplemental Affidavit.

[17] The DIP Facilities will provide the Chapter 11 Debtors with access to up to $134 million of net liquidity. The terms of the DIP Facilities are described in further detail in the Supplemental Affidavit.

[18] The Debtors have pledged collateral under the Senior DIP Collateral Agreement and Junior DIP Collateral Agreement securing obligations under the Senior DIP Facility and Junior DIP Facility, respectively.

[19] The Superpriority Facility and Incremental Superpriority Facility are prepetition debt facilities of the Chapter 11 Debtors. Pursuant to the Canadian Collateral Agreement, the Debtors also pledged collateral securing obligations under the Superpriority Facility and Incremental Superpriority Facility.

[20] The issues to be determined in this Application are:

(v) Should the Court recognize the US Proceedings as a “foreign main proceeding” pursuant to sections 46 through 48 of the CCAA and grant the Initial Recognition Order sought by the Applicant?

(vi) Should the Court grant the Supplemental Order sought by the Applicant under section 49 of the CCAA?

[21] Canadian courts have consistently recognized proceedings commenced under Chapter 11 of the US Code as “foreign proceeding[s]” in accordance with the definition of such term in section 45(1) of the CCAA (See: Payless Holdings LLC (Re), 2017 ONSC 2242 BOA, Tab 94 at para. 22 [Payless]; Paladin Labs Canadian Holding Inc., 2022 ONSC 4931 BOA, Tab 6 at paras 13-14 [Paladin]).

[22] I am satisfied that, all of the requirements for recognition of the US Proceedings as a “foreign proceeding” and Hornblower Group as “foreign representative” in respect of the US Proceedings have been satisfied.

[23] Upon recognizing a foreign main proceeding, section 47(2) of the CCAA requires that the Court specify whether the foreign proceeding is a “foreign main proceeding” or a “foreign non-main proceeding”.

[24] A “foreign main proceeding” is a foreign proceeding in a jurisdiction where the debtor company has the “centre of its main interests” (“COMI”).

[25] Pursuant to section 45(2) of the CCAA, a debtor company’s COMI is presumed to be the location of its registered office, in the absence of proof to the contrary. The statutory presumption may be rebutted by evidence of the operational realities of a debtor.

[26] The following principal factors were set out in Lightsquared LP (Re), 2012 ONSC 2994, at para. 25, considered as a whole, are relevant to a determination of whether the jurisdiction in which the foreign proceeding has been filed is the debtor company’s COMI:

(a) the location is readily ascertainable by creditors;

(b) the location is one in which the debtor’s principal assets or operations are found; and

(c) the location is where the management of the debtor takes place.

[27] Canadian courts have also made reference to the following factors in conducting the COMI analysis:

(a) the location where corporate decisions are made;

(b) the location of employee administrations, including human resource functions;

(c) the extent of integration of an enterprise’s international operations;

(d) the centre of an enterprise’s corporate, banking, strategic and management functions;

(e) the location where cash management and accounting functions are overseen; and

(f) the location where pricing decisions and new business development initiatives are created;

(See: YRC Freight Canada Company (Re), 2023 ONSC 4834, at para. 24)

[28] The US Debtors are Delaware corporations with their registered agents and head offices located in the US. Therefore, the US Debtors’ presumed COMI is in the US.

[29] The Canadian Debtors’ respective registered offices are located in Canada. However, the Applicant submits that the presumption that the Canadian Debtors’ COMI follows the location of their registered offices is rebutted. The evidence demonstrates that the Canadian Debtors’ operations are inextricably intertwined with Hornblower’s global operation, which is managed in the US.

[30] The Applicant submits that the following factors demonstrate that the Canadian Debtors’ COMI is the US:

(a) The Canadian Debtors are indirect, wholly owned subsidiaries of Hornblower Group, which is a California corporation;

(b) Hornblower’s senior leadership are located in the US, and they exercise primary strategic management and control across the entire the Company, including the Canadian Debtors. Hornblower’s senior leadership makes all material decisions regarding the Canadian Debtors, oversees and manages the Canadian Debtors’ operations, and provides significant direction to and oversight of the Canadian Debtors’ operations and assets;

(c) All of the Chapter 11 Debtors’ approximately $1.2 billion principal amount of funded indebtedness has been advanced by US-based lenders, and the loan documentation is governed by US law;

