January 14, 2020 − REVA Medical, Inc. (“Reva” or the “Debtor”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10072. The Debtor, a medical device company focused on devices for heart conditions, is represented by Stuart Brown of DLA Piper LLP (US). Further board-authorized engagements include (i) Ernst & Young as restructuring advisor and (ii) Stretto as claims agent.
The Debtor's Petition notes between 50 and 100 creditors, estimated assets of $5.9mn and estimated liabilities of $104.5mn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Elliott Associates, L.P. ($44.9mn convertible note) (ii) Goldman Sachs International ($27.2mn of convertible notes across 2 claims) and (iii) Senrigan Capital Group Limited ($21.7mn of convertible notes across 2 claims).
Plan Summary
The Debtor’s Disclosure Statement [Docket No. 14] provides: “The Plan has been negotiated with and has the support of the Consenting Creditors (as defined below), including certain 2014 Convertible Noteholders, 2017 Convertible Noteholders and Senior Secured Lenders that are parties to the Restructuring Support Agreement….The Debtor is pleased to report that after extensive, good-faith and arm’s-length negotiations with the Consenting Creditors, the Plan embodies a settlement among the Debtor and its key stakeholders on a consensual deleveraging transaction which provides for the implementation of a restructuring through an expedited chapter 11 process. As explained in further detail in the Disclosure Statement, the key terms of the Plan include, without limitation, the following:
- payment in full, in the ordinary course of business, or reinstatement of Allowed General Unsecured Trade Claims;
- payment in full, in Cash, or reinstatement, as applicable, of all Allowed Administrative Claims, Allowed Professional Fee Claims, Allowed Priority Tax Claims, Allowed Statutory Fee Claims, Allowed Lien Claims and Allowed Other Priority Claims;
- conversion of Allowed Senior Secured Credit Facility First Out Claims, Allowed Senior Secured Credit Facility Last Out Claims, Allowed 2017 Convertible Notes Claims, and Allowed 2014 Convertible Notes Claims into, among other things, New Common Stock, NewLLC Preferred Units, and New LLC Common Units, resulting in the elimination of approximately $93.8 million of debt and accrued interest thereon;
- cancellation of the Existing REVA Interests;
- entry into the NewLLC Exit Credit Facility Agreement and the Reorganized REVA Exit Credit Facility Agreement to ensure adequate liquidity at exit; and
- prompt emergence from the Chapter 11 Case.
Overall, the Plan is designed to augment the Debtor’s liquidity, continue the Debtor’s operations with minimal disruption, preserve the going-concern value of the Debtor’s business, maximize recoveries for stakeholders and protect the jobs of the Debtor’s employees."
Summary of classes, claims and expected recoveries (defined terms are as defined in the Disclosure Statement):
- Class 1A (“Senior Secured Credit Facility First Out Claims”) is impaired and entitled to vote on the Plan. Expected recovery is 100%
- Class 1B (“Senior Secured Credit Facility Last Out Claims”) is impaired and entitled to vote on the plan. Expected recovery is 100%
- Class 2 (“Lien Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Other Priority Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“2017 Convertible Notes Claims") is impaired and entitled to vote on the Plan. Expected recovery is 26%-50%.
- Class 5 (“2014 Convertible Notes Claims") is impaired and entitled to vote on the Plan. Expected recovery is 9%-17%
- Class 6A (“General Unsecured Trade Claims") is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 6B (“Other General Unsecured Claims") is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Interests in REVA Medical, Inc.") is impaired, deemed to reject and not entitled to vote on the Plan.
Pre-petition Capital Structure and Indebtedness
As of the January 13, 2020, REVA had total debt outstanding of approximately $104.5mn, which includes $81.8mn in principal and approximately $22.7mn in accrued interest. Amounts outstanding include $10.2m under the Debtor’s Senior Secured Credit Agreement, consisting of $9.7mn in principal plus approximately $500k in accrued interest, amounts outstanding on the Debtor’s 2014 Convertible Notes of $25.0mn plus approximately $11.1mn of accrued interest and amounts outstanding under the Debtor’s 2017 Convertible Notes of $47.1mn plus approximately $10.6m in accrued interest.
