Endologix, Inc.
CASE SUMMARY: Endologix Files Chapter 11 With Plan of Reorganization to Reduce $180M in Debt
Mon 07/06/2020 17:10 PM
Relevant Documents:
Voluntary Petition
First Day Declaration
Chapter 11 Plan
Disclosure Statement
DIP Financing Motion
Press Release
Endologix, Inc., an Irvine, Calif.-based publicly held developer of medical devices for the treatment of aortic disorders, including minimally invasive endovascular treatment of abdominal aortic aneurysms, filed for chapter 11 protection on Sunday night in the Bankruptcy Court for the Northern District of Texas. “After evaluating a variety of strategic options,” the debtors say in a press release, Endologix “has initiated a voluntary Chapter 11 case and simultaneously filed a consensual plan of reorganization supported by Deerfield Partners (‘Deerfield’) as its largest creditor.” Under the terms of the plan, Endologix would become a private company and emerge “financially well-equipped to realize the full potential of the most advanced and innovative abdominal aortic aneurysm (AAA) pipeline in the industry,” the release follows.
Through a restructuring support agreement entered into with first lien lender Deerfield on Sunday, July 5, and the resulting the plan of reorganization and disclosure statement, the debtors’ proposed restructuring “contemplates a partial ‘debt for equity’ swap of the Debtors’ prepetition first-lien secured debt obligations owed to Deerfield, with the balance to be assumed and rolled into an exit facility (which shall also roll up the DIP financing to be provided by Deerfield)” that would provide the reorganized debtors with access to additional funding upon emergence. Holders of ordinary course trade claims who agree to enter into acceptable trade contracts with the reorganized debtors would have their claims assumed in full. “All other creditors—who are either wholly undersecured or unsecured—will receive their pro rata shares of $2.0 million (the ‘GUC Distribution Amount’) or, in the event the Class of Holders of General Unsecured Claims [ ] vote to reject the Plan, one-half of the GUC Distribution Amount.” The plan proposes cancelling all existing equity interests in the company as of the effective date.
Supporting lenders to the RSA consist of Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P. and Deerfield Partners, L.P.
The proposed DIP financing - in the form of a delayed draw term loan up to a maximum amount of $130.8 million, consisting of $30.8 million in new money, and subject to the final order, a rollup of $100 million of the prepetition first lien term loan obligations - is an “integral part of this comprehensive restructuring” the debtors say, noting that, absent the availability of such financing, “it would be impossible for the Debtors to restructure.”
The first day hearing has been scheduled for tomorrow, Tuesday, July 7, at 11:30 a.m. ET. The case docket can be found on Reorg HERE.
The company reports $100 million to $500 million in both assets and liabilities. The debtors report $279.6 million in assets and $244.7 million in liabilities as of May 31, and their prepetition capital structure includes:
The debtors also have approximately $2 million in trade debt.
The following entities directly or indirectly own, control or hold 5% or more of the voting securities of Endologix: ArrowMark Colorado Holdings LLC, Corrib Capital Management, L.P., Wellington Management Co. LLP and Vanguard Explorer Fund. Endologix’s voting and non-voting stock is publicly traded on the NASDAQ under the ticker “ELGX”, which, as of the petition date, was trading at approximately $0.77 per share.
The first day declaration of Endologix CEO John Onopchenko says that, over the last several years, the “inherent challenges of operating in the medical device industry have put a strain on the Company’s liquidity and, therefore, its ability to service its long-term debt obligations, which currently total in excess of $260 million.” These challenges have been exacerbated by the “extraordinary impact” of the Covid-19 pandemic, which caused elective surgical procedures to be curtailed or deferred. The mandated decrease in demand caused a significant drop in the debtors’ revenue in the second quarter of 2020, the first day declaration says. The pandemic has also impacted the debtors’ manufacturing capabilities, distribution and warehousing operations and customer engagement efforts as its employees, suppliers, distributors and customers have been subject to shelter-in-place restrictions.
In addition, certain competitive pressures in the industry have suppressed the debtors’ ability to gain and maintain market share and have forced the company to expend additional resources, further straining liquidity. And despite employment of “competent” professionals to ensure compliance with the “myriad of domestic and foreign regulations, these ever-changing regulations have continued to increase the Company’s costs and have acted as a barrier to the Company’s maintenance and growth of its market share.”
