Petersen Health’s DIP facility rates too high, U.S. trustee says

By Sarah Lizee

Olympia, Wash., April 19 – Petersen Health Care XI, LLC’s proposed $45 million super-priority secured debtor-in-possession term loan facility drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed Friday with the U.S. Bankruptcy Court for the District of Delaware.

Vara said he objects to both the original and the newly increased combined DIP loan rates.

The original DIP motion sought nonconsensual priming liens in favor of the DIP lender, JMB Capital Partners Lending, LLC. The interest rate was 12%, and there was a 2% commitment fee and a 4% exit fee. The combined 18% interest rate did not include other costs and fees, such as a non-refundable work fee of $75,000, and the fees, costs, disbursements and expenses of the DIP lender, including counsel fees and costs, the U.S. trustee noted.

“During the first day hearing, in exchange for agreeing to delay decision on whether HUD mortgage liens could be primed, the DIP lender demanded that the exit fee be doubled, from 4% to 8%, for the entire DIP commitment,” Vara said in the objection.

“The combined rate then increased to 22%. As the court observed, this was ‘extraordinary,’ particularly considering the nonconsensual priming liens being granted as to other properties on the first day of the cases.”

The U.S. trustee said the proposed rates are above market, and the lender knew going into the hearing there would be issues with the nonconsensual priming liens it sought and should have known that federal law precluded the priming of Housing and Urban Development (HUD) mortgage liens.

“There was no basis to support doubling the exit fee, and acceptance of this change was not an acceptable exercise of the debtors’ business judgment,” Vara said.

The company is an operator of nursing homes and assisted living and long-term care facilities in Illinois, Iowa and Missouri. The company filed bankruptcy on March 20 under Chapter 11 case number 24-10443.

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