(d) The Canadian Debtors’ unsecured creditors are limited to accounts payable in the aggregate amount of approximately $335,396;

(e) For the financial year ended December 31, 2023, the Canadian Debtors’ revenue accounted for approximately 7% of the Company’s consolidated worldwide revenue;

(f) The Canadian Debtors currently have 111 employees, representing approximately 2.5% of the Company’s total workforce;

(g) The Canadian Debtors’ employees perform operations, customer service, finance, and payroll functions related to the Canadian Business, and do not perform leadership or strategic management functions;

(h) the Chapter 11 Debtors’ overall financial position is managed on a consolidated basis, principally from Hornblower Group’s office in San Francisco, California, and reported through HBAQ Holdings LP;

[31] Limited managerial functions are performed by the Canadian Debtors without the direct participation of Hornblower, all of which are either (i) impossible to deliver from the US or (ii) ancillary to the Canadian Debtors’ core business.

[32] In summary, Hornblower Group submits that the Company is a highly integrated corporate group centrally managed out of the US. The Canadian Debtors rely upon strategic management from Hornblower’s senior leadership based out of its head office in San Francisco, California.

[33] Based on the foregoing, I am satisfied that the COMI of the Canadian Debtors is the US, and that the US Proceedings should be recognized by this Court as a “foreign main proceeding”.

[34] The proposed Supplemental Order provides for a broad stay of proceedings in respect of the Debtors and Hornblower Group, and their respective directors and officers, in Canada.

[35] The Applicant submits that the requested stay of proceedings is appropriate to give effect in Canada to the stay of proceedings granted by the US Court pursuant to the US Proceedings and to preserve and protect the value of the Canadian Business.

[36] I am satisfied that the requested stay of proceedings is appropriate in the circumstances.

Recognition of certain First Day Orders

[37] Hornblower Group seeks to have the Court recognize the following First Day Orders.

a. Order (I) Directing Joint Administration of Related Chapter 11 Cases and (II) Granting Related Relief;

b. Order Authorizing the Employment and Retention of Omni Agent Solutions, Inc. as Claims, Noticing, and Solicitation Agent;

c. Order (I) Authorizing the Debtors to Maintain and Administer Their Existing Customer Programs and Honor Certain Prepetition Obligations Related thereto and (II) Granting Related Relief;

d. Interim Order (I) Authorizing the Debtors to (A) Continue to Operate Their Cash Management System, (B) Honor Certain Prepetition Obligations Related Thereto, (C) Maintain Existing Business Forms and Books and Records, and (D) Continue to Perform Intercompany Transactions and (II) Granting Related Relief;

e. Order (I) Authorizing the Debtors to Pay Certain Prepetition Claims of (A) Critical Vendors, (B) Lien Claimants, (C) Certain Critical Foreign Claimants, and (D) 503(B)(9) Claimants, (II) Confirming Administrative Expense Priority Of Outstanding Orders, and (III) Granting Related Relief;

f. Order (I) Authorizing Hornblower Group, Inc. to Act as Foreign Representative, and (II) Granting Related Relief;

g. Order (I) Authorizing the Payment of Certain Taxes and Fees and (II) Granting Related Relief;

h. Interim Order (I) Authorizing the Debtors to (A) Obtain Senior Secured Postpetition Financing, (B) Use Cash Collateral, and (C) Grant Liens and Superpriority Administrative Expense Claims, (II) Granting Adequate Protection to Certain Prepetition Secured Parties, (III) Modifying the Automatic Stay, (IV) Scheduling a Final Hearing, and (V) Granting Related Relief;

i. Order (I) Approving the Debtors’ Proposed Adequate Assurance of Payment for Future Utility Services, (II) Prohibiting Utility Providers from Altering, Refusing, or Discontinuing Services, (III) Approving The Debtors’ Proposed Procedures for Resolving Additional Assurance Requests, and (IV) Granting Related Relief;

j. Order (I) Authorizing the Debtors to (A) Continue Prepetition Insurance Coverage and Satisfy Prepetition Obligations Related Thereto, (B) Renew, Amend, Supplement, Extend, or Purchase Insurance Policies, (C) Continue to Pay Brokerage Fees, and (D) Maintain Their Surety Bond Program, and (II) Granting Related Relief; and

k. Order (I) Authorizing the Debtors to (A) Pay Prepetition Wages, Salaries, Other Compensation, and Reimbursable Expenses and (B) Continue Employee Benefits Programs, and (II) Granting Related Relief.

