Contract Research creditors object to final DIP motion, lender control

By Jim Witters

Wilmington, Del., April 19 - Contract Research Solutions, Inc.'s official committee of unsecured creditors objects to the company's motion for final approval of post-petition financing, claiming that the motion and credit agreement hand control of the cases to the prepetition secured lenders, according to documents filed Wednesday with the U.S. Bankruptcy Court for the District of Delaware.

The prepetition secured lenders also are the debtor-in-possession financing facility lenders and the stalking horse bidder in the case.

Final DIP approval "will dictate only one path in these cases," the creditors' objection states.

The lenders are "using the Chapter 11 process to foreclose on their purported collateral without paying all of the freight of the Chapter 11 process by taxing other creditor constituencies," the objection states.

As previously reported, Contract Research, also known as Cetero Research, reached agreement with some of the pre-bankruptcy lenders for a $15 million DIP financing facility to give the company working capital during the restructuring process.

DIP details

Freeport Financial LLC is the DIP loan agent.

The facility will mature on the earliest of June 29, the closing of a sale of substantially all of the company's assets, the filing of a plan of reorganization that does not have the agent and DIP lenders' consent and does not provide for payment in full of the DIP loan obligations and the occurrence of a termination event.

Interest is the base rate plus 800 basis points, with a default rate increase of 2%.

The agreement includes $15 million of DIP financing and a rollup of $15 million of pre-petition secured debt.

Sale of assets

Contract Research also reached agreement to sell substantially all its assets to some of its pre-petition first-lien and second-lien lenders through a stalking-horse sale and $50 million credit bid.

In addition to the credit bid amount, U.S. purchaser CSRI Holdings, LLC and Canadian purchasers 0935867 B.C. Ltd. and 0935870 B.C. Ltd. have agreed to assume $30 million of the company's obligations, including $15 million of post-bankruptcy financing and a $15 million roll-up of pre-bankruptcy secured obligations.

Creditor objections

"The debtors do not need to borrow $30 million in order to fund these operations post-petition, particularly given the expedited timeframe recently approved for a sale of the entire company," the objection states.

In addition to the rollup, $2.2 million is allocated for payment of the DIP lenders' fees, interest and professional expenses, the objection states.

"The DIP facility requires that the debtors pay the DIP lenders a 2% fee (or $300,000) for the privilege of paying down the $15 million prepetition debt," the creditors say.

The debtors also plan to pay their professionals $5.5 million and insider officers and managers another $1.2 million as part of a key employee incentive plan, the objection states.

"The debtors are receiving, in reality, no more than $6 million of real financing," the creditors say.

"This bargain is lopsided, and a transparent effort by the prepetition secured parties to leverage their position in the case at its inception," the objection states.

"The granting of liens on proceeds of avoidance actions is entirely unwarranted, but perhaps even more inappropriate is that the DIP loan is being used as a pretext to shore up and expand the liens of the prepetition secured parties under the guise of grants of various forms of adequate protection," the objection states.

"If the DIP facility is approved, unsecured creditors' entitlement to their pro rata recoveries will be eliminated and, to add insult to injury, vendors and others will be subjected to avoidance actions by the stalking horse purchaser, which is one in the same as the prepetition secured parties/DIP lenders, the proceeds of which will be handed over to the secured lenders," the objection states.

A hearing on final DIP approval is scheduled for 2:30 p.m. ET on April 24.

Contract Research Solutions, a Cary, N.C.-based contract research organization that provides testing services for name-brand pharmaceutical and generic drug companies, filed for bankruptcy on March 26. The Chapter 11 case number is 12-11004.

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