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March 29, 2023 – The Debtors requested Court authority to enter into a $120.0mn (“DIP”) financing facility* to be provided by certain affiliates, managed funds, or accounts of Oaktree Capital Management, L.P. (collectively the “DIP Lenders”) and (ii) use cash collateral [Docket No. 14, with the DIP Credit Agreement attached as Exhibit A].
*The DIP financing is comprised of: (i) $60.0mn in new money term loans ($12.32mn on an interim basis) and (ii) a roll-up of approximately $60.0mn of the Debtors' First Lien Term Loan Facility on a dollar-for-dollar basis debt (the “Roll-Up Amount”).
On March 29, 2023, SiO2 Medical Products, Inc. and two affiliated Debtors (“SiO2” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn. At filing, the Debtors, who "create and manufacture engineered primary packaging container components for the Pharmaceutical and Biotechnology industry, " noted that they had "yet to meet the anticipated commercialization timeline for its products" adding that "after raising and investing over $800 million in facilities, equipment, and research and development over the last 10 years…[the resulting] legacy capital structure, which includes 12 debt facilities, convertible debt, and nine types of preferred stock, each with various consent and other rights, has made raising capital extremely challenging, especially in the current market environment."
A significant portion of that financing was used "over the last few years on production of vials for the COVID-19 vaccine as part of Operation Warp Speed. The Company now has capacity to deliver on targets contemplated by earlier government grants, but those production levels are no longer needed. The Company will likely need to retool its equipment for future client demand."
The DIP Motion
The motion [Docket No. 14] states, “[t]he Debtors filed these chapter 11 cases in the midst of a severe liquidity crisis and inability to obtain out-of-court financing to bridge their products to commercialization. Consequently, the Debtors and Oaktree Capital Management, L.P. (collectively with its affiliated investment funds and affiliates, ‘Oaktree’) entered into a restructuring support agreement… to pursue a restructuring of their business (either through a plan of reorganization or the sale of the business as a going concern) to maximize the value of their estates for their stakeholders. To effectuate the transactions contemplated by the Restructuring Support Agreement, the Debtors require immediate access to capital to avoid irreparable harm to their estates. The Debtors have filed these chapter 11 cases with approximately $4.1 million of cash. Part and parcel of the Restructuring Support Agreement is Oaktree’s commitment to provide postpetition financing to allow the Debtors to conduct a fulsome marketing process for their business.
As discussed in the Cowan Declaration,…the Debtors requested that the First Lien Term Loan Lenders consent to amend the First Lien Credit Agreement with respect to the covenant to maintain a minimum liquidity of $15 million in order to fund operations and prepare for the present chapter 11 filing from existing cash, which was otherwise held in a restricted account (which consent was voluntarily granted by the First Lien Term Loan Lenders)."
The DIP motion continues: "As part of their preparation for an in-court process, the Debtors engaged with numerous parties to potentially fund these chapter 11 cases. Specifically, Lazard contacted approximately eight third-party financial institutions and four existing investors to determine whether any of these parties would be willing to provide postpetition financing to the Debtors. No party other than Oaktree has provided the Debtors with an executable out-of-court or postpetition financing facility.
After extensive, arm’s-length negotiations with Oaktree, the Debtors were able to secure the proposed $120 million debtor-in-possession term loan credit facility (the ‘DIP Facility’), including $60 million in new-money loans, secured by a perfected first priming lien on substantially all of the Debtors’ assets except for a perfected junior priority lien on all DIP Collateral that secures obligations that are subject to Permitted Prior Liens. The DIP Facility will also roll-up up to $60 million of the Debtors’ prepetition obligations under their First Lien Term Loan Facility on a dollar-for-dollar basis with the funding of the New Money Loans (the ‘Roll-up Amount’). Oaktree was unwilling to move forward on any proposal that did not include the Rollup Amount.
The DIP Facility and Restructuring Support Agreement are complementary and together provide a structure for the Debtors’ marketing process. The DIP Facility is expressly linked to certain case milestones, which are consistent with the timeline set forth in the Restructuring Support Agreement and provide a structure for the Debtors’ anticipated chapter 11 process, allowing the parties to continue developing and pursuing a comprehensive marketing process for the Debtors’ business. These milestones were required by Oaktree as a condition to providing the DIP Facility.”
Key Terms of DIP Facility
- Borrowers: SiO2 Medical Products, Inc.
- Guarantors: Advanced Bioscience Labware, Inc. and Advanced Bioscience Consumables, Inc. (collectively, the “DIP Guarantors,” and together with the Borrower, the “DIP Obligors” or “Loan Patties”).
- DIP Lender: Certain affiliates, managed funds, or accounts of Oaktree Capital Management, L.P. (collectively the “DIP Lenders”).
