Avadim Health files bankruptcy with stalking horse bid from lenders

By Sarah Lizee

Olympia, Wash., June 1 – Avadim Health, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware with plans to sell its assets as a going concern, according to court documents.

“Notwithstanding the tens of millions of dollars over the past decade to build the company’s brand, the company has been unsuccessful in reaching profitability,” Keith Daniels, chief restructuring officer of Avadim, said in a declaration.

“The company has incurred substantial losses since its inception.”

Specifically, the company’s net losses were $49.5 million, $34.8 million and $43.6 million for the years ended Dec. 31, 2018, 2019 and 2020, respectively.

Daniels said the company is also underperforming its fiscal year 2021 financial projections, and limited financial resources continue to strain programs driving retail revenue.

After unsuccessful IPO efforts in March 2020, the company retained Torreya Capital to begin exploring strategic alternatives for the company, but Torreya was unable to find any viable alternatives.

In mid-January, Avadim’s board established a restructuring committee to explore and effectuate a financial and operational restructuring.

In May, the company retained SSG Advisors LLC as its investment banker to market and sell the company’s assets.

“Faced with diminishing liquidity, increasing debts, and limited available funding for an operational turnaround, the company determined that it would be in the best interest of all of the company’s stakeholders that substantially all of the debtors’ assets be sold as a going concern,” Daniels said.

The debtor’s senior lenders, which are owed more than $102 million under a pre-petition credit facility and pre-petition senior secured notes, expressed a willingness to provide debtor-in-possession financing.

Avadim filed a motion seeking court approval to enter into an up to $7.16 million DIP facility, consisting of two term loans. The company is seeking interim access to $2.25 million of the facility. Hayfin Services, LLP is the administrative and collateral agent, and Hayfin SOF II Luxco 2 Sarl, Hayfin Opal III LP and Hayfin Topaz Luxco 2 ScA are the lenders.

The facility will mature on the earliest to occur of Aug. 30, the date a sale of the company’s assets closes, the date a plan is effectuated, and the date any loans are accelerated due to an event of default.

Interest is Libor plus 1,200 basis points, subject to a 1% Libor floor. Default interest would be at the prevailing rate plus 2% per year.

The company is also seeking court approval to use the cash collateral of its pre-petition secured lenders.

In addition, the company has entered into an asset purchase agreement with an affiliate of the pre-petition lenders, Midava Holdings 3, Inc., which will serve as stalking horse bidder for the company’s assets. The purchase price includes a credit bid of $69.95 million against the DIP facility and the pre-petition loan and notes, plus the assumption of some liabilities.

Under the company’s proposed bid procedures, bids are due by July 26, an auction, if needed, will be held on July 28, and a sale hearing will be held on July 30. The deadline to close the sale is Aug. 9.

Competing bids must be at least equal to the stalking horse bid plus $250,000 in cash.

In its petition, the company listed $10 million to $50 million in assets and $100 million to $500 million in liabilities.

Its largest unsecured creditors are HE, based in Evans, Ga., with a $5.29 million note claim, Cooley LLP, based in San Francisco, with a $1.29 million professional services claim and Swanson Group, based in Buffalo Grove, Ill., with a $1.28 million trade claim.

Avadim Health is an Ashville, N.C.-based health care and wellness business that sells topical products to improve neuromuscular health and skin barrier health. The Chapter 11 case number is 21-10883.

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