Baffinland: the lenders' answer on who picks the winning bid

"All terms of the SISP, including all Milestones, must be acceptable to the DIP Lender in its reasonable discretion." The sentence sits in section 27 of the DIP Facility Loan Agreement dated June 3, 2026 between Baffinland's debtors and Export Development Canada, a few lines after the requirement that the sale and investment solicitation process be approved by court order "in form and substance acceptable to the DIP Lender", per the Motion Record (SISP Order), Sept. 17, 2026, Ex. C, DIP Facility Loan Agreement, s. 27. On October 2, EDC told the court what it takes that sentence to mean for the one term of the SISP still in dispute, which is who makes the decisions. A process that is not reasonably acceptable to it "is a material default under the DIP Facility Agreement that would justify EDC's exercise of rights and remedies and, at a minimum, modifications to the existing funding arrangements," its factum says, per the EDC Factum, Oct. 2, 2026, para. 76. By the same factum's account, approximately US$230 million has been advanced under the facility, per the EDC Factum, para. 21.

When this case was last written about here, on September 18, what the lenders argued had come only through the debtors' account of it. The debtors' motion, first returnable September 24, is now returnable October 9, per the Motion Record (SISP Order), Sept. 17, 2026, p. 1 and the Factum of the Applicants (SISP Approval Motion), Sept. 29, 2026, cover. The debtors filed that factum on September 29, and The Energy & Minerals Group LP, which owns 74.8% of the debtors' equity directly or indirectly, filed written submissions the same day, per the EMG Written Submissions, Sept. 29, 2026, para. 8. On October 2 came responding factums from EDC and from the ad hoc committee of senior secured noteholders, and written submissions from Oaktree Capital Management, L.P. and Hartree Partners, LP. All three ask for the same order: EDC's form of SISP, with ultimate decision-making authority in the court-appointed chief restructuring officer or, alternatively, the monitor, per the EDC Factum, paras. 2, 84, the Ad Hoc Committee Factum, Oct. 2, 2026, paras. 2, 33 and the Oaktree and Hartree Submissions, Oct. 2, 2026, paras. 2, 10.

A consent right, read two ways

EDC's factum makes two submissions, and the second is about the contract. "It is not disputed that EDC has a consent right – the issue is whether EDC is exercising its right reasonably," its factum says, and it puts the burden on the debtors, who "will have to demonstrate that EDC is exercising its discretion unreasonably", per the EDC Factum, paras. 75, 77. It measures reasonableness by Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, quoting the Supreme Court that "the touchstone … is the purpose for which the discretion was granted." The circumstances that gave the discretion its purpose, in EDC's account, were a debtor in "extreme financial distress" that needed emergency bridge financing to get through the four-month season in which it can ship iron ore out of Milne Inlet; a lender asked for more than US$400 million; a SISP that was "the only reasonable mechanism for EDC to be repaid"; competing DIP proposals with the same SISP rights; and equity and royalty holders who "likely had conflicting interests in the potential outcomes of a SISP", per the EDC Factum, paras. 78–79. EDC says the protection was agreed on June 3, weeks before the CRO's mandate was negotiated, and that the mandate "is silent on who would make SISP decisions", per the EDC Factum, para. 83.

The debtors read the same clause as "a qualified consent right concerning the terms of the SISP", and EDC's position as "unprecedented relief". In their factum, the DIP lender "is seeking to do indirectly what it knows it cannot achieve directly": it has not moved under s. 11.5 of the CCAA to remove the operating committee, nor asked to widen the court-approved CRO mandate, which "manifestly does not confer decision-making power in respect of the SISP on the CRO", per the Factum of the Applicants, Sept. 29, 2026, para. 4. Engaging a consent right over "a procedural and typically uncontroversial document" for "the ulterior or extraneous purpose of effecting extraordinary change in the governance of the Debtors" is, they argue, inconsistent with the purposes for which the right was granted, per the Factum of the Applicants, para. 52. EMG's submissions put it in one line: the discretion "was not granted so as to give EDC the ability to change the Applicants' corporate governance", per the EMG Written Submissions, para. 16.

Stelco, and an Alberta appeal

The debtors rely on cases about boards of directors. They quote the Court of Appeal in Stelco that the court "is not entitled to usurp the role of the directors and management in conducting what are in substance the company's restructuring efforts", and Justice Osborne's refusal in Hudson's Bay, 2025 ONSC 5998, of relief that would have had "practically the same effect as the removal of directors". "It is telling," they add, "that the lenders have opted not to move under section 11.5," per the Factum of the Applicants, paras. 38, 44–45.

EDC answers that those cases involved removing directors or stripping their powers, and "EDC is not seeking such relief." The SISP, it says, "is a court process approved by court order – it is not the ordinary business of a corporation," so in giving the CRO the decision, "the Court is exercising control over its own process," per the EDC Factum, paras. 43, 45–46. Section 11.5, in EDC's reading, "has no application since it addresses the removal of a director. The directors of the Debtor are irrelevant – they have been sidelined entirely by the Operating Committee," per the EDC Factum, para. 47. Against Stelco it sets this year's decision of the Alberta Court of Appeal in Angus A2A GP Inc v Alvarez & Marsal Canada Inc, 2026 ABCA 156, quoting the court: "Insofar as Stelco ONCA may be read as doubting the courts' statutory authority to grant such powers to a monitor, it has been overtaken by later developments." From Ivaco it takes the line "The CRO represents the Applicants in that process," and concludes that "nothing is being usurped. The decision will be made by the Debtors' own representative," per the EDC Factum, paras. 48, 50.

Window dressing

The conflicts are the lenders' allegations. EDC's factum says the operating committee's members represent equity holders who "will be naturally incentivized to pursue higher risk outcomes in an attempt to preserve speculative equity value, even if that imperils creditor recoveries", per the EDC Factum, para. 52. It quotes EMG's June submissions, which took the position that no SISP should begin until the debtors had a chance to agree a restructuring or recapitalization plan with key stakeholders, and says EMG "has now tried to walk back its opposition" in a September 23 affidavit, per the EDC Factum, paras. 54–55. EMG replies that it "never expressed blanket opposition to a SISP under any circumstances", and that the proposed SISP contemplates a recapitalization, per the EMG Written Submissions, paras. 27–28. On the royalty agreements, creditors, EDC's factum says, have expressed concern to the monitor that the consideration paid for them was less than fair value, and "EDC shares those concerns"; an operating committee with members appointed by the royalty holders "has a clear incentive to favour transactions that preserve the Royalties", per the EDC Factum, paras. 16, 56.