“In light of the nature of the Debtors’ business, i.e., the provision of essential medical devices for surgical procedures, it is vital that the Debtors proceed quickly towards confirmation of their Plan,” the first day declaration continues, noting that the consumers of their products are surgeons and that it is “absolutely critical that the Debtors’ stay in chapter 11 be as short as possible.” Accordingly, the debtors commenced these chapter 11 cases after obtaining support for the plan from their largest creditor constituency “and are committed to moving expeditiously during these Chapter 11 Cases.”
Among other things, the debtors engaged in negotiations with the prepetition first lien ABL agent and the prepetition first lien term loan agent and entered into forbearance agreements, pursuant to which the prepetition first lien agents agreed to forbear from exercising any rights or remedies arising from certain events of default under the first lien credit agreements. To maintain liquidity and preserve going concern value leading up the filing of petition date, Endologix and the first lien agents negotiated forbearance amendments to, among other things, extended the termination date from June 15 to June 30 and then subsequently to July 14. These negotiations and the resulting forbearance arrangements provided the debtors with necessary liquidity to prepare for the chapter 11 filing, the debtors say.
The debtors are represented by DLA Piper as counsel, FTI as financial advisor and Jefferies as investment banker. Omni Agent Solutions is the claims agent. The case has been assigned to Judge Stacey G. Jernigan (case number 20-31840).
Background
Endologix, founded in 1992 under the name Cardiovascular Dynamics, is a publicly held medical device developer focused on the treatment of aortic disorders in the United States and abroad. The company’s products are intended for life-saving and minimally invasive endovascular treatment of abdominal aortic aneurysms, or AAA, one of the most serious cardiovascular diseases, according to the debtors, who also note that, “in the United States alone, an estimated 1.2 million people have an AAA, many of whom will require a repair procedure.” The company provides two different treatment platforms: traditional minimally-invasive endovascular aneurysm repair, or EVAR, and endovascular aneurysm sealing, or EVAS.
The company markets and sells its products through its direct sales force in the United States and in six other countries around the world. In foreign countries, the company markets and sells its products through a network of third-party distributors and agents. Inclusive of certain non-debtor affiliates, the company has 488 employees, including 174 in manufacturing, 29 in research and development, 39 in clinical and regulatory affairs, 58 in quality, 129 in sales and marketing and 59 in administration.
The company also holds a portfolio of apparatus and method patents covering aspects of its current and future technology. As a result of various acquisitions, the company’s portfolio includes 53 issued U.S. patents, 20 pending U.S. patent applications and 104 issued foreign patents. The company is also party to several licensing agreements that the debtors say are critical to the manufacturing of their products.
In January 1999, Cardiovascular Dynamics, Inc. (by then a publicly-traded company) merged with privately-held Radiance Medical Systems, Inc., and underwent a name change to Radiance Medical Systems, Inc. In May 2002, Radiance Medical Systems, Inc. merged with then privately-held Endologix, Inc. and changed its name to Endologix, Inc. Endologix commercialized its first EVAR product in Europe in 1999 and in the United States in 2004. In December 2010, the company added the EVAS system through a merger with Nellix, Inc. In February 2016, the company expanded its EVAR product portfolio through a merger with TriVascular Technologies, Inc. Endologix is the parent company to all domestic and non-debtor foreign subsidiaries.
Endologix’s corporate organizational structure is shown below:
The debtors estimate that the global endovascular AAA market potential was roughly $3.5 billion in 2019. In the United States alone, an estimated 1.2 to 2 million people have an AAA and over 200,000 people are diagnosed with an AAA in the United States annually. Of those diagnosed with an AAA, approximately 74,000 people underwent an AAA repair procedure in the United States in 2019, of which approximately 56,0000 were addressed through EVAR.
The debtors’ primary customer and decision maker are vascular surgeons and, to a lesser extent, cardiovascular surgeons, interventional radiologists and interventional cardiologists. Additionally, through its direct sales force, the company provides clinical support and service for many of the hospitals and physicians in the U.S. that perform EVAR. Hospitals are the primary purchasers of Endologix’s EVAR and EVAS products, and, in turn, bill various third-party payors, such as Medicare, Medicaid, and private health insurance plans, for the total healthcare services required to treat patients’ AAA.
