Verity Health indenture trustees balk at DIP loan lien provisions

By Caroline Salls

Pittsburgh, Sept. 25 – Two indenture trustees objected to Verity Health System of California, Inc.’s motion for approval of a debtor-in-possession financing agreement in a Tuesday filing with the U.S. Bankruptcy Court for the Central District of California.

The objection was filed by master indenture trustee UMB Bank, NA and series 2005 revenue bond trustee Wells Fargo Bank, NA.

The trustees said the proposed $185 million of post-bankruptcy debt would be secured by liens on substantially all of Verity’s assets, which “would involuntarily prime the secured parties’ liens, and similarly prime the liens of all other secured creditors in these cases.”

In addition, the secured parties said they were not meaningfully consulted, and were not involved in any way in the selection of the DIP lender or the negotiation of the terms of the DIP facility.

The trustees said the company has not shown that it can provide adequate protection. As a result, the trustees said they will not consent to the DIP financing agreement, specifically the priming of the liens, if the terms of the financing are not amended.

“If the final order does not include the provisions described in this objection, the secured parties demand strict proof that the pre-petition liens of the secured parties are being adequately protected under the Bankruptcy Code,” the objection said.

Verity is a Los Angeles-based nonprofit health care system. The company filed bankruptcy on Aug. 31 under Chapter 11 case number 18-20151.

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