Thu 06/01/2023 21:08 PM
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Proposed Interim DIP Order

The GenesisCare debtors obtained all their requested first day relief at a hearing before Judge David Jones this evening. The hearing was fully consensual apart from relief relating to the protection of creditors' and customers' protected personal information, which the court approved over the U.S. Trustee’s objection.

Critically, the debtors obtained interim approval of their proposed DIP financing, providing access to $90 million of the $200 million new money portion of the $800 million DIP financing. The DIP is fully backstopped by an ad hoc term lender group represented by Akin Gump holding $11.4 million in aggregate claims of the revolving credit facility and $805 million of the term loan B.

Steven Serajeddini of Kirkland & Ellis, counsel to the debtors, gave the customary case presentation of the company’s background as one of world’s largest oncology services providers. Serajeddini described GenesisCare’s path to bankruptcy driven by the company’s lack of adequate capital to complete the ongoing turnaround of the debtors’ U.S. business. The debtors had entered into the U.S. market through the purchase of 21st Century Oncology, which emerged from chapter 11 in 2018.

Serajeddini discussed the headwinds facing the company and the U.S. business in particular from the lingering impact of Covid-19, outdated equipment and competitive pressure. Despite putting in place a new CEO, David Young, and bringing in Dr. Shaden Marzouk as president of the US operations to head a turnaround, the company eventually ran out of capital and entered bankruptcy to exit the U.S. market via a sale and reorganize around the international operations, Serajeddini explained.

Serajeddini and Scott Alberino of Akin Gump, counsel for the ad hoc term lender group, discussed the debtors’ pressing need for cash after certain of the company’s revolving credit facility lenders refused to fund $76 million Australian dollars of a drawdown request for the remaining AUD $120.5 million under the facilities, accelerating the need to obtain alternative financing.

After confirming that there was no objection to interim DIP approval from the UST or any other party, Judge Jones noted the objection would be “his alone.” The judge required the DIP lenders to agree to limit the DIP liens to avoidance action proceeds as a last-out source of recovery and the amount of the new money financing as a condition to the court’s approval of the creeping rollup of the prepetition senior facilities agreement obligations. Judge Jones said the a three-to-one ratio to new money actually advanced was larger than he typically approved. Judge Jones also suggested the parties review the DIP releases to ensure that the revolving lenders who refused the debtors’ prepetition draw request were properly carved out.

The DIP lenders agreed to this condition after a break during which the court considered and approved the other customary first-day motions. Given the medical nature of the business, several of the debtors’ first-day motions requested additional relief to ensure the protection of personally protected information of patients, to which the UST lodged a limited objection.

During the hearing, another group of lenders holding approximately $161 million of claims represented by David Hillman of Proskauer reached an agreement to join the DIP lending group.

The parties read a stipulation into the record under which the Proskauer group would participate with respect to 50% of their total holdings and would be entitled to 9% of backstop fees and 9% of the direct allocations.

Jaimie Fedell of Kirkland for the debtors noted that the upsizing of the backstop fees would be reflected in an amended backstop commitment letter. He noted that in light of the debtors’ precarious financial condition, having only $8 million in liquidity after the refused revolver funding request, the financing “comes with a cost” beyond the rollup. Fedell reviewed the principal DIP fees: a 10% interest rate, which he emphasized was PIK, a 3% closing fee, a 0.75% ticking fee and 3% exit fee. He also discussed the 42% holdback for backstop parties under the DIP facility. Fedell asserted that the fees were ultimately reasonable, and said the debtors would “hit the ground running" on an expected 15 day syndication process to offer the remaining 58% to all lenders under the senior facility.

Judge Jones noted that the DIP financing was “incredibly expensive” but was necessary “given the nature of the case."

Judge Jones approved the remainder of the relief on the agenda with minor revisions. In order to give additional clarity to the parties, the judgee also advanced final approval for certain relief, such as the critical vendors and customer program motions, for which the debtors had only requested interim approval.

The court set a second day hearing to consider final approval of the DIP and certain other first day motions for June 27 at 11:30 a.m. ET, with a June 22 objection deadline. A hearing to consider final approval of the cash management motion and other second day relief was set for July 15 at 5 p.m. ET, with an objection deadline of July 7.
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