The debtors' largest unsecured claims are listed below:
The case representatives are as follows:
Plan / Disclosure Statement
The RSA is subject to the following milestones:
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
Management Incentive Plan
The plan contemplates a management incentive plan for which restricted stock units exercisable for up to 15% of the new common stock (on a fully diluted basis) would be made available.
Other Plan Provisions
The plan provides for releases of the debtors, the DIP facility agent, the DIP facility lenders, the prepetition first lien lenders and the prepetition first lien agents. In addition, the plan includes an exculpation provision in favor of the debtors and the reorganized debtors, the official committee of unsecured creditors and its members (solely in such capacity), the DIP facility lenders, the exit facility lenders, the DIP facility agent, the prepetition first lien lenders and the prepetition first lien agents.
Members of the new board will be disclosed in the plan supplement.
Liquidation Analysis
Attached to the DS is the following liquidation analysis (along with the following notes):
Valuation Analysis
The estimated range of enterprise value of the reorganized debtors, collectively, as of Sept. 30, 2020, is approximately $170 million to approximately $207 million. In addition, based on the estimated range of enterprise value of the reorganized debtors and other information described herein and solely for purposes of the plan, Jefferies estimated a potential range of total equity value of the reorganized debtors, which consists of the enterprise value, less funded debt on the effective date. Jefferies has assumed that the reorganized debtors will have, as of the effective date, debt of approximately $96 million. Jefferies estimated that the potential range of equity value for the reorganized debtors is between approximately $74 million and approximately $111 million subject to dilution from the management incentive plan.
Financial Projections
The DS includes the following projections:
DIP Financing Motion
The debtors seek approval of DIP financing in the form of a delayed draw term loan up to a maximum amount of $130.8 million, consisting of $30.8 million in new money, and subject to the final order, a roll-up of $100 million of the prepetition first lien term loan obligations. Deerfield Private Design Fund IV, L.P. is the agent and a lender. The prepetition first lien term agent made the only DIP proposal, according to the debtors.
The debtors justify the rollup because “(i) the Prepetition First Lien Term Loan Agent and Prepetition First Lien ABL Agent are consenting to the use of Cash Collateral; (ii) the Prepetition First Lien Term Loan Lenders are agreeing to provide post-petition liquidity through the DIP Facility; and (iii) the Prepetition First Lien Term Loan Agent and Prepetition First Lien ABL Agent have committed to support and fund a plan in this case that provides a greater recovery to all classes of creditors than would be available otherwise.”
The DIP financing bears interest at LIBOR plus 10%, with 2% added for the default rate, and matures on the earliest of Oct. 5, acceleration of the DIP loans, the effective date of a plan, consummation of a sale of all or substantially all of the debtors’ assets, termination of the RSA, filing of f plan without the DIP agent’s consent or 60 days after the petition date if the final order has yet to be entered.
To secure the DIP financing, the debtors propose to grant liens that prime the liens of the prepetition first lien ABL lenders, prepetition first lien term lenders and the second lien noteholders. “The Prepetition First Lien ABL Agent and Prepetition First Lien Term Loan Agent consent to the Roll-Up Loan, and the liens securing the repayment of the Prepetition First Lien Term Loans are senior to those of the Prepetition Second Lien Holders,” according to the motion. In addition, the debtors say that the intercreditor agreement allows the DIP agent, on terms approved by the prepetition first lien term agent and prepetition first lien ABL agent, in their sole discretion, to offer DIP financing, as such, the debtors say, the prepetition second lien noteholders consented to the DIP lender’s provision of DIP financing.
The facility includes various fees, including a 2% upfront fee.
In support of the proposed DIP financing, the debtors filed the declaration of Jefferies managing director Richard Morgner.
The company proposes the following adequate protection to the prepetition first lien term lenders and first lien ABL lenders: replacement liens, superpriority administrative expense claims and payment of professional fees.
