With additional funding in place, Health Diagnostic Laboratory is bolting toward a sale.
A federal bankruptcy judge on Monday approved a final order for $12 million in debtor-in-possession financing for the embattled downtown laboratory company, leaving a clear path for HDL to pursue a sale of its business and assets in an auction process that should be completed by the end of September.
Monday’s ruling means HDL now has full access to the $12 million, which was approved on an interim basis during an Aug. 4 hearing. The DIP lender is an affiliate of Greenwich, Connecticut-based Credit Value Partners, and the funds are intended to keep HDL afloat as it works through Chapter 11 bankruptcy searches for a buyer.
HDL had worked to secure the financing since it filed for Chapter 11 in early June, but the process was stalled when a previous deal was taken off the table. The company, until reaching the deal with Credit Value, had relied on cash held as collateral by its largest creditor, BB&T.
The deal with CVP means BB&T is no longer the primary lien holder in the line of HDL’s creditors. The bank put up a fight when the DIP financing was first presented to court and attempted to appeal the decision to the United States District Court. That appeal was denied late last week.
The bank did not object at Monday’s hearing, during which Richard Kanowitz, the attorney representing the committee of HDL’s unsecured creditors, told Judge Kevin Huennekens that the creditors are looking forward to getting the company sold and “moving on” from the bankruptcy process.
The first deadline for the sale process was Aug. 20, when interested bidders were required to submit preliminary indications of interest.
“Several letters of … intent have been submitted,” Kanowitz told Huennkens. “We look forward to a robust sale.”
Kanowitz added that the government’s recent accusations against HDL’s founder and former CEO Tonya Mallory have made it even more important that “this case have a steady end to it.”
The actual deadline for bids is Sept. 4, followed by an auction at 10 a.m. on Sept. 10 at the Hunton & Williams office in Riverfront Plaza East. If a successful bid ends the auction, Huennekens will be able to approve the sale at a final hearing Sept. 16.
HDL’s corporate counsel Douglas Sbertoli said Monday in a prepared statement that interest from potential acquirers remains high.
“Numerous initial expressions of interest were presented last week and additional offers are expected,” he said.
Also during Monday’s hearing, Huennekens approved an amendment to HDL’s lease on its downtown headquarters at 737 N. Fifth St., allowing the VCU Health Systems Authority to rent an additional 8,000 square feet in the building. The health system is already in the process of finalizing a lease for 45,000 square feet there. The deals are expected to help HDL cut expenses, which it further reduced earlier this month with another round of layoffs.
VCU is also in the process of securing a lease for 51,000 square feet in the United Network for Organ Sharing building, also known as the Jackson Center, at 501 N. Second St.
Michael Porter, VCU’s assistant director of public affairs, declined to comment on the leases as the deals are still pending.
HDL is also in the process of trying to sell off its Central Medical Laboratory affiliate in De Soto, Kansas. A motion to approve a final sale of that company was delayed during Monday’s hearing.
Sbertoli said HDL is currently in negotiations with a third party that “would like to purchase substantially all of the assets of (CML).”
“The proposal contemplates the ongoing operation of the De Soto, Kansas laboratory by HDL’s current employees there,” Sbertoli said in an email.
He said CML’s assets include equipment, inventory, contractor rights and other business items.