Carestream Health makes pre-packaged Chapter 11 bankruptcy filing

By Sarah Lizee

Olympia, Wash., Aug. 23 – Carestream Health filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware to implement a recapitalization process with its lenders, according to a press release.

Carestream said industry headwinds and the Covid-19 pandemic had a significant impact on earnings.

The company said its lenders have overwhelmingly voted in favor of a pre-packaged restructuring plan that aims to cut about $470 million of debt, representing a total debt reduction of $250 million more than the company’s previously announced recapitalization agreement.

Carestream currently has about $1.03 billion in debt, including $507.7 million in first-lien debt, $77 million in first-lien revolver debt, and $448.2 million second-lien term loan debt.

Some members of a crossover group, which includes first- and second-lien claimholders, have committed to provide the debtors with access to up to $80 million in a debtor-in-possession facility consisting of a $5 million tranche that will be repaid in full in cash, and a $75 million tranche that will be partially satisfied with proceeds of an equity rights offering, if any, and the remainder will be equitized into new common stock through the DIP rollover, subject to dilution by the debtors’ management incentive plan.

JPMorgan Chase Bank, NA is administrative agent and collateral agent for the DIP facility.

The company is seeking interim access to $50 million of the DIP facility, which will bear interest at SOFR plus 900 basis points, subject to a 1% SOFR floor and payable monthly in cash. There is a 1% undrawn DIP fee paid in cash, a 2% DIP commitment fee paid in kind, and a 4% exit fee paid in cash.

The DIP facility is set to mature 75 days from the petition date, subject to two 30-day extensions.

According to the plan, each holder of an allowed first-lien claim will receive cash in an amount equal to 3% of its allowed first-lien claim and its pro rata share of the new term loan facility in total principal amount between $536 million and $547 million, depending on the level of participation in the ABL roll option, for the remainder of its claim, provided that holders of allowed first-lien revolving claims may elect to roll a portion of their claims into new loans under a new $85 million 4.5-year ABL facility.

The ABL lenders are JPMorgan, Credit Suisse AG, Barclays and Apollo Credit Master Fund Ltd., along with other prepetition revolving lenders.

Interest on the ABL facility will be SOFR plus 10 bps subject to a 1% floor, plus 200 bps, payable in cash. The margin is subject to adjustment after two fiscal quarters. There is a 0.5% commitment fee and a 0.125% fronting fee.

The debtors’ existing second-lien term loan will be canceled and each holder of an allowed second-lien term loan claim will receive its pro rata share of 10% of the new common stock, subject to dilution by the debtors’ management incentive plan, and the right to purchase for cash its pro rata share of 80% of the new common stock, subject to dilution by the debtors’ management incentive plan;

Each holder of an allowed general unsecured claim will be paid in full in cash or have its claim reinstated; and

Existing equity interests will be canceled on the effective date.

The company is hoping for a Sept. 28 combined hearing on confirmation of the plan and approval of the disclosure statement.

Carestream said it expects to continue operating normally throughout the court-supervised process and remains focused on serving its customers and working with suppliers on normal terms.

Carestream entities outside the United States are not part of the Chapter 11 process and are operating as normal.

“Since announcing our recapitalization process in April, our lenders have remained overwhelmingly supportive, and we have worked constructively with them to complete the transaction,” David C. Westgate, chairman, president and chief executive officer of Carestream, said in the press release.

“As our talks evolved, we determined the best course of action was to implement the agreement through an expedited court-supervised process.

“With a clear path to completion, we expect to emerge from this process as a stronger partner to our customers, with significantly reduced debt and new owners who also continue to believe in the future of Carestream.”

Carestream has filed customary motions with the court seeking authorization to support its operations during the process. The company expects suppliers to be unimpaired by the process and intends to pay suppliers in full for goods and services provided before, on or after the Chapter 11 filing date.

In its petition, the company listed $1 billion to $10 billion in assets.

Its largest unsecured creditors are Auriga Polymer Inc., based in Charlotte, N.C., with a $2.7 million trade vendor claim, InnoCare Optoelectronics USA Inc., based in San Jose, Calif., with a $2.03 million trade vendor claim, SKC Inc., based in Covington, Ga., with a $1.85 million trade vendor claim, SAP America Inc., based in Newtown Square, Pa., with a $1.74 million trade vendor claim and Eastman Kodak Co. Inc., based in Rochester, N.Y., with a $1.06 million trade vendor claim.

Kirkland & Ellis LLP is serving as the company’s legal counsel, Houlihan Lokey Capital, Inc. is serving as its financial adviser, and AlixPartners, LLP is serving as its restructuring adviser.

Akin Gump Strauss Hauer & Feld LLP and GLC Advisors & Co., LCC are serving as legal counsel and financial adviser, respectively, to a group of the company’s first- and second-lien lenders.

The Rochester, N.Y.-based provider of medical imaging and health care IT solutions filed Chapter 11 bankruptcy under case number 22-10778.

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