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 carveout for professional fees is $3 million.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
Other Motions
The debtors also filed various standard first day motions, including the following:
Voluntary Petition
First Day Declaration
Chapter 11 Plan
Disclosure Statement
DIP Financing Motion
Press Release
| Summary |
| Endologix is a publicly traded developer of medical devices for the treatment of aortic disorders |
| Filed plan of reorganization with the support of first lien lender Deerfield that contemplates a partial debt-for-equity swap; under the plan, Endologix would become private |
| Requesting $130.8 million of DIP financing from Deerfield that would include $30.8 million of new money and, subject to the final order, a rollup of $100 million of prepetition 1L obligations |
Endologix, Inc., an Irvine, Calif.-based publicly held developer of medical devices for the treatment of aortic disorders, including minimally invasive endovascular treatment of abdominal aortic aneurysms, filed for chapter 11 protection on Sunday night in the Bankruptcy Court for the Northern District of Texas. “After evaluating a variety of strategic options,” the debtors say in a press release, Endologix “has initiated a voluntary Chapter 11 case and simultaneously filed a consensual plan of reorganization supported by Deerfield Partners (‘Deerfield’) as its largest creditor.” Under the terms of the plan, Endologix would become a private company and emerge “financially well-equipped to realize the full potential of the most advanced and innovative abdominal aortic aneurysm (AAA) pipeline in the industry,” the release follows.
Through a restructuring support agreement entered into with first lien lender Deerfield on Sunday, July 5, and the resulting the plan of reorganization and disclosure statement, the debtors’ proposed restructuring “contemplates a partial ‘debt for equity’ swap of the Debtors’ prepetition first-lien secured debt obligations owed to Deerfield, with the balance to be assumed and rolled into an exit facility (which shall also roll up the DIP financing to be provided by Deerfield)” that would provide the reorganized debtors with access to additional funding upon emergence. Holders of ordinary course trade claims who agree to enter into acceptable trade contracts with the reorganized debtors would have their claims assumed in full. “All other creditors—who are either wholly undersecured or unsecured—will receive their pro rata shares of $2.0 million (the ‘GUC Distribution Amount’) or, in the event the Class of Holders of General Unsecured Claims [ ] vote to reject the Plan, one-half of the GUC Distribution Amount.” The plan proposes cancelling all existing equity interests in the company as of the effective date.
Supporting lenders to the RSA consist of Deerfield Private Design Fund III, L.P., Deerfield Private Design Fund IV, L.P. and Deerfield Partners, L.P.
The proposed DIP financing - in the form of a delayed draw term loan up to a maximum amount of $130.8 million, consisting of $30.8 million in new money, and subject to the final order, a rollup of $100 million of the prepetition first lien term loan obligations - is an “integral part of this comprehensive restructuring” the debtors say, noting that, absent the availability of such financing, “it would be impossible for the Debtors to restructure.”
The first day hearing has been scheduled for tomorrow, Tuesday, July 7, at 11:30 a.m. ET. The case docket can be found on Reorg HERE.
The company reports $100 million to $500 million in both assets and liabilities. The debtors report $279.6 million in assets and $244.7 million in liabilities as of May 31, and their prepetition capital structure includes:
The debtors also have approximately $2 million in trade debt.
The following entities directly or indirectly own, control or hold 5% or more of the voting securities of Endologix: ArrowMark Colorado Holdings LLC, Corrib Capital Management, L.P., Wellington Management Co. LLP and Vanguard Explorer Fund. Endologix’s voting and non-voting stock is publicly traded on the NASDAQ under the ticker “ELGX”, which, as of the petition date, was trading at approximately $0.77 per share.
The first day declaration of Endologix CEO John Onopchenko says that, over the last several years, the “inherent challenges of operating in the medical device industry have put a strain on the Company’s liquidity and, therefore, its ability to service its long-term debt obligations, which currently total in excess of $260 million.” These challenges have been exacerbated by the “extraordinary impact” of the Covid-19 pandemic, which caused elective surgical procedures to be curtailed or deferred. The mandated decrease in demand caused a significant drop in the debtors’ revenue in the second quarter of 2020, the first day declaration says. The pandemic has also impacted the debtors’ manufacturing capabilities, distribution and warehousing operations and customer engagement efforts as its employees, suppliers, distributors and customers have been subject to shelter-in-place restrictions.
In addition, certain competitive pressures in the industry have suppressed the debtors’ ability to gain and maintain market share and have forced the company to expend additional resources, further straining liquidity. And despite employment of “competent” professionals to ensure compliance with the “myriad of domestic and foreign regulations, these ever-changing regulations have continued to increase the Company’s costs and have acted as a barrier to the Company’s maintenance and growth of its market share.”
