K-V Pharmaceutical gets alternative plan proposal, DIP loan commitment

By Caroline Salls

Pittsburgh, May 3 - K-V Pharmaceutical Co. said it negotiated the terms of an alternative plan of reorganization and received a related commitment for $85 million in replacement post-bankruptcy financing, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of New York.

The company said it adjourned its disclosure statement hearing to continue discussions and negotiations on the alternative plan proposal. The disclosure statement was originally adjourned to May 3, and, on Friday, was further adjourned until May 8.

As a result of the adjournment, a default occurred under the existing DIP agreement, which required K-V to secure approval of the original disclosure statement by April 26.

According to the motion, the company received the alternative plan proposal from a group of investors comprised primarily of convertible noteholders, on April 17.

That proposal consisted of commitments to provide up to $250 million in equity financing to support the alternative plan, including a $165 million direct equity investment and a fully backstopped $85 million rights offering, an alternative plan term sheet and an $85 million replacement DIP facility.

On April 22, the investors also provided an initial commitment to backstop up to $100 million of exit debt financing.

Alternative plan terms

The terms of the alternative plan would include the following:

• Holders of senior notes would be paid in full for pre-bankruptcy principal and interest, as well as any post-bankruptcy interest the court decides is owed to the noteholders;

• Holders of convertible notes would receive a share of 6% of the common equity of reorganized K-V;

• Each convertible noteholder, other than the investors, that is an accredited investor and votes to accept the plan would receive a share of rights to purchase up to 4.25 million shares of new common stock, representing 30% of the stock, at an exercise price of $20 per share;

• Holders of general unsecured claims would receive the lesser of a share of $8.5 million in cash or 50% of their claim; and

• Other terms of the alternative plan will be substantially similar to those in the original plan.

Treatment comparison

In comparison, treatment of creditors under the original plan would include:

• Priority non-tax claims would be paid in full;

• Holders of other secured claims would either receive cash or another treatment that renders their claims unimpaired;

• Senior noteholders would receive a share of 82% of the common equity of the reorganized K-V Pharmaceutical, subject to dilution by new common stock issued in connection with a management incentive plan and rights offering, and a $50 million second-lien term loan facility;

• New first-lien lenders would receive 15% of the new common stock, subject to dilution by the management incentive plan and rights offering, and a new first-lien term loan commitment premium;

• Convertible noteholders would receive a share of 3% of the new common stock, subject to dilution. Those who are accredited investors and vote to accept the plan would be eligible to participate in a rights offering to purchase up to $20 million of new common stock at an exercise price intended to provide the senior noteholders with a recovery equal to par plus accrued interest on their senior secured notes;

• Holders of general unsecured claims would receive a share of $1.7 million in cash, capped at 9.05% of the claim amount; and

• No distributions will be made on account of securities law claims, equitably subordinated claims or existing K-V interests.

Replacement DIP financing

Law Debenture Trust Co. of New York is the collateral agent, administrative agent and syndication agent for the replacement DIP loan.

The lenders are Capital Ventures International, Greywolf Capital Overseas Master Fund, Greywolf Capital Partners II LP, Greywolf Opportunities Fund LLC and Kingdon Capital Management, LLC, on behalf of funds and/or accounts that each manages and/or advises.

K-V said its existing DIP facility will be terminated and repaid in full in cash.

Interest on Base rate loans under the replacement facility will be Base rate plus 800 basis points, with a 300 bps floor, and interest on Libor loans will be Libor plus 900 bps, with a 200 bps floor.

The replacement facility will mature on the earliest of Dec. 31, 2013, the date all loans are paid in full and the effective date of a plan of reorganization.

The company is seeking interim access to $67 million of the financing.

K-V Pharmaceutical, a St. Louis specialty pharmaceutical company, filed for bankruptcy on Aug. 4, 2012. Its Chapter 11 case number is 12-13346.

© 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.