DIP Financing Motion
The debtors seek approval of $7.156 million in DIP financing in the form of delayed-draw term loans with $2.25 million available on an interim basis. The debtors’ prepetition secured lenders would stand in as the DIP lenders, and Hayfin Services, LLP would be the administrative and collateral agent. The DIP lenders are Hayfin SOF II Luxco 2 Sarl, Hayfin Opal III LP and Hayfin Topaz Luxco 2 SPA.
The DIP financing bears interest at L+12% (subject to 1% floor), with L+14% for the default rate, and matures on the earlier of Aug. 30, consummation of a sale of substantially all the debtors’ assets or consummation of a plan of reorganization. The DIP proceeds may be used for working capital and other general corporate purposes, professional fees and case administration expenses, and payments due under the DIP facility, including adequate protection payments. Funding of nondebtor expenses is expressly prohibited.
The prepetition secured lenders (who are also the DIP lenders) have agreed to the use of cash collateral and the priming of the senior secured liens. To secure the DIP financing, the debtors propose to grant first priority liens on all unencumbered tangible and intangible prepetition and postpetition property of the debtors not otherwise subject to liens, including cash, accounts receivable, causes of action, commercial tort claims, and proceeds of avoidance actions. The motion states that unencumbered property consists primarily of a parcel of real property in Black Mountain, N.C., owned by debtor Bionome Properties Corp. Avoidance actions are expressly carved out of the DIP collateral package. The DIP collateral package also includes consensual priming liens on all prepetition and postpetition collateral of the prepetition secured parties (which are also the DIP secured parties) and junior liens on collateral otherwise subject to liens senior to the debtors’ senior secured debt.
In support of the proposed DIP financing, Keith Daniels, the debtors’ chief restructuring officer, states in the first day declaration that the DIP financing is necessary to implement a sale process and that without immediate access to the DIP financing and use of cash collateral, the debtors would be forced to convert to chapter 7 and liquidate their assets.
The debtors propose the following adequate protection package for the prepetition secured lenders: (a) replacement liens (including avoidance action proceeds subject to the final order), (b) allowed superpriority administrative expense claims and (c) payment of prepetition secured parties’ and DIP lenders professionals’ fees and expenses (both prepetition and postpetition).
In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral, pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).
The carve-out for professional fees is $25,000.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Petition date: Filing of bid procedures motion and entry into stalking horse APA;
- June 2: Entry of interim DIP order;
- June 21: Entry of bidding procedures order;
- June 30: Entry of final DIP order;
- July 26: Bid deadline occurs;
- July 28: Commencement of auction;
- July 30: Hearing held to approve stalking horse APA or alternative transaction;
- July 30: Entry of sale order; and
- Aug. 9: Sale closing.
The lien challenge deadline is the earlier of (a) 75 days from entry of the interim order for all parties in interest (including an official committee of unsecured creditors), (b) subject to entry of the final DIP order, entry of the sale order, and (c) such later date agreed to in writing. The UCC lien investigation budget is $25,000.
Bid Procedures Motion
The debtors seek approval of bid procedures for the sale of substantially all of their assets. Midava Holdings 3 Inc., an affiliate of the prepetition lenders and proposed DIP lenders, would serve as the stalking horse bidder, with a purchase price of approximately $70 million in the form of a credit bid, plus the assumption of certain liabilities.
The procedures contemplate the ability of a secured creditor to credit-bid, with the right of the stalking horse bidder to increase its credit bid up to the full amount. At a minimum, each bid must have a cash bid purchase price that is equal to or greater than the stalking horse purchase price plus $250,000 in cash. Subsequent overbids are $250,000. Each bid must “disclaim any right to receive a fee analogous to a break-up fee, expense reimbursement, termination fee, or any other similar form of compensation.”
The proposed sale order provides for the release of the debtors from amounts due and owing, first, under the DIP documents and, second, under the loan and notes documents up to an amount equal to the credit-bid amount.
Under the stalking horse asset purchase agreement, the purchased assets would contain all causes of action, including claims against current or former officers or directors, as well as avoidance actions.
The bid procedures are subject to the same DIP milestones and the following sale timeline:
The debtors’ sale efforts began in March 2020 with the retention of Torreya Capital, who pursued potential transactions including a sale or a “large financing,” but “known strategic partners” declined to proceed with a transaction, and Torreya ceased working for the company in October 2020. Thereafter, the debtors engaged SSG Advisors in May 2021 as investment banker to market and sell substantially all of the debtors’ assets, which resulted in the stalking horse APA.
The debtors also filed various standard first day motions, including the following:
- Motion for joint administration
- The cases will be jointly administered under case No. 21-10883.
- Motion to establish trading procedures
- Avadim seeks to establish trading procedures for its common stock, to be able to object to and prevent transfers if necessary to preserve net operating losses. As of the fiscal tax year ended Dec. 31, 2019, the debtors had about $93.8 million in federal NOLs and $60.8 million in state NOLs. The debtors estimate an additional $18.9 million in federal NOLs for 2020.
- Motion to pay critical vendors
- The debtors seek approval to pay up to $330,000 in critical vendor claims on an interim basis, with up to $500,000 in total payment sought on a final basis.
- Motion to pay shipping and warehousing claims
- The company requests authorization to pay up to $150,000 on account of shipping/warehousing claims on an interim basis, with up to $250,000 in total payment sought on a final basis. Payment of any claims in excess of $50,000 would require two business days’ notice to the DIP agent and its professionals.
- Motion to pay employee wages and benefits
- Avadim seeks to pay employee obligations as follows: