The debtors each voluntarily filed for Chapter 11 bankruptcy and subsequently operated and managed their businesses and properties as debtors in possession. The debtors sought to obtain postpetition financing with a credit facility (the “DIP facility”). Before consideration of the order here, the court had entered an interim order, which allowed the debtors to obtain the DIP facility from the DIP Lender under the DIP Documents and made an interim amount available to the debtors. The U.S. Trustee for the Northern District of Texas then appointed an official committee of unsecured creditors (the “creditors’ committee”) pursuant to section 1102 of the Bankruptcy Code. The debtors filed a motion seeking entry of a final order that, among various other things, authorized the debtors to obtain the DIP facility (in the form of a “non-amortizing priming super-priority senior secured postpetition credit facility”).
In In re Prospect Medical Holdings, Inc., No. 25-80002 (SGJ), 2025 WL 510458, 2025 Bankr. LEXIS 336 (Bankr. N.D. Tex. Feb. 14, 2025) (opinion not yet released for publication), the court granted the debtors’ motion authorizing the DIP facility and made several other findings. The court granted the motion for postpetition financing after analyzing various aspects of the proposed financing, motion, and Chapter 11 cases. First, the court considered the evidence, including several letters in support and the DIP credit agreement and related documents, as well as the arguments from the interim and final hearings, noting that all objections had been withdrawn, resolved, or overruled. Additionally, the court had determined that the motion appeared “fair and reasonable and in the best interests of the [d]ebtors and their estates, and essential for the continued operation of the [d]ebtors’ businesses and the preservation of the value of the [d]ebtors’ assets,” and that entering into the DIP credit agreement and other documents appeared to be a sound and prudent exercise of the debtors’ business judgment consistent with their fiduciary duties. Next, the court found that the postpetition financing could not be obtained from other sources or under more favorable terms than the DIP facility due to its financial condition, capital structure, and the circumstances of the Chapter 11. It also could not be obtained without granting the DIP lender liens and superpriority claims as they were “integral, critical, and essential components of the DIP [f]acility.” Additionally, the court then found the DIP facility and loans were “being provided by the DIP [l]ender in ‘good faith’ within the meaning of section 364(e) of the [b]ankruptcy [c]ode.” Finally, the court found that good cause had been shown to grant the motion and immediately enter the final order, as the final order would be in the “best interests of the [d]ebtors, their estates, their creditors, and other parties in interest.” The debtors were not able continue their operations without the postpetition financing, which was necessary to allow them to pay fees and expenses in connection with the Chapter 11 cases and operational needs, and to continue business operations in order to “maintain the health and safety of their patients” and “relationships with customers, vendors, and suppliers.” Taking the above into consideration, the court entered the final order which (1) authorized the DIP facility; (2) enforced the DIP obligations against the debtors; (3) authorized the aggregate amount of commitments detailed in the DIP credit agreement; (4) approved the DIP collateral structure, including the scope of collateral securing the DIP obligations; (5) granted the DIP lender “automatically and properly perfected security interests in and liens on the DIP collateral” subject to certain carve-out and permitted prior liens; (6) granted the DIP lender superpriority administrative expense claims against the debtors and its estate without the need to file a proof of claim, for all DIP obligations; (7) granted the debtors permission to use DIP financial accommodations according to the purposes and limitations described in the final order and in the DIP documents; (8) allowed the DIP lender to rely on the debtors’ representations and did not impose an independent duty to monitor use of funds; (9) authorized the debtors use of the cash collateral according to the approved budget until the DIP termination declaration date; (10) granted the prepetition secured parties replacement liens on the DIP collateral, subordinate to the DIP liens, carve-out, and permitted prior liens, as adequate protection for any diminution in value; (11) authorized the debtors and the DIP lender to make any non-material changes to the DIP documents without court review and approval; (12) authorized the perfection, validity and priority of the DIP liens, the adequate protection liens, and the FRMC lien; (13) modified the automatic stay to allow the parties to implement necessary transactions authorized by the final order and DIP documents; (14) approved provisions for cash proceeds derived from the credit or debt described in the final order; (15) required in the event the debtors receive payments or proceeds of DIP collateral before full repayment of the DIP obligations to hold those funds in trust and immediately turn them over to the DIP lender; (16) until repayment is complete, required the debtors to properly insure DIP collateral and maintain the cash management system in accordance with the DIP documents; (17) authorized the DIP lender right to credit bid all or part of its claims; (18) authorized the exercise of remedies in the event of a DIP termination event; (19) authorized the preservation of the DIP lender’s rights and remedies under the DIP documents, providing that any failure to seek relief does not constitute a waiver of those rights; (20) approved the carve-out provisions; (21) provided the DIP lender with no obligation to pay professional fees; (22) approved the DIP fees and the DIP lender’s professionals’ fees according to the DIP documents; (23) indemnified the DIP lender; (24) provided the DIP lender does not need to file a proof of claim in Chapter 11 cases; (24) placed limitations on the debtors use of DIP funds according to the DIP documents; (25) protected the DIP lender from liability, barred marshaling, eliminated fiduciary duties or operational control over the debtors, and prevented governmental entities from recouping overpayments from cash collateral; (26) clarified that the final order does not create rights for third parties, deemed the DIP lender an additional insured and loss payee on insurance policies related to the DIP collateral; (27) made the final order binding on the relevant parties; (28) approved the provisions for discharge, survival, and debtor necessary action; (29) clarified the final order did not affect the preexisting rights or remedies held by several companies against the debtors including one company’s preexisting purchase money security interests against the debtors, and approved the provision made for monthly postpetition interest shall accrual payments.
By Callighan Ard, [email protected]
Edited By Kristin Meurer, [email protected]
Edited By Hayden Mariott, [email protected]