“In light of the nature of the Debtors’ business, i.e., the provision of essential medical devices for surgical procedures, it is vital that the Debtors proceed quickly towards confirmation of their Plan,” the first day declaration continues, noting that the consumers of their products are surgeons and that it is “absolutely critical that the Debtors’ stay in chapter 11 be as short as possible.” Accordingly, the debtors commenced these chapter 11 cases after obtaining support for the plan from their largest creditor constituency “and are committed to moving expeditiously during these Chapter 11 Cases.”
Among other things, the debtors engaged in negotiations with the prepetition first lien ABL agent and the prepetition first lien term loan agent and entered into forbearance agreements, pursuant to which the prepetition first lien agents agreed to forbear from exercising any rights or remedies arising from certain events of default under the first lien credit agreements. To maintain liquidity and preserve going concern value leading up the filing of petition date, Endologix and the first lien agents negotiated forbearance amendments to, among other things, extended the termination date from June 15 to June 30 and then subsequently to July 14. These negotiations and the resulting forbearance arrangements provided the debtors with necessary liquidity to prepare for the chapter 11 filing, the debtors say.
The debtors are represented by DLA Piper as counsel, FTI as financial advisor and Jefferies as investment banker. Omni Agent Solutions is the claims agent. The case has been assigned to Judge Stacey G. Jernigan (case number 20-31840).
Background
Endologix, founded in 1992 under the name Cardiovascular Dynamics, is a publicly held medical device developer focused on the treatment of aortic disorders in the United States and abroad. The company’s products are intended for life-saving and minimally invasive endovascular treatment of abdominal aortic aneurysms, or AAA, one of the most serious cardiovascular diseases, according to the debtors, who also note that, “in the United States alone, an estimated 1.2 million people have an AAA, many of whom will require a repair procedure.” The company provides two different treatment platforms: traditional minimally-invasive endovascular aneurysm repair, or EVAR, and endovascular aneurysm sealing, or EVAS.
The company markets and sells its products through its direct sales force in the United States and in six other countries around the world. In foreign countries, the company markets and sells its products through a network of third-party distributors and agents. Inclusive of certain non-debtor affiliates, the company has 488 employees, including 174 in manufacturing, 29 in research and development, 39 in clinical and regulatory affairs, 58 in quality, 129 in sales and marketing and 59 in administration.
The company also holds a portfolio of apparatus and method patents covering aspects of its current and future technology. As a result of various acquisitions, the company’s portfolio includes 53 issued U.S. patents, 20 pending U.S. patent applications and 104 issued foreign patents. The company is also party to several licensing agreements that the debtors say are critical to the manufacturing of their products.
In January 1999, Cardiovascular Dynamics, Inc. (by then a publicly-traded company) merged with privately-held Radiance Medical Systems, Inc., and underwent a name change to Radiance Medical Systems, Inc. In May 2002, Radiance Medical Systems, Inc. merged with then privately-held Endologix, Inc. and changed its name to Endologix, Inc. Endologix commercialized its first EVAR product in Europe in 1999 and in the United States in 2004. In December 2010, the company added the EVAS system through a merger with Nellix, Inc. In February 2016, the company expanded its EVAR product portfolio through a merger with TriVascular Technologies, Inc. Endologix is the parent company to all domestic and non-debtor foreign subsidiaries.
Endologix’s corporate organizational structure is shown below:
The debtors estimate that the global endovascular AAA market potential was roughly $3.5 billion in 2019. In the United States alone, an estimated 1.2 to 2 million people have an AAA and over 200,000 people are diagnosed with an AAA in the United States annually. Of those diagnosed with an AAA, approximately 74,000 people underwent an AAA repair procedure in the United States in 2019, of which approximately 56,0000 were addressed through EVAR.
The debtors’ primary customer and decision maker are vascular surgeons and, to a lesser extent, cardiovascular surgeons, interventional radiologists and interventional cardiologists. Additionally, through its direct sales force, the company provides clinical support and service for many of the hospitals and physicians in the U.S. that perform EVAR. Hospitals are the primary purchasers of Endologix’s EVAR and EVAS products, and, in turn, bill various third-party payors, such as Medicare, Medicaid, and private health insurance plans, for the total healthcare services required to treat patients’ AAA.