- Commitment: $120 million in the aggregate in the form of a term loan credit facility.
- New Money: $60.0mn ($12.32mn on an interim basis)
- Roll-up: $60.0mn of First Lien Term Loan Facility on a dollar-for-dollar basis
- Interest Rate: 14%.
- Default Rate: 2% per annum
- Use of Proceeds: The proceeds of New Money Loans, and cash and Cash Equivalents of the Obligors, shall, in each case, only be permitted to be used by the Obligors or their Subsidiaries: (a) for working capital and general corporate purposes of the Obligors; (b) to fund costs and expenses related to the Chapter 11 Cases, including for the avoidance of doubt, the fees of professionals retained by the company in the Chapter 11 Cases; (c) to fund the payment of interest, fees, costs, and expenses related to the DIP Facility, including the reasonable and documented fees and expenses of the Lender Professionals (such fees and expenses, the “DIP Professional Fees”); and (d) to finance disbursements, in each case, in accordance with the Approved Budget, subject to Permitted Variances, this Agreement, and the Chapter 11 Orders.
- Maturity Date: NA
- Fees: The Debtors agree to pay to the DIP Agent any amounts due in accordance with the terms of the fee letters, in accordance with the applicable terms thereof.
- Milestones: The Parties shall use their reasonable best efforts to pursue and implement the Restructuring Transactions as defined in, and in accordance with, the Restructuring Support Agreement and shall, subject to the availability of the Bankruptcy Court, achieve the following milestones:
- The Debtors shall file an Acceptable Plan of Reorganization and related disclosure statement (the “Disclosure Statement”), the Disclosure Statement Motion, the Bidding Procedures, and the Bidding Procedures Motion; no later than one (1) day after the Petition Date.
- The Bankruptcy Court shall have entered the Interim DIP Order; no later than three (3) days after the Petition Date.
- The Bankruptcy Court shall have entered a Final DIP Order, a final order approving the Bidding Procedures, and an order approving the Disclosure Statement (each in form and substance satisfactory to the Consenting Stakeholders); no later than thirty-six (36) days after the Petition Date.
- Delivery by the Debtors to the Consenting Stakeholders of a go-forward business plan acceptable to the Consenting Stakeholders in their sole discretion, which shall include, in each case in form and substance acceptable to the Consenting Stakeholders (i) a substantially complete analysis of the liabilities proposed to be compromised through the chapter 11 cases, (ii) a substantially complete analysis of all matters relating to the assumption and assignment of all material contracts of the Debtors, including all material government contracts, intellectual property agreements, and any other material contracts of the kind or type described in section 363(c)(1)(a) of the Bankruptcy Code, including that no such contracts are subject to the consent of the contract counter-party in connection with such assumption and assignment or that, to the extent such consent is required, that such consent has been obtained or is reasonably likely to be obtained, (iii) a substantially complete analysis of the secured, administrative, and priority unsecured claims reasonably assertable against the Debtors, and (iv) a substantially complete analysis of claims reasonably assertable against the Debtors that are not or may not be dischargeable upon consummation of the Plan (the “Business Plan Milestone”); provided that the Business Plan Milestone shall only be met if the quantum and nature of any such claims or liabilities and all other information set forth in (i) through (iv) above is acceptable to the Consenting Stakeholders in all material respects; no later than fifty-five (55) days after the Petition Date.
- The Bid Deadline shall have occurred; no later than sixty (60) days after the Petition Date.
- The Auction (as defined in the Restructuring Support Agreement), if needed, shall have occurred; no later than sixty-five (65) days after the Petition Date.
- A hearing to consider confirmation of an acceptable Plan of Reorganization (the “Confirmation Hearing”) shall have occurred, or, if the Initial Plan Sponsors have elected to pursue the Credit Bid Sale Restructuring, a hearing to consider approval of the proposed sale pursuant to section 363 pursuant to the Credit Bid Sale Restructuring (the “Sale Hearing”); no later than seventy-eight (78) days after the Petition Date.
- The Bankruptcy Court shall have entered a final order confirming the Plan of Reorganization (the “Confirmation Order”), in form and substance satisfactory to the Consenting Stakeholders (the “Confirmation Milestone”), or, if the Initial Plan Sponsors have elected to pursue the Credit Bid Sale Restructuring, a final order approving the sale pursuant to section 363 pursuant to the Credit Bid Sale Restructuring; no later than two (2) days after the Confirmation Hearing.
- The Plan Effective Date shall have occurred, or, if the Initial Plan Sponsors have elected to pursue the Credit Bid Sale Restructuring, closing of the Credit Bid Sale Restructuring shall have occurred; no later than ten (10) days after entry of the Confirmation Order.
