HDL’s headquarters on Fifth Street downtown. Photo by Burl Rolett.
Health Diagnostic Laboratory on Monday took its first step toward a sale of the company, but several obstacles still loom, including a disgruntled lender and potentially more money that would be owed the federal government.
The once fast-growing blood testing firm filed a motion in bankruptcy court Monday seeking approval to sell the business in a process that would wrap up by the end of September. HDL plans to solicit bids from interested buyers, while continuing normal operations in the meantime.
“The decision was based upon HDL’s interest in exiting the Chapter 11 process as fast as possible,” an HDL spokesperson said in a prepared statement Monday.
The company filed for Chapter 11 bankruptcy on June 7 after its largest lender, BB&T, cut HDL off from its line of credit in late May after it defaulted.
HDL then spent the month of June trying to secure debtor-in-possession financing to keep the business bankrolled during Chapter 11. However, the only potential deal for such financing from New York-based Cerberus Business Finance was taken off the table last week.
The motion to pursue a sale of the company will go before a federal bankruptcy judge July 14. All interested bidders will then have to get their offers in by Sept. 4, and an auction will follow Sept. 10 before a bankruptcy judge approves the sale Sept. 16, according to court records.
Bidders will have the option to purchase HDL and its assets in total or in part, or to sponsor a reorganization process, through which the bidder will invest in HDL’s Chapter 11 workout plan in exchange for some debt or equity in the company.
The potential sale will be conducted under Section 363 of the Bankruptcy Code, allowing the buyer to take on the company’s assets without the liabilities.
HDL President and CEO Joseph McConnell told employees about the decision in a meeting Monday morning, but it is unclear what impact any potential sale would have on HDL’s remaining Richmond employees or its operations here. The company has about 645 employees, following several rounds of layoffs.
“We are taking this step because we are convinced that a successful sale would be in the best interests of all HDL, Inc.,” McConnell said in a news release Monday. “Numerous parties have expressed considerable interest in acquiring and operating HDL, Inc.’s business, and many have already invested significant resources in evaluating the opportunity.”
While it moves toward a sale and scrambles to find enough cash to continue on until then, HDL still has to deal with at least one unhappy creditor in court this week. The company is set to go before a federal bankruptcy judge Tuesday to seek approval to continue using cash held by BB&T to operate day-to-day. BB&T has objected to the company receiving any further cash, arguing that HDL is burning through the money at a rate that seems to lead toward insolvency.
Some of the equipment being auctioned by HDL.
The company has also been working to auction off equipment from its downtown headquarters, but the results of that process have not been finalized.
BB&T said in court filings Monday that HDL expects to have a net reduction in its available cash of $2.2 million by July 25 – leaving it with only a $550,000 balance. That’s in the face of two major payments coming due: $480,000 in rent obligations, due July 1, and an $885,000 installment payment due July 31 as part of its settlement with the federal government.
Those additional payments, BB&T argues, will likely leave HDL insolvent even if the company is given more cash collateral, making conversion to Chapter 7 bankruptcy imminent.
HDL could still be sold during a Chapter 7 case, but Tom Ebel, a bankruptcy attorney with Sands Anderson, said a conversion may adversely affect the company’s value, as it would put a trustee in charge of the liquidation and sale process.
“The argument is, it’s much better to sell the company with its current management in place,” Ebel said.
A sale of HDL would also trigger contingency payments due to the federal government, according to the terms of the two sides’ settlement agreement reached earlier this year to put an end to a kickbacks investigation.
If HDL is sold to another entity, the settlement documents state, the remaining payments it owes as part of its $47 million settlement fee “shall be accelerated and become immediately due and payable.” HDL’s new buyer might not have the benefit of the DOJ’s fixed payment schedule, which was scheduled to last until 2020.
Another contingent payment clause in the settlement dictates that, should a sale occur, HDL will have to pay the government 10 percent of the sale price. The Department of Justice did not comment on the news of a possible HDL sale by press time.
There’s also the issue of how a sale might affect the outcomes of three lingering lawsuits that HDL is involved in with its former sales contractor Bluewave Healthcare Consultants and major national insurers, Cigna and Aetna.
“The bankruptcy lawyers that represent my clients would file motions objecting to the sale, if the sale would result in the disposition of any assets available to secure a judgment that my clients would be able to attain,” said John Galese, an attorney with the law firm of Galese & Ingram representing Bluewave.
The lawsuits were put on hold after HDL filed for bankruptcy, as is typical in bankruptcy cases.