The debtors' largest unsecured claims are listed below:
| 10 Largest Unsecured Claims | |||
| Creditor | Location | Claim Type | Claim Amount |
|---|---|---|---|
| Wilmington Trust, N.A. | Minneapolis | 5% Mandatory Convertible Notes Due 2024 |
$ Unknown |
| Wilmington Trust, N.A. | Minneapolis | 5% Voluntary Convertible Notes Due 2024 |
Unknown |
| Bank of America, N.A. | San Diego, Calif. | PPP Loan | 9,812,727 |
| Japan Lifeline Co. Ltd. | Tokyo | Unsecured Notes |
4,280,500 |
| Maine Medical Center | Portland, Ore. | Patient Reimbursement |
885,760 |
| FedEx | Pasadena, Calif. | Trade | 592,780 |
| Stradling, Yocca, Carlson & Rauth |
Newport Beach, Calif. | Professional Services |
285,842 |
| OSCOR, Inc. | Palm Harbor, Fla. | Trade | 249,021 |
| LinkedIn Corporation | Chicago | Trade | 155,042 |
| Wells Fargo Bank, N.A. | Los Angeles | 3.25% Convertible Senior Notes Due 2020 |
150,000 |
The case representatives are as follows:
| Representatives | |||
| Role | Name | Firm | Location |
|---|---|---|---|
| Debtors' Counsel | Andrew B. Zollinger | DLA Piper |
Dallas |
| David E. Avraham | |||
| Thomas R. Califano | New York | ||
| Rachel Nanes | Miami | ||
| Debtors' Financial Advisor |
N/A | FTI Consulting |
N/A |
| Debtors' Investment Banker |
Richard Morgner | Jefferies | New York |
| Co-Counsel to Deerfield Management Company |
James L. Bromley | Sullivan & Cromwell |
New York |
| Ari B. Blaut | |||
| Co-Counsel to Deerfield Management Company |
Paul E. Heath | Vinson & Elkins |
Dallas |
| Matthew J. Pyeatt | |||
| Deerfield's Financial Advisor |
N/A | Houlihan Lokey |
N/A |
| Debtors' Claims Agent | Paul H. Deutch | Omni Agent Solutions |
New York |
Plan / Disclosure Statement
The RSA is subject to the following milestones:
Below is a chart of the plan’s classes, along with their impairment status and voting rights.
Treatment of Claims and Interests
The debtors’ plan sets forth the following classification of and proposed distributions to holders of allowed claims and interests:
- Class 1 - Other secured claims: payment in full in cash, the collateral securing the claim and payment of interest required under section 506(b) of the Bankruptcy Code, reinstatement or such other treatment rendering the claim unimpaired.
- Class 2 - First lien claims: Pro rata share of 100% of the new common stock to be issued to holders of allowed DIP facility claims and allowed first lien claims, subject to dilution from the MIP.
- Class 3 - Assumed trade claims: Receipt of a modified trade contract (to “amend, restate, modify and supersede any prior contract between the parties”).
- Class 4 - General unsecured claims: If the class votes to accept the plan, a pro rata share of $2 million and if the class votes to reject, a pro rata share of 50% of $2 million.
- Class 5 - Intercompany claims: At the option of the reorganized debtors, reinstated or cancelled.
- Class 6 - Existing equity interests: Canceled, released and extinguished; no distribution.
Management Incentive Plan
The plan contemplates a management incentive plan for which restricted stock units exercisable for up to 15% of the new common stock (on a fully diluted basis) would be made available.
Other Plan Provisions
The plan provides for releases of the debtors, the DIP facility agent, the DIP facility lenders, the prepetition first lien lenders and the prepetition first lien agents. In addition, the plan includes an exculpation provision in favor of the debtors and the reorganized debtors, the official committee of unsecured creditors and its members (solely in such capacity), the DIP facility lenders, the exit facility lenders, the DIP facility agent, the prepetition first lien lenders and the prepetition first lien agents.
Members of the new board will be disclosed in the plan supplement.
Liquidation Analysis
Attached to the DS is the following liquidation analysis (along with the following notes):
Valuation Analysis
The estimated range of enterprise value of the reorganized debtors, collectively, as of Sept. 30, 2020, is approximately $170 million to approximately $207 million. In addition, based on the estimated range of enterprise value of the reorganized debtors and other information described herein and solely for purposes of the plan, Jefferies estimated a potential range of total equity value of the reorganized debtors, which consists of the enterprise value, less funded debt on the effective date. Jefferies has assumed that the reorganized debtors will have, as of the effective date, debt of approximately $96 million. Jefferies estimated that the potential range of equity value for the reorganized debtors is between approximately $74 million and approximately $111 million subject to dilution from the management incentive plan.
