Verity Health System committee objects to DIP financing protections

By Caroline Salls

Pittsburgh, Sept. 28 – Verity Health System of California, Inc.’s official committee of unsecured creditors objected to the company’s motion for approval of debtor-in-possession financing, saying it is specifically opposed to the “scope of the protections” being provided to pre-bankruptcy secured creditors under the financing agreement, according to a Thursday filing with the U.S. Bankruptcy Court for the Central District of California.

“The terms of the adequate protection set the stage for the Chapter 11 cases to be run for the benefit of the pre-petition secured creditors,” the objection said.

“The debtors’ estates’ many other creditors...are effectively being asked to fund operations going forward even though the sale process and protections required by the pre-petition secured creditors as adequate protection may likely leave the unsecured creditors with little to no recovery.”

“This is especially troubling because, as of the petition date, there appear to have been substantial unencumbered assets and value in the debtors’ estates that would otherwise be available to pay the holders of unsecured claims.”

In addition, the committee said the proposed waiver of the court’s ability to later order the marshaling of assets to ensure a fair distribution and the fact that the expedited sale process mandated by the final DIP financing order that only requires that the proceeds clear “minimal price hurdles” to pay secured creditors only gives the pre-bankruptcy secured creditors an “unwarranted degree of control over these cases.”

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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