As of the Petition Date, the Debtors have an aggregate principal amount of approximately $430 million in funded debt obligations, consisting of (a) First Lien Term loans, (b) Second Lien Term Loans, (c) certain secured financing secured by certain specified assets, (d) Promissory Notes (as defined herein), and (e) Convertible Indebtedness. 27. SiO2 is a borrower under twelve debt facilities, each as more fully described below:
Goals of the Chapter 11 Filings
The Steffen Declaration (defined below) notes, "Now, with only approximately $4.1 million in cash on hand, including restricted amounts, the Company has filed these chapter 11 cases to address its capital structure and reorganize its operations, allowing a new owner to bring the products to market."
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Steffen Declaration”), Yves Steffen, the Debtors’ chief executive officer, detailed the events leading to SiO2’s Chapter 11 filing. The Steffen Declaration provides: “SiO2 is a material life sciences company that — after raising and investing over $800 million in facilities, equipment, and research and development over the last 10 years — is at the precipice of mass-commercialization of its breakthrough materials science technology that is poised to revolutionize the pharmaceutical industry….
Despite the Company’s breakthrough advances in technology, which are likely to lead to increased patient safety, it has yet to meet the anticipated commercialization timeline for its products. While management believes that many significant players are interested in investing new capital into the Company, the Company’s legacy capital structure, which includes 12 debt facilities, convertible debt, and nine types of preferred stock, each with various consent and other rights, has made raising capital extremely challenging, especially in the current market environment. The Company’s relatively limited current revenue — approximately $50 million in 2022 — cannot support its current operational overhead and debt load, which required $13 million in interest payments over the same period. The Company has spent much of the last year trying to raise capital despite these capital structure issues, but neither third-parties nor existing equity holders — those with the most to lose under the circumstances — have come to the table with new capital.
Notably, the Company focused its efforts over the last few years on production of vials for the COVID-19 vaccine as part of Operation Warp Speed. The Company now has capacity to deliver on targets contemplated by earlier government grants, but those production levels are no longer needed. The Company will likely need to retool its equipment for future client demand. Now, with only approximately $4.1 million in cash on hand, including restricted amounts, the Company has filed these chapter 11 cases to address its capital structure and reorganize its operations, allowing a new owner to bring the products to market.
Significantly, the Debtors filed these chapter 11 cases with a clear path to emergence. The Debtors and certain affiliates and funds of Oaktree Capital Management, L.P. (the 'Initial Plan Sponsors' or 'Oaktree'), which holds all of the Company’s first lien debt, have developed a comprehensive restructuring on an accelerated timeline (the 'Restructuring') memorialized in the restructuring support agreement attached hereto as Exhibit A (the 'Restructuring Support Agreement'). The Restructuring contemplates saving the SiO2 business — including nearly 250 jobs—through these chapter 11 cases.
The Restructuring has three main components: First, Oaktree has agreed to provide a $120 million ($60 million new-money) superpriority debtor-in-possession financing facility (the 'DIP Facility,' and the claims created by the DIP Facility, the 'Allowed DIP Claims'), to fund these chapter 11 cases. Second, Oaktree committed to serve as the Initial Plan Sponsor and equitize its Allowed DIP Claims and Allowed First Lien Term Loan Claims into 100% ownership of Reorganized SiO2 through a chapter 11 plan, subject to the Company meeting certain milestones. Third, Oaktree agreed to subject its recovery under the Plan to an auction process pursuant to court-approved bidding procedures, whereby any party may submit a bid to acquire 100% of the New Common Stock of Reorganized SiO2 through the Plan.
Oaktree has agreed that it will not participate in the auction process. The floor for bids is therefore approximately $349.1 million, which is the anticipated amount of Oaktree’s Allowed DIP and First Lien Term Loan Claims. Nonetheless, Oaktree has indicated that it may consent to a recovery different than what is currently contemplated under the Plan, and the Debtors therefore encourage all interested parties to engage in the process, even if they may have a lower preliminary bid. There is no break-up fee or expense reimbursement contemplated to be paid to Oaktree in its role. The Company’s proposed investment banker in these chapter 11 cases, Lazard Frères & Co. LLC ('Lazard'), has already started a robust marketing process for the sale of the Company.”
About the Debtors
According to the Debtors: “SiO2 Materials Science is a company with deep roots in chemistry and engineering. The company creates and manufactures engineered primary packaging container components for the Pharmaceutical and Biotechnology industry. These containers typically take the form of syringes, vials and cartridges.
Our patented technology applies a unique glass-like barrier onto any plastic surface. Our products are engineered to combine the durability and dimensional precision of plastic with the physical and barrier properties of glass.
In the Pharma Industry, SiO2 advanced technology solves more than 30 problems which have plagued the industry for more than 100 years – including some of the most challenging related to drug stability, drug efficacy and safety."
Corporate Structure Chart
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