OCA modified plan of reorganization confirmed, company emerges from Chapter 11

By Caroline Salls

Pittsburgh, Jan. 26 - OCA, Inc.'s modified plan of reorganization was confirmed and took effect Friday, according to filings with the U.S. Bankruptcy Court for the Eastern District of Louisiana.

As previously reported, confirmation of OCA's plan was denied on Dec. 29, and judge Jerry A. Brown agreed with former president, chief executive officer and chairman Bart Palmisano Sr.'s contention that participation rights offered to equity holders under the plan violated the Bankruptcy Code's absolute priority rule.

Although the plan proponents called the stock being offered to equity holders a gift, Palmisano said the plan could not give property to the equity holders before the general unsecured creditors were paid in full.

"This plan, though not confirmable in its present form, does not reflect a hopeless case for reorganization," Brown said in his order denying the previous plan.

"This case is less than a year old. If further modifications can be made by the plan proponents so that the plan complies with the absolute priority rule, the court will entertain a future plan by [OCA] or other proponents."

According to Friday's order confirming the modified plan, the modifications do not adversely change the treatment of the claim of any creditor or the interest of any equity security holder and, accordingly, the modifications are immaterial and no re-solicitation is required.

In his order confirming the plan, Brown set the total reorganization value of the company at $96 million.

Since the reorganization value does not exceed the total amount of lenders claims, Brown said the holders of all other claims and equity interests are not legally entitled to any recovery on the basis of the absolute priority rule.

"Thanks to the support and loyalty of our affiliated orthodontists, our employees, our vendor community and our lenders, a new OCA is emerging from this restructuring process with a stable platform of affiliated orthodontists and a sound balance sheet," chief restructuring officer and interim chief executive officer Michael F. Gries said in a company news release.

As part of the confirmation process, the court also approved OCA's form of new support services agreements that has already been signed by many of its affiliated orthodontists, according to the release.

Plan creditor treatment

Treatment of creditors under the confirmed plan will include:

• Holders of priority claims and other secured claims will receive payment in full in cash;

• Holders of senior lender claims will receive their share of a new $50 million four-year term loan facility, with interest accruing at Libor plus 600 basis points, and all payments and distributions made on account of the facility, as well as 100% of the new common stock in the reorganized company;

• Holders of general unsecured claims will share in a $3 million general unsecured claims pool, a first and any subsequent general unsecured deferred payments, as well as transferred avoidance action proceeds.

According to the plan, the company may defer payment of any unsecured deferred payments only if it lacks funds to make the payments and provided that the lenders will not receive any distributions on account of the new common stock or term loan facility until all amounts owed under the deferred payments are paid;

• Holders of subordinated claims and equity interests will receive beneficial interests from an equity and subordinated interests claims trust; and

• Holders of equity interests in debtors other than OCA will retain their interests.

OCA, a Metairie, La., provider of business services to orthodontic and dental practices, filed for bankruptcy on March 14, 2006. The Chapter 11 case number is 06-10179.

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