Sorrento Therapeutics lender objects to proposed Scilex settlement

By Sarah Lizee

Olympia, Wash., July 14 – Sorrento Therapeutics, Inc.’s debtor-in-possession lender JMB Capital Partners Lending, LLC objected to a proposed settlement agreement with participating record holders of Scilex stock, according to documents filed Friday with the U.S. Bankruptcy Court for the Southern District of Texas.

The lender said the debtors are, for the second time, seeking authority to sell and settle the lender’s collateral without its consent and in violation of the terms of the final DIP order and credit agreement.

JMB said that after learning of the debtors’ intent to default under the terms of the final debtor-in-possession financing order and the DIP credit agreement by filing and seeking approval of a separate settlement with Nant parties on June 6, the lender has continued to comply with its obligations under the DIP credit agreement.

JMB said it funded the remaining $15 million available under the DIP facility in three installments on June 5, June 16, and June 27.

As of Friday, the debtors have drawn upon the entire $75 million commitment.

At the request of the debtors, the DIP lender consented to the incurrence of additional debt through the implementation of a $20 million junior DIP facility with subsidiary Scilex as lender and permitted the debtors to grant both junior liens on all of their assets and senior liens on certain assets, the lender said.

The junior DIP facility was approved on an interim basis on July 5 and was expected to provide the debtors with the necessary incremental liquidity to complete the Chapter 11 cases.

“Despite the efforts made by the DIP lender to provide the debtors with sufficient liquidity and a runway to restructure, to date, the debtors have failed to file an acceptable plan, propose an acceptable 363 sale, or secure a commitment for exit financing sufficient to provide for the indefeasible payment in full of the DIP obligations,” the lender said in its objection, noting that the DIP facility matures in just over two weeks.

The settlement motion seeks to settle the adversary proceeding started by the equity committee through the consummation of an offering for the purpose of allowing holders of short positions in the dividend Scilex stock to cover their short positions either through the purchase of shares in the open market or in private secondary transactions from debtor, Sorrento, the lender explained.

JMB said the adversary proceeding that the parties are seeking to settle constitutes DIP collateral, as the definition of DIP collateral includes commercial tort claims.

The lender also said the Scilex common stock is DIP collateral.

And, JMB said any proceeds of the sale of the DIP collateral must be used to pay down the DIP obligations.

“The offering procedures outlined in the settlement motion fail to provide – as required by the final DIP order and the DIP credit agreement – the DIP lender’s prior written consent to the debtors’ sale of the Scilex common stock,” the lender said.

“Therefore, as proposed, the sale of the Scilex common stock by Sorrento is impermissible under both the final DIP order and the DIP credit agreement and will result in an immediate event of default under the DIP credit agreement.”

The biopharmaceutical company is based in San Diego. The company filed bankruptcy on Feb. 13 under Chapter 11 case number 23-90085.

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