Unipharma, LLC – Creditors’ Committee Objects to Bidding Procedures as Rushed and Bid Chilling Efforts to Promote Interests of Morgan Stanley Led Stalking Horse

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December 24, 2020 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected to the Debtors’ bidding procedures motion; arguing that the proposed asset sale process and arrangements with stalking horse NHTV ULM Holdings LLC ("NHTV") "heavily tip the scales in favor of NHTV and provides no assurances of a recovery for unsecured creditors" [Docket No. 114]. The Committee is seeking a four week extension to the sale process "to allow sufficient time for due diligence and to promote competitive bidding" and a removal of provisions in the stalking horse asset purchase agreement (the "APA") which it views as bid chilling.

NHTV is an is an acquisition entity formed by holders of debt issued under the Debtors' September 2018 Senior Secured Loan Agreement ($69.6mn outstanding as at the Petition date) and is fronted by Morgan Stanley affiliate MS Capital Partners Adviser Inc. 

There is no break-up fee in the APA, but there is an initial cash overbid increment of $500k and the Debtors' are obliged to cover the reasonable expenses of the Stalking Horse Bidder, an amount which will be added on to any third party bid.

Notwithstanding the absence of a break-up fee, any third party bidders will have a lot more to contend with then the $20.0mn credit bid. In addition to factoring in the expense reimbursement and the initial overbid amount, qualified bids must include cash consideration sufficient to settle the Debtors' prepetition and DIP debt.

The objection notes, “The Committee’s paramount goal in these chapter 11 cases is to safeguard the rights of the unsecured creditors and ensure a fair process that maximizes the value of the Debtors’ assets for all creditors. The proposed Bidding Procedures, coupled with the proposed Stalking Horse Bid Agreement and the proposed DIP Facility, frustrate these goals and serve only to advance the interests of the Debtors’ alleged secured creditor, NHTV ULM Holdings LLC (‘NHTV’)

The Debtors, at NHTV’s behest, have designed an expedited sale process that allows NHTV to test the market for a sale, to shed unwanted liabilities and shareholder disputes, secure releases for itself, and to significantly improve its position vis-à-vis the unsecured creditors by securing liens on unencumbered assets, including potentially valuable insider avoidance actions and tort claims against prior officers and directors. The Court should not approve agreements or a sale process that so heavily tip the scales in favor of NHTV and provides no assurances of a recovery for unsecured creditors.

…[t]he Court should deny the Bidding Procedures Motion unless NHTV agrees to modify the Stalking Horse Bid Agreement and the Bidding Procedures to (i) extend the sale process by four weeks to allow sufficient time for due diligence and to promote competitive bidding; (ii) condition the Stalking Horse Bidder’s credit bidding rights so as not to chill bidding and burden the post-sale estate with the lingering DIP indebtedness; (iii) expressly preserve the Committee’s challenge rights and potential causes of action against NHTV; and (iv) provide sufficient funding for a Chapter 11 plan with meaningful distributions to unsecured creditors.”

Background

Asset Sale

On December 7, 2020, the Debtors filed motions requesting each of a bidding procedures order and a sales order [Docket Nos. 18 and 19, respectively]. The bidding procedures order would (i) authorize the Debtors’ to enter into a Stalking Horse Purchase Agreement with NHTV (AIV) ULM BIDCO LLC (the “Stalking Horse Bidder” with a $20.0mn credit bid), (ii) approve bidding procedures including an expense reimbursement for the Stalking Horse Bidder and (iii) approve a proposed timetable culminating in an auction and sale hearing before the end of January 2021 (exact dates TBD). The sale order would approve the sale to the Stalking Horse Bidder further to the terms of the Stalking Horse APA (attached to the sale motion at Exhibit A) or to any third party "Successful Bidder."

The Stalking Horse Bidder is an acquisition entity formed by holders of debt issued under the Debtors' September 2018 Senior Secured Loan Agreement ($69.6mn outstanding as at the Petition date) and is fronted by Morgan Stanley affiliate MS Capital Partners Adviser Inc. 

There is no break-up fee, but there is an initial cash overbid increment of $500k and the Debtors' are obliged to cover the reasonable expenses of the Stalking Horse Bidder, an amount which will be added on to any third party bid.

Notwithstanding the absence of a break-up fee, any third party bidders will have a lot more to contend with then the $20.0mn credit bid. In addition to factoring in the expense reimbursement and the initial overbid amount, qualified bids must include cash consideration sufficient to settle the Debtors' prepetition and DIP debt.

About the Debtors

According to the Debtors: “At Unipharma, scientific research is a major component of who we are. Our research and development team is focused on developing Rx, OTC and Nutraceutical products by identifying the right ingredients and the best delivery system for the product. Whether you need Blow-Fill-Seal (BFS) or traditional filling for manufacturing in liquid or semi-solid forms, we can manage every part of the process.”

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