Financial Projections
The DS includes the following projections:
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(Click HERE to enlarge)
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DIP Financing Motion
The debtors seek approval of DIP financing in the form of a delayed draw term loan up to a maximum amount of $130.8 million, consisting of $30.8 million in new money, and subject to the final order, a roll-up of $100 million of the prepetition first lien term loan obligations. Deerfield Private Design Fund IV, L.P. is the agent and a lender. The prepetition first lien term agent made the only DIP proposal, according to the debtors.
The debtors justify the rollup because “(i) the Prepetition First Lien Term Loan Agent and Prepetition First Lien ABL Agent are consenting to the use of Cash Collateral; (ii) the Prepetition First Lien Term Loan Lenders are agreeing to provide post-petition liquidity through the DIP Facility; and (iii) the Prepetition First Lien Term Loan Agent and Prepetition First Lien ABL Agent have committed to support and fund a plan in this case that provides a greater recovery to all classes of creditors than would be available otherwise.”
The DIP financing bears interest at LIBOR plus 10%, with 2% added for the default rate, and matures on the earliest of Oct. 5, acceleration of the DIP loans, the effective date of a plan, consummation of a sale of all or substantially all of the debtors’ assets, termination of the RSA, filing of f plan without the DIP agent’s consent or 60 days after the petition date if the final order has yet to be entered.
To secure the DIP financing, the debtors propose to grant liens that prime the liens of the prepetition first lien ABL lenders, prepetition first lien term lenders and the second lien noteholders. “The Prepetition First Lien ABL Agent and Prepetition First Lien Term Loan Agent consent to the Roll-Up Loan, and the liens securing the repayment of the Prepetition First Lien Term Loans are senior to those of the Prepetition Second Lien Holders,” according to the motion. In addition, the debtors say that the intercreditor agreement allows the DIP agent, on terms approved by the prepetition first lien term agent and prepetition first lien ABL agent, in their sole discretion, to offer DIP financing, as such, the debtors say, the prepetition second lien noteholders consented to the DIP lender’s provision of DIP financing.
The facility includes various fees, including a 2% upfront fee.
In support of the proposed DIP financing, the debtors filed the declaration of Jefferies managing director Richard Morgner.
The company proposes the following adequate protection to the prepetition first lien term lenders and first lien ABL lenders: replacement liens, superpriority administrative expense claims and payment of professional fees.
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 carveout for professional fees is $3 million.
The proposed budget for the use of the DIP facility is HERE.
The DIP financing is subject to the following milestones:
- Solicitation procedures motion: Filed within three days of the petition date
- DS hearing/order: Entered within 40 days of the petition date
- Final DIP order: Entered within 60 days of the petition date
- Confirmation hearing: Within 75 days of the petition date
- “Acceptable” confirmation order: Entered within three business days of confirmation hearing
- Effective date: Within 90 days of the petition date
Other Motions
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. 20-31840.
- Motion to establish trading procedures
- Edologix 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. The debtors say that, due to significant losses from business operations, the debtors have accrued “substantial” federal income tax net operating losses carryforwards, but the motion does not disclose any actual or estimated dollar amounts of these tax attributes.
- Motion to pay employee wages and benefits
- On an interim basis, the debtors seek approval to pay up to $3.3 million on account of employee obligations.
- Motion to pay critical vendors and 503(b)(9) claims
- The debtors seek approval to pay up to $2 million in critical vendor claims on an interim basis, with up to $4 million in total payment sought on a final basis. The debtors estimate that approximately $ million of amounts to vendors “would likely” be entitled to administrative claim status under section 503(b)(9).
- Motion to use cash management system
- The company has bank accounts with Bank of America, Bank of Montreal, Silicon Valley Bank, Wells Fargo Bank and Piper Jaffray.
- Motion to maintain insurance programs
- Motion to pay taxes and fees
- The debtors request authority to pay taxes and fees as follows:
- The debtors request authority to pay taxes and fees as follows:
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