K-V Pharmaceutical lenders, noteholders ask to delay financing hearing

By Jim Witters

Wilmington, Del., May 8 - K-V Pharmaceutical Co.'s debtor-in-possession lenders and an informal group of senior noteholders sought a two-day delay of the company's May 8 hearing for approval of replacement post-bankruptcy financing, according to a May 8 filing with the U.S. Bankruptcy Court for the Southern District of New York.

At the May 8 hearing, the court was to consider the financing and conduct a status conference on the case.

As previously reported, the DIP lenders and senior noteholders proposed a revised Chapter 11 plan "that would distribute more value to all creditor classes than the proposed plan sponsored by certain holders of the debtors' subordinated notes."

Because the lenders and senior noteholders expect the debtors to support their plan, they say the debtors need not seek approval of the alternative financing.

"Nevertheless, if the debtors do pursue the subordinated noteholders' plan, the senior lenders intend to object to both the debtors' motion for new DIP financing and the debtors' motion to approve a purported stock purchase agreement," court documents state.

The lenders and senior noteholders - DIP agent and DIP lenders Silver Point Capital, LP, Whitebox Advisors, LLC, and Pioneer Investment Management, Inc. and an informal group of holders of more than 75% in principal amount of the senior notes due in 2015 (about $225 million) - asked the court to delay the hearing until May 10.

"The debtors' approval of the senior lenders' new proposed plan would obviate the need for a hearing on these motions," the filing states.

No ruling on the postponement request was filed May 8.

New plan

The company received the alternative plan proposal from a group of investors composed 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 treatment

Treatment of creditors under the alternative plan include:

• 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.

Original creditor treatment

In comparison, treatment of creditors under the original plan includes:

• 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.

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

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