Restructuring Support Agreement
On December 23, 2019, REVA, the Consenting Senior Secured Lenders, the Consenting 2014 Noteholders, and the Consenting 2017 Noteholders (together, the “Consenting Creditors”) executed a restructuring support agreement (the “RSA,” attached to this Disclosure Statement as Exhibit B) which reflects those stakeholders’ agreement on a global, consensual restructuring through a prepackaged chapter 11 bankruptcy.
Further to the RSA, the Consenting Creditors have agreed tosupport and take all reasonable actions necessary to consummate the Restructuring and the Plan in a timely manner, to timely vote all of their claims to accept the Plan, and to support and take all reasonable actions necessary to facilitate the solicitation of votes on the Plan, approval of the Disclosure Statement, and Confirmation and Consummation of the Plan. The Restructuring Support Agreement may be terminated upon the occurrence or failure to occur of certain milestone events related to progress toward confirmation and consummation of the Plan or for other reasons set forth therein.
Events Leading to the Chapter 11 Filing
The Debtor's Disclosure Statement details the events leading to REVA’s Chapter 11 filing; with REVA describing the combined impact of (i) ever-tightening liquidity ($0.3mn of projected annual revenues for the current fiscal year and noteholders clamoring for redemption of notes that the Debtor cannot redeem) and (ii) a sales outlook heavily dampened by negative publicity and regulatory actions relating to "bioresorbable scaffolds," the type of medical devices that the Debtor manufactures. With no cash; no revenues; a product set that medical professionals have been urged to avoid; and access to financing turned off by senior lenders and capital markets more generally…Chapter 11 seemed an inevitable result.
Liquidity Issues: "REVA has incurred significant operating losses since inception and has relied on its ability to fund operations primarily through equity and debt financings. Given the relatively minimal sales levels of Fantom, Fantom Encore and MOTIV, since the first quarter of 2019, REVA has been entering into periodic interim financing arrangements with the Senior Secured Lenders…to fund operations and debt service.
Although REVA initiated commercial sales of Fantom in the third quarter of 2017, it is still very early in the commercialization stage. REVA is focused on educating physicians regarding the unique features of its products, continuing to publish results from its clinical trials and conducting and initiating additional clinical studies, including the commencement of its 1,500 patient post-market trial in May 2018, to build additional clinical evidence to support market adoption.
In addition, the 2014 Convertible Notes matured in November 2019 and each holder of the 2017 Convertible Notes has a redemption right effective in November 2019. On October 1, 2019, REVA received redemption notices from certain Holders of the Notes providing an irrevocable notice to the Company to redeem $25.5 million in outstanding Notes.
REVA does not have cash sufficient to repay the amounts due on the Convertible Notes. As of November 30, 2019, the aggregate face value of both the 2014 Convertible Notes and the 2017 Convertible Notes plus accrued interest was approximately $93.2 million."
Negative Publicity Related to Bioresorbable Scaffolds: "REVA’s initial commercial launch plan for Fantom assumed it was bringing to market a second generation product with better performance than the then-worldwide leading first generation product from Abbott, Absorb. After REVA’s launch of Fantom, however, in the face of adverse events, Abbott withdrew Absorb from the market and the associated negative publicity has severely impacted the market for bioresorbable scaffolds.
Moreover, in August 2018, the European Society of Cardiology (‘ESC’) announced the publication of new ESC/European Association for Cardio-Thoracic Surgery guidelines on myocardial revascularization (the ‘2018 ESC Guidelines’)….The 2018 ESC Guidelines state that the safety and efficacy profile of Abbott’s Absorb (based on randomized trial data) has been compared with contemporary drug-eluting stents in several trials, that the findings of these trials as well as meta-analyses ‘consistently indicate the inferior efficacy and safety of Absorb compared with contemporary drug-eluting stents during long-term follow-up’, and that ‘bioresorbable scaffolds should not be used outside well-controlled clinical studies.
