K-V Pharmaceutical's creditors committee objects to proposed $60 million Hologic, Cytyc settlement

By Lisa Kerner

Charlotte, N.C., Dec. 19 - K-V Pharmaceutical Co.'s official committee of unsecured creditors filed an objection to the company's motion seeking court approval of a settlement with Hologic, Inc. and Cytyc Prenatal Products Corp., according to a Dec. 19 filing with the U.S. Bankruptcy Court for the Southern District of New York.

A hearing is scheduled for Dec. 26.

Settlement terms

Under the proposed settlement,

• Hologic will be paid $60 million simultaneously with the funding of debtor-in-possession facility loans using the proceeds of those loans;

• The payment must be made by Dec. 31, or the settlement will be terminated;

• All pending litigation or other disputes will be stayed through the earlier of Dec. 31 and the termination of the agreement;

• The parties have agreed to a mutual release of claims; and

• If K-V has not filed a motion seeking approval of the DIP facility by Dec. 14, the parties will enter into an amended scheduling order by Jan. 3 under which all specified proceedings will be rescheduled.

Financing, timing questioned

The creditors committee said the ad hoc committee of senior noteholders "orchestrated a two-step transaction" in which Hologic's claims would be settled for $60 million in cash, with payment funded by the noteholders committee through an $85 million single-draw debtor-in-possession facility.

As a result, the debtors would be required to "file, solicit, confirm and consummate a predatory plan of reorganization sponsored by the noteholders committee," according to the creditors committee motion.

While the creditors committee does not object to the settlement or the $60 million settlement amount in principle, it believes the debtors failed to shop the DIP financing and explore alternative plan proposals.

The creditors committee specifically questioned the debtors' rejection of a fully committed alternative $110 million financing offered by Susquehanna Advisors Group, Inc. as well as the need to have the settlement close by year-end.

Relief sought

As previously reported, K-V said it purchased the right, title and interest to pharmaceutical product Makena from the Hologic entities.

K-V was unable to negotiate an amendment to the purchase agreement extending a milestone payment due on Aug. 4 and was forced to file for bankruptcy on that date.

In its motion objecting to the settlement, the creditors committee said the debtors have not confirmed their view that Hologic "possesses a valid and perfected lien in the Makena drug and that Hologic is the only creditor with a valid and perfected lien in the Makena drug."

The creditors committee asked the court to reject the noteholders committee's DIP facility and direct K-V to negotiate and close the Susquehanna DIP facility.

K-V's creditors committee also asked the court to condition its approval of the settlement motion upon a determination that no other liens other than the Hologic liens exist on the Makena collateral.

Since the bankruptcy filing date, Hologic has objected to K-V's use of cash collateral, continued use of its cash management system, continued pre-bankruptcy practices related to intercompany transfers and the company's exclusivity extension request.

The parties also dispute the total amount owed to Hologic by K-V, according to K-V's motion.

K-V said Hologic has filed a claim for $95 million, plus royalties.

K-V Pharmaceutical, a St. Louis specialty pharmaceutical company, filed for bankruptcy on Aug. 4. Its Chapter 11 case number is 12-13346.

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