HDL’s headquarters on Fifth Street downtown. Photo by Burl Rolett.
Health Diagnostic Laboratory on Monday took its first step toward a sale of the company, but several obstacles still loom, including a disgruntled lender and potentially more money that would be owed the federal government.
The once fast-growing blood testing firm filed a motion in bankruptcy court Monday seeking approval to sell the business in a process that would wrap up by the end of September. HDL plans to solicit bids from interested buyers, while continuing normal operations in the meantime.
“The decision was based upon HDL’s interest in exiting the Chapter 11 process as fast as possible,” an HDL spokesperson said in a prepared statement Monday.
The company filed for Chapter 11 bankruptcy on June 7 after its largest lender, BB&T, cut HDL off from its line of credit in late May after it defaulted.
HDL then spent the month of June trying to secure debtor-in-possession financing to keep the business bankrolled during Chapter 11. However, the only potential deal for such financing from New York-based Cerberus Business Finance was taken off the table last week.
The motion to pursue a sale of the company will go before a federal bankruptcy judge July 14. All interested bidders will then have to get their offers in by Sept. 4, and an auction will follow Sept. 10 before a bankruptcy judge approves the sale Sept. 16, according to court records.
Bidders will have the option to purchase HDL and its assets in total or in part, or to sponsor a reorganization process, through which the bidder will invest in HDL’s Chapter 11 workout plan in exchange for some debt or equity in the company.
The potential sale will be conducted under Section 363 of the Bankruptcy Code, allowing the buyer to take on the company’s assets without the liabilities.
HDL President and CEO Joseph McConnell told employees about the decision in a meeting Monday morning, but it is unclear what impact any potential sale would have on HDL’s remaining Richmond employees or its operations here. The company has about 645 employees, following several rounds of layoffs.
“We are taking this step because we are convinced that a successful sale would be in the best interests of all HDL, Inc.,” McConnell said in a news release Monday. “Numerous parties have expressed considerable interest in acquiring and operating HDL, Inc.’s business, and many have already invested significant resources in evaluating the opportunity.”
While it moves toward a sale and scrambles to find enough cash to continue on until then, HDL still has to deal with at least one unhappy creditor in court this week. The company is set to go before a federal bankruptcy judge Tuesday to seek approval to continue using cash held by BB&T to operate day-to-day. BB&T has objected to the company receiving any further cash, arguing that HDL is burning through the money at a rate that seems to lead toward insolvency.
Some of the equipment being auctioned by HDL.
The company has also been working to auction off equipment from its downtown headquarters, but the results of that process have not been finalized.
BB&T said in court filings Monday that HDL expects to have a net reduction in its available cash of $2.2 million by July 25 – leaving it with only a $550,000 balance. That’s in the face of two major payments coming due: $480,000 in rent obligations, due July 1, and an $885,000 installment payment due July 31 as part of its settlement with the federal government.
Those additional payments, BB&T argues, will likely leave HDL insolvent even if the company is given more cash collateral, making conversion to Chapter 7 bankruptcy imminent.
HDL could still be sold during a Chapter 7 case, but Tom Ebel, a bankruptcy attorney with Sands Anderson, said a conversion may adversely affect the company’s value, as it would put a trustee in charge of the liquidation and sale process.
“The argument is, it’s much better to sell the company with its current management in place,” Ebel said.
A sale of HDL would also trigger contingency payments due to the federal government, according to the terms of the two sides’ settlement agreement reached earlier this year to put an end to a kickbacks investigation.
If HDL is sold to another entity, the settlement documents state, the remaining payments it owes as part of its $47 million settlement fee “shall be accelerated and become immediately due and payable.” HDL’s new buyer might not have the benefit of the DOJ’s fixed payment schedule, which was scheduled to last until 2020.
Another contingent payment clause in the settlement dictates that, should a sale occur, HDL will have to pay the government 10 percent of the sale price. The Department of Justice did not comment on the news of a possible HDL sale by press time.
There’s also the issue of how a sale might affect the outcomes of three lingering lawsuits that HDL is involved in with its former sales contractor Bluewave Healthcare Consultants and major national insurers, Cigna and Aetna.
“The bankruptcy lawyers that represent my clients would file motions objecting to the sale, if the sale would result in the disposition of any assets available to secure a judgment that my clients would be able to attain,” said John Galese, an attorney with the law firm of Galese & Ingram representing Bluewave.
The lawsuits were put on hold after HDL filed for bankruptcy, as is typical in bankruptcy cases.