DVI lenders, creditors file objections to amended DIP facility

By Carlise Newman

Chicago, Oct. 30 - DVI Inc. received objections from lenders and creditors against its motion for entry of a final order authorizing it to obtain credit under its amended post-bankruptcy debtor-in-possession financing agreement.

Bank of Montreal objected that the cost of the proposed amendment to the DIP facility is too great, both in terms of its interest rate and in terms of the degree to which it puts the lenders in charge of the liquidation of the debtors' assets. With no advance of new funds, substantial fees, an equity-like rate of return on a part of the term loan portion of the DIP facility and relinquishment of control to the lenders of the liquidation of assets, the motion is "far afield" of anything the court should consider, Bank of Montreal said.

Bank of Montreal also objected that the company proposes to pay 30% of all cash that it receives after the payment of interest and expenses to the DIP lenders until the they have achieved a 30% rate of return on the series B loans, without providing BMO with adequate protection of its interests in certain of DVI's assets. Bank of Montreal described the arrangement as improper.

U.S. Bank objected that the motion affords DVI little more than what was already granted; requires the company to pay $3.2 million in conversion fees, to the detriment of its estates and creditors, and does not adequately protect U.S. Bank's interests in DVI's estates.

Citra Associates Inc., A.R. Advantage Inc. and Arca Capital Management LLC said that in the absence of a sale under the original auction plan, the terms of the loan extension are not justified. The estate of DVI should not be further encumbered under circumstances not contemplated by the initial agreement unless the company more clearly demonstrate the benefits to its estate.

Citra, A.R. and Arca noted that the original DIP agreement contemplated the sale of the assets of DVI at an auction but that no sale was achieved and the auction was unsuccessful as not a single bid for the entire company nor any of the numerous categories of assets offered separately was accepted.

The individual A.R. secured noteholders object that a subsidiary of DVI, Valley Health Group, owes them $976,000 plus interest, and Valley has failed to provide notice to lienholders of a motion to sell secured property free of liens. At least five noteholders did not receive notice.

The creditors all filed objections in the U.S. Bankruptcy Court, District of Delaware.

The proposed new facility will consist of a revolver up to approximately $41.36 million with a 50 basis points commitment fee and a term loan up to approximately $106.64 million. The DIP will carry an interest rate of base rate plus 325 basis points.

The new three-month DIP will refinance and replace the exiting $20 million DIP facility from Ableco Finance and enable the company to fund a settlement with Fleet National Bank and its co-lender under the $150 million fourth amended and restated loan agreement dated March 29, 2002. Under that agreement, DVI will pay approximately $100 million to and release all claims against Fleet and its co-lenders in exchange for a release by Fleet and its co-lenders of all claims against DVI.

DVI, a Jamison, Pa. medical finance company, filed for Chapter 11 protection on Aug. 25.

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