Elements Behavioral Health’s Official Committee of Unsecured Creditors filed with the U.S. Bankruptcy Court an objection to the motion for entry of interim and final orders authorizing the Debtors to obtain secured postpetition financing and to the use of cash collateral.
The committee asserts, “The Committee is concerned that the postpetition financing (the ‘DIP Facility’) represents a serious and unwarranted overreach by the proposed lender, Project Build Behavioral Health, LLC (‘PBBH’). PBBH recently purchased the Debtors’ first-lien prepetition debt, presumably for a fraction of the face amount, and is now attempting to exercise control over these chapter 11 cases for PBBH’s own benefit. The objective of PBBH is straightforward: it wants to purchase, by using its alleged right to “credit bid” free and clear of all other competing claims, all the valuable assets of the Debtors under the auspices of section 363 of the Bankruptcy Code. PBBH’s motive in funding the Debtors and these chapter 11 cases is therefore far from altruistic. PBBH has identified the value of the Debtors’ assets and has adopted a classic ‘loan to own’ strategy in a deliberative effort to acquire them. The Committee’s investigation into PBBH’s acquisition of the debt and the prepetition sales process is just beginning. Based on the limited information received to date, the Committee understands that prior to the Petition Date, an affiliate of PBBH sought to purchase the Debtors’ assets through a traditional sale. When the PBBH affiliate reduced the proposed purchase price by $20 million, the Debtors terminated exclusivity and failed to move forward with the proposed transaction. Shortly thereafter, PBBH purchased the Debtors’ prepetition debt with the intention of acquiring the same assets through a credit bid transaction postpetition at the reduced price rejected by the Debtors prepetition…A court, however, may approve DIP financing only if such financing is in the best interests of the general creditor body. Postpetition financing also should not be authorized if its primary purpose is to benefit or improve the position of a particular creditor. Unfortunately, the proposed DIP financing, in its current form, fails both of these basic tests.”
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