SiO2 Medical files Chapter 11 with Oaktree as initial plan sponsor

By Sarah Lizee

Olympia, Wash., March 29 – SiO2 Medical Products, Inc. filed Chapter 11 bankruptcy on Wednesday in the U.S. Bankruptcy Court for the District of Delaware to implement a restructuring support agreement.

Yves Steffen, the company’s chief executive officer, said in court documents that despite the company’s breakthrough advances in technology, it has yet to meet the anticipated commercialization timeline for its products.

“While management believes that many significant players are interested in investing new capital into the company, the company’s legacy capital structure, which includes 12 debt facilities, convertible debt and nine types of preferred stock, each with various consent and other rights, has made raising capital extremely challenging, especially in the current market environment,” Steffen said in the documents.

“The company’s relatively limited current revenue – approximately $50 million in 2022 – cannot support its current operational overhead and debt load, which required $13 million in interest payments over the same period.”

The company has $4.1 million in cash on hand, including restricted amounts.

Restructuring terms

The debtors and some affiliates and funds of Oaktree Capital Management, LP, which holds all of the company’s first-lien debt, have developed a comprehensive restructuring on an accelerated timeline.

The restructuring has three main components.

First, Oaktree has agreed to provide a $120 million superpriority debtor-in-possession facility, $60 million of which is new money and $60 million is a rollup of prepetition term loans.

The DIP facility bears interest at 14% per annum, in cash in the case of new money loans, and in kind in the case of rollup loans. It matures in 120 days, subject to earlier termination when certain events occur.

Second, Oaktree has committed to serve as the initial plan sponsor and equitize its allowed DIP claims and allowed first-lien term loan claims into 100% ownership of reorganized SiO2 through a Chapter 11 plan, subject to the company meeting some milestones – including holding a confirmation hearing no later than 78 days after the petition date.

Third, Oaktree agreed to subject its recovery under the plan to an auction process under court-approved bid procedures, so that any party may submit a bid to acquire 100% of the new common stock of reorganized SiO2 through the plan. Oaktree has agreed that it will not participate in the auction process.

The floor for bids is about $349.1 million, which is the anticipated amount of Oaktree’s allowed DIP and first-lien term loan claims.

Oaktree has indicated that it may consent to a recovery different than what is currently contemplated under the plan, and the debtors are encouraging all interested parties to engage in the process, even if they may have a lower preliminary bid.

There is no break-up fee or expense reimbursement contemplated to be paid to Oaktree in its role.

The company’s proposed investment banker, Lazard Freres & Co. LLC, has already started a marketing process for the sale of the company.

Under the proposed plan, second-lien term loan lenders will receive their pro rata share of additional value, if any.

General unsecured claims will receive their pro rata share of additional value, if any, after payment of second-lien term loan claims in full.

Other details

In its petition, the company lists 1,000 to 5,000 creditors, $100 million to $500 million in assets and $500 million to $1 billion in liabilities.

Its two largest unsecured creditors each have unsecured debt claims of about $10.67 million but are unnamed in the petition. Next in line are R&D Custom Automation, based in Lake Villa, Ill., with a $7.21 million accounts payable claim, Zahoransky Automation and Molds, based in Freiburg, Germany, with a $4.96 million accounts payable claim, and Harro Hofliger Packaging Systems, Inc., based in Doylestown, Pa., with a $2.76 million accounts payable claim.

The company is represented by Cole Schotz PC.

The Auburn, Ala.-based company creates and manufactures engineered primary packaging container components for the pharmaceutical and biotechnology industry. The Chapter 11 case number is 23-10366.

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