LifeCare creditors committee says sale procedures benefit only lenders

By Jim Witters

Wilmington, Del., Jan. 22 - The official committee of unsecured creditors of LCI Holdco, LLC, parent company of LifeCare Holdings, Inc., objects to the company's proposed bidding procedures, saying the process benefits only the pre-petition lenders, according to documents filed Friday with the U.S. Bankruptcy Court for the District of Delaware.

As previously reported, LCI reached an agreement to be acquired by Hospital Acquisition LLC, an acquisition vehicle owned by LifeCare's senior secured lenders.

The creditors committee claims the secured lenders are using the bankruptcy court "to conduct a veiled foreclosure."

Proposed procedures

According to the sale motion filed with the court, the proposed purchase price consists of a cash consideration equal to the amount needed to pay seller and committee professional fees, wind-down expenses and debtor-in-possession financing obligations, the assumption of specified liabilities and a $320 million credit bid.

The credit bid will be reduced dollar-for-dollar to the extent the stalking horse bidder assumes any portion of credit agreement debt.

If the stalking horse bid is terminated, up to $1 million of Hospital Acquisition's sale-related expenses will be reimbursed.

The company said the proposed bidding procedures also call for an initial $3 million overbid protection. Subsequent bids must be for at least $1 million more than the previous bid.

Competing bids are due by 5 p.m. ET on Feb. 27. The auction is scheduled for March 5.

Credit bid objection

The asset purchase agreement and proposed bidding procedures allow the pre-petition lenders to make a credit bid "utilizing liens which remain subject to challenge" to buy assets purportedly encumbered by their liens and to "sweep in assets that were not encumbered by the pre-petition liens and which otherwise would be available to unsecured creditors," the objection states.

The "land grab" includes about $20 million of unrestricted cash, avoidance actions and real property lease interests, the committee says.

"If these assets are rolled into the 'acquired assets,' then, on the face of this transaction, there is effectively nothing left for distributions to the unsecured creditors, and because of the negative tax consequences that will result from the sale, these estates will be administratively insolvent," the committee claims.

'Illusory' sale

The committee also says the bidding procedures and protections are "irredeemably defective" because "the sale itself is illusory."

The proposed buyer has no financing in place, while other potential bidders are prohibited from bidding without financing.

The 60-day period in which Hospital Acquisition must obtain financing reduces the proposed bidding procedures to "an option to buy rather than a true purchase agreement," the committee says.

The stalking-horse bid and protections would also chill bidding and prevent a robust sale process, the objection states.

A hearing on the bid procedures is scheduled for 3:30 p.m. ET on Jan. 23.

LifeCare, a Plano, Texas-based health care consulting and management services company, filed for bankruptcy on Dec. 11. Its Chapter 11 case number is 12-13319.

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