Graceway Pharmaceuticals' liquidation plan left in limbo after hearing

By Jim Witters

Wilmington, Del., April 11 - A federal bankruptcy judge declined to grant or deny confirmation of Graceway Pharmaceuticals, LLC's liquidation plan on Wednesday after the U.S. Trustee's Office objected to a series of third-party releases from non-consenting creditors.

Judge Peter J. Walsh told debtors attorney Josef S. Athanas to work with the trustee, "and come back with your best shot."

Juliet Sarkessian, representing the trustee, argued during a hearing in the U.S. Bankruptcy Court for the District of Delaware that releases are too broad in being granted to the buyer, to the debtors, the debtors' directors and officers and employees and to professionals hired by the debtors and by the lenders.

The trustee has no objection to the debtors granting releases to the first-lien lenders and to GTCR Golder Rauner, LLC, because agreements reached with those parties brought cash value to the debtors' estate, Sarkessian said.

The objection is to releases for parties that brought no "hard assets" to the estate, and to the non-consenting releases being requested of creditors who either voted against the liquidation plan or chose not to vote, she said.

"The debtors provided no evidence that this plan or another plan can't be confirmed without these releases," Sarkessian told the court.

Athanas offered to change the plan to grant releases that are binding only on those who voted in favor of plan.

All parties with an economic interest in the plan agreed with the original liquidation plan and with the compromise offered, but Sarkessian said she lacked authority to agree to the new language.

Walsh said that if the releases were essential to a plan of reorganization, they are reasonable, but Graceway is not trying to reorganize.

The additional recovery of 1% to 1.5% to general unsecured creditors that resulted from settlements with the first-lien holders and GTCR "are as close to nothing as you can get," Walsh told Athanas.

Walsh directed Athanas to submit a proposal in writing by April 20 and scheduled a plan confirmation hearing for 1:30 p.m. ET on April 23.

CVS settlement approved

Also during the hearing, Walsh approved a settlement between Graceway and CVS Caremark Corp., Caremark, LLC and their affiliates.

The consensual agreement provides CVS an allowed administrative priority claim in the amount of $438,000 and a non-priority unsecured claim of $7 million.

In December 2011 CVS, Caremark and the affiliates filed claims totaling more than $23 million.

Creditor treatment

As previously reported, treatment of creditors under the plan of liquidation will include:

• Holders of administrative expense claims, priority tax claims and other priority claims will be paid in full in cash;

• Holders of first-lien facility claims will receive a share of any first-lien available cash, Nycomed litigation proceeds and beneficial interests in a liquidating trust, entitling them to further cash and avoidance action and cause of action proceeds;

• Holders of second-lien facility claims will receive liquidating trust interests entitling them to any available cash remaining after payment of first-lien claims;

• Holders of other secured claims will receive either the collateral securing the claims or cash;

• Holders of general unsecured claims will receive a share of other available cash not subject to liens granted under the second-lien facility after other claims have been paid in full; and

• Holders of intercompany claims, old equity and old equity rights will receive no distribution.

Graceway is a Bristol, Tenn.-based pharmaceutical company. It filed for bankruptcy on Sept. 29 under Chapter 11 case number 11-13036.

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