Careismatic’s DIP loan ‘ruinous’ to unsecured creditors: committee

By Sarah Lizee

Olympia, Wash., Feb. 26 – Careismatic Brands LLC’s motion for final approval of a $125 million super-priority senior secured delayed-draw debtor-in-possession facility drew an objection from the official committee of unsecured creditors, according to documents filed Friday with the U.S. Bankruptcy Court for the District of New Jersey.

“The proposed DIP facility perpetrates a scheme of borrowing that, if approved, will prove ruinous to unsecured creditors,” the group said in the objection.

“The scheme is a sophisticated, but also transparent, attempt by a group of prepetition first-lien lenders to encumber all the debtors’ unencumbered assets and extract a substantially disproportionate amount of value to the detriment of unsecured creditors.”

The committee noted that four days before the petition date, the debtors paid off their $12 million asset-based lending facility. With the ABL lender “out of the way,” the first-lien lenders proposed the DIP facility with a fee structure of $22.5 million that encumbers substantially all of the debtors’ assets, including their causes of action, the group said.

The first-lien lenders also sized the facility at $125 million, even though the debtors will likely not need more than the $50 million already approved in the interim order, the committee added.

The committee said the scheme would syphon all available value away from unsecured creditors, while releasing the prepetition first- and second-lien lenders from any liability arising out of the “glossed-over” 2021 leveraged buyout from which the $800 million of prepetition debt arose.

The committee said the lenders would also obtain 100% of the equity in the reorganized debtors, a portion of which would be made available only to DIP lenders on account of their DIP premiums at a 40% discount to an unknown reorganized debtor enterprise value that could potentially reward the first-lien lenders with a DIP premium of 34% to 90% of the $125 million DIP facility, based on a range of potential enterprise value.

Careismatic Brands is a Santa Monica, Calif.-based designer, marketer and distributor of medical apparel, corporate identity apparel, school uniforms and adaptive clothing. The company filed bankruptcy on Jan. 22 under Chapter 11 case number 24-10561.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.