In the 2018 ESC Guidelines, the ESC recommends that bioresorbable scaffolds have a Class III designation, which means that there is ‘evidence or general agreement that the given treatment or procedure is not useful/effective, and in some cases may be harmful.’ As a result of the Absorb withdrawal in 2017 and the negative view on bioresorbable scaffolds contained in the 2018 ESC Guidelines, REVA believes bioresorbable scaffold competition within the percutaneous coronary intervention (‘PCI’) stent market continues to diminish. Companies with bioresorbable scaffolds made from the same polylactic acid polymer as Absorb have reduced their commercial efforts for such scaffolds. Although REVA has become a leader in the market, re-building the market for bioresorbable scaffolds has proven challenging. The 2018 ESC Guidelines harmed REVA’s bottom line and its then current business strategies."
In an 8-K filed with the SEC on January 13th, the debtor was more succinct about its liquidity and reputational issues, stating “REVA…has not been successful in securing additional financing to continue long term operations. The Company’s unaudited outstanding current accounts payable is $1.2 million and cash balance is $1.3 million.
The Company’s revenue projections for the current fiscal year are less than $0.3 million with growth projected at a modest pace. Projections are based on anticipated sales of the Company’s coronary product, Fantom Encore, which was negatively impacted by the European Society of Cardiology guidelines related to the use of bioresorbable scaffolds published in 2018. The guidelines have severely influenced usage of bioresorbable coronary scaffolds and are expected to impact the Company’s revenue for the foreseeable future.”
Principal Shareholders
- Senrigan Capital Group:16%
- Robert Stockman: 14%
- Citicorp Nominees PTY Limited: 10%
- JP Morgan Nominees Australia Pty Limited: 9%
- Elliott Associates, L.P. : 8%
- Cerberus Capital Management: 7%
The following documents were filed with the Disclosure Statement:
- Exhibit A: Debtor’s Prepackaged Chapter 11 Plan
- Exhibit B: Restructuring Support Agreement
- Exhibit C: Liquidation Analysis
- Exhibit D: Financial Projections
- Exhibit E: Valuation Analysis
About the Debtor
REVA is a medical device company, based in San Diego, California, focused on the development and commercialization of bioresorbable polymer technologies for three distinct vascular applications—coronary artery disease (“CAD”), peripheral artery disease (“PAD”) and embolization therapy. Their products fall into two broad businesses: bioresorbable scaffolds and bioresorbable embolic microbeads. Generally, scaffolds are inserted into blood vessels in order to expand such vessel and prevent blockage. Similarly, bioresorbable scaffolds are used to restore blood flow, support the artery through the healing process, then disappear (or “resorb”) from the body over a period of time. This resorption allows the return of natural movement and function of the artery, a result not attainable with permanent metal stents. REVA’s products include the Fantom Encore and MOTIV bioresorbable vascular scaffolds for the treatment of CAD and below-the-knee PAD, respectively. REVA is currently selling Fantom Encore in Germany, Switzerland, Austria, the Netherlands, Belgium, Luxembourg, Italy and Turkey and is in the process of commercializing Fantom Encore in seven additional countries. Additionally, REVA is currently in the pre-approval phase of developing bioresorbable embolic microbeads for embolic therapeutic purposes. REVA’s products represent the ideal balance of thinness and strength, with the distinct ease of use features including complete scaffold visibility under x-ray, expansion with one continuous inflation, and no procedural time limitation.
REVA was originally incorporated in California in 1998 under the name MD3, Inc. In March 2002, the Debtor changed its name to REVA Medical, Inc. In October 2010, REVA reincorporated in Delaware. REVA established a non-operating wholly owned subsidiary, REVA Germany GmbH, in 2007. REVA Germany GmbH is not a debtor in this Chapter 11 Case.
In December 2010, REVA completed an initial public offering of its common stock in Australia and registered with the SEC. On or about February 19, 2019, the Australian Securities Exchange issued a market announcement stating that trading of REVA securities had been halted while REVA engaged in negotiations with debt and equity holders. Shortly thereafter, REVA was delisted from the ASX. REVA’s securities are not currently publicly traded.
REVA is a Delaware company, based in San Diego, California.
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