Obstetric and Gynecologic Associates of Iowa DIP loan draws objection

By Sarah Lizee

Olympia, Wash., Dec. 14 – Obstetric and Gynecologic Associates of Iowa City’s proposed post-petition financing drew an objection from Region 12 U.S. trustee Mary R. Jensen, according to a motion filed with the U.S. Bankruptcy Court for the Southern District of Iowa.

The U.S. trustee said it does not appear that financing in the amount of up to $1.1 million is necessary for the debtor to satisfy administrative expenses during the pendency of this case.

Jensen also said the terms of the financing, which is being provided by insurer MMIC Insurance, Inc., result in a proposed transaction that is not at arm’s length and therefore is not in the best interest of the estate.

She said MMIC’s influence under the proposed financing conditions and the pre- and post-petition funding of the proposed estate professionals warrants higher scrutiny upon MMIC under a section 363 sale of assets.

As previously reported, MMIC has already funded prepetition retainers for $250,000 to Levenfeld Pearlstein, PC and for $30,000 for Nyemaster Goode, PC.

“There is no established value of the ‘bad faith claim.’ Without the concurrent filing of the sale motion, along with bidding procedures, parties in interest simply cannot evaluate whether the sale of assets is in the best interest of the estate,” the U.S. trustee said in her objection.

The $1.1 million term loan would also allow for up to two $250,000 incremental increases.

Interest will be 4.5%, subject to a 2% increase as a default rate.

The term of the debtor-in-possession loan will be the earliest of one year after the petition date, the closing of the sale of assets, the effective date of any Chapter 11 plan, the appointment of a Chapter 11 trustee or examiner, conversion of the case to a Chapter 7 case or dismissal of the case.

Proceeds are earmarked for cash to finance operations and avoid any disruptions in patient care with support for the administrative expenses associated with the bankruptcy case.

The obstetric and gynecologic clinic is based in Coralville, Iowa. The company filed bankruptcy on Oct. 31 under Chapter 11 case number 22-01174.

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