[38] The US Court has granted the First Day Orders to, among other things, preserve the value of the Chapter 11 Debtors’ business for the benefit of their creditors and other stakeholders while the Chapter 11 Debtors undertake restructuring efforts in the US Proceedings. As the Debtors have business and assets in Canada, the Applicant seeks recognition of certain First Day Orders to similarly maintain the Debtors’ status quo and protect their assets while permitting them to continue operating their business as usual in Canada.

[39] The Applicant submits that the granting of an order recognizing and giving effect to the First Day Orders is appropriate for the following reasons:

(a) The US Court has appropriately taken jurisdiction over the US Proceedings and comity will be furthered by this Court's recognition of and support for the US Proceedings already under way in the US;

(b) Coordination of proceedings in the two jurisdictions will ensure equal and fair treatment of all stakeholders irrespective of where they are located;

(c) Given the close connection between the US and the Chapter 11 Debtors’ business, including the Debtors’ business as a subset thereof, it is reasonable and sensible for the US Court to have principal control over the insolvency process; and

(d) The First Day Orders were obtained by the Chapter 11 Debtors to minimize the adverse effects of the US Proceedings on their business in order to preserve value of the Chapter 11 Debtors’ assets for the benefit of the claimants.

[40] I accept these submissions.

[41] Having reviewed the record and hearing submissions, I am satisfied that the First Day Orders should be recognized by this Court.

[42] In light of the complex corporate and financial structure of the Company, the stakeholders located in Canada and the amount of debt owed by the Debtors, the Applicant submits that the appointment of GTL as Information Officer will help facilitate these proceedings and the dissemination of information concerning developments in the US Proceedings to the Court and affected creditors and other stakeholders, including those located in Canada.

[43] I am satisfied that it is appropriate to appoint GTL as Information Officer.

[44] The proposed Supplemental Order provides that BLG, as Canadian counsel to the Debtors, the Information Officer, and counsel to the Information Officer will be granted a charge in the maximum amount of CAD$700,000 (the “Administration Charge”) over the assets and property of the Canadian Debtors, wherever located, in Canada (the “Canadian Debtors’ Collateral”) to secure the fees and disbursements of such professionals incurred in respect of these recognition proceedings. The Applicant states that the proposed Administration Charge does not extend to the assets or property of the US Debtors and covers only the Canadian Debtors’ property in Canada. The Administration Charge is proposed to rank in priority to all other encumbrances in respect of the Canadian Debtors.

[45] Hornblower Group submits that the amount of the Administration Charge is reasonable in the circumstances, having regard to the size and complexity of these proceedings and the roles that will be required of Canadian counsel to the Debtors and the Information Officer and its counsel.

[46] I am satisfied that the Administration Charge should be granted.

[47] Each DIP Agreement contemplates a superpriority charge, in accordance with the terms therein and as provided for in the Interim DIP Order to secure the obligations outstanding from time to time under the DIP Facilities (respectively, the “Senior DIP Charge” and “Junior DIP Charge”). Accordingly, Hornblower Group, as the Foreign Representative, is seeking the granting of the Senior DIP Charge and Junior DIP Charge pursuant to the Supplemental Order.

[48] The DIP Charge would be subordinate to the proposed Administration Charge, and rank in priority to all other encumbrances.

[49] I am satisfied that it is appropriate to grant the DIP Charge.

[50] The proposed Supplemental Order also provides for a charge on the Canadian Debtors’ Collateral in favour of the Canadian Debtors’ directors and officers in the maximum amount of CAD$4,300,000 (the “D&O Charge”).

[51] Hornblower Group submits that, in light of the potential liabilities, the potential insufficiency of available insurance, and the need for the continued service of the director and officers of the Debtors in these proceedings, the D&O Charge is reasonable and appropriate.

[52] The D&O Charge would be subordinate to the proposed Administration Charge and DIP Charge but rank in priority to all other encumbrances.

[53] I am satisfied that this request is reasonable in the circumstances and is granted.

Disposition

[54] The Initial Recognition Order and the Supplemental Order are granted substantially in the form included at Tabs 3 and 4 of the Application Record.

Chief Justice Geoffrey B. Morawetz

Date: February 29, 2024