Leiner granted court OK for settlement resolving creditors committee, bank group claims

By Jennifer Lanning Drey

Portland, Ore., July 30 - A joint settlement included in Leiner Health Products Inc.'s plan of liquidation was "approved without a hitch," during a Wednesday hearing in the U.S. Bankruptcy Court for the District of Delaware, according to a source who attended the hearing.

As previously reported, parties to the settlement are Leiner, its official committee of unsecured creditors, the administrative agent for its pre-petition lenders, Leiner's pre-petition and post-petition secured lenders and the agent for the post-petition lenders.

Under the settlement, the pre-petition agent and pre-petition secured lenders will be allowed a $285.54 million claim plus out-of-pocket costs in the company's Chapter 11 bankruptcy case.

Upon closing the sale of substantially all of its assets, Leiner will use the sale proceeds to pay at least $249.5 million to partially satisfy the claim.

The pre-petition agent and pre-petition secured lenders will waive their rights to recover post-petition interest.

Assuming the allowed pre-petition lenders' claim is paid in full in cash, the pre-petition agent and pre-petition secured lenders will not be entitled to enforce subordination rights against Leiner's pre-petition senior subordinated bondholders.

The settlement also establishes that the agreed equity value of Leiner's non-debtor Canadian affiliates is $40 million.

Additionally, under the settlement Leiner will reserve $8 million from its asset sale incentive program to backstop unsecured creditors' recoveries.

In exchange for the backstop, the settlement parties agreed to amend the asset sale incentive program to allow for distribution of sale bonuses to management as soon as possible after the later of the closing date or the settlement date, with the exception of the $8 million backstop.

Leiner is a Carson, Calif.-based manufacturer of store-brand vitamins, minerals and nutritional supplements. The company filed for bankruptcy on March 10. Its Chapter 11 case number is 08-10446.

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