Below is our initial take on recent bankruptcy-related developments:
A Defiant Dr. Phil Takes the Stand in His Media Startup’s Bankruptcy | Hollywood Reporter
McGraw denied claims that he drove Merit Street Media to bankruptcy as a means by which to launch Envoy Media.
S&K Take: Merit Street is the gift that keeps on giving to restructuring bloggers. The bankruptcy process has been far more interesting that anything that Merit Street could have put on its airways (apologies to Dr. Phil and Professional Bull Riders, but do we smell a documentary?). What was slated for a two-day trial tied up day 5 yesterday, with Dr. Phil concluding his testimony on day 5. We had previously discussed the Debtors’ prospective settlement with the UCC. Details of that were filed on Sept. 12, with a plan incorporating that settlement filed on Sept. 16. The settlement would provide for a GUC recovery of (the lesser of) $17 million or 10% of all allowed GUC claims, with proceeds to be provided by Dr. Phil-owned Peteski Productions. Peteski would also provide some finance for a litigation trust and waive its unsecured claims ($25 million). Not a bad haul for GUCs in a typical case. Settlement aside, Trinity (the spurned JV partner) and the PBR (spurned counterparty) continue to prosecute their motion to dismiss (Trinity) or convert (the PBR), and so we went to 5 days of evidence. That went largely as expected, with everyone pointing fingers and Dr. Phil saying he wanted Merit Street to succeed, he funded $25 million to help it do so, and he had no plans to abscond with the assets. We will see who Judge Everett finds credible. Closing arguments are set for Sept. 29th, so we will have to wait for a conclusion to this riveting saga.
CVS Health subsidiary Omnicare files for Ch. 11 bankruptcy protection | AP News
The long-term care business had been ordered to pay $949 million after a federal court ruled that it had filed fraudulent claims for drugs dispensed without a valid prescription.
S&K Take: Omnicare LLC, a subsidiary of CVS Pharmacy, which provides on-site medication and prescription services to long-term care facility patients in 46 states filed for chapter 11 in the Norther District of Texas (ND Tex, so hot right now). The case was assigned to Judge Everett but subsequently reassigned to Judge Jernigan. Judge Everett certainly has his hands full with Dr. Phil. In any case, the business appeared to be treading water, save for a $948.8 million judgment awarded to the US Attorney for the SDNY by Judge McMahon for dispensing drugs to seniors and disabled people without valid prescriptions, which is problematic. CVS Pharmacy acquired the business is 2015 and was found to be jointly liable for $164.8 million of those damages. Despite the credit support, Omnicare isn’t good for the other $784 million and filed to try to find a going concern sale for its assets. The DOJ argued at the first day hearing that the bankruptcy was a litigation tactic intended to give the Debtors leverage in a two-party dispute. Judge Jernigan wasn’t having it though, granