Edgemere’s DIP facility draws objection from committee, U.S. trustee

By Sarah Lizee

Olympia, Wash., May 20 – Northwest Senior Housing Corp.’s, which does business as Edgemere Dallas, proposed $10.1 million debtor-in-possession term loan facility with bond trustee UMB Bank, NA as lender drew objections from the official committee of unsecured creditors and the U.S. trustee overseeing the case, according to court documents filed Thursday with the U.S. Bankruptcy Court for the Northern District of Texas.

The committee said in its objection that while it doesn’t oppose the DIP financing in general, it does have concerns over the terms.

The group expressed concerns about the lender’s control over administration of the Chapter 11 cases by dictating that DIP loan proceeds be used to prefer and repay one select group of prepetition resident refund claimants, and cap committee professional fees, attempting to “significantly marginalize” the participation of the committee.

The committee said it also objects to the liens and superpriority claims that would have recourse to, or would be payable from, previously unencumbered estate assets.

As of the petition date, the unencumbered assets were available for distribution to unsecured creditors. Under the DIP facility and through the grant of adequate protection, the unencumbered assets would be assimilated into the DIP lender’s/trustee’s collateral package.

The committee also said that the DIP lender has been granted discretion under the DIP facility to apply the proceeds of the post-petition collateral asset dispositions to reduce the balance of the prepetition bond claim rather than the priming DIP facility.

“The effect of this provision is a hidden cross-collateralization and pseudo ‘roll-up’ of the trustee’s prepetition bond claim,” the committee said in its objection.

The group adds that the DIP facility attempts to eliminate the possibility of any disruption from the committee performing “even its most basic” statutory function.

“This is demonstrated by the restrictions on the committee’s funding and the illusory challenge process,” the committee said.

Meanwhile, U.S. trustee for Region 6, William T. Neary, said he objects to the financing because it grants liens over the proceeds of any Chapter 5 causes of action; enjoins third parties from enforcing any marshaling provisions against the lender; allows the debtors to grant a release in favor of the lender, bondholders and broad cast of affiliated entities; and doesn’t provide enough under the carve-out for the patient care ombudsman.

Facility terms

As previously reported, the company has received interim access to $2 million of the facility.

The facility is set to mature on Dec. 31 and bears interest at 10% per annum.

Edgemere also received further interim court approval to use the cash collateral of UMB.

A final hearing is scheduled for May 26.

The Dallas-based luxury senior living community filed Chapter 11 bankruptcy on April 14 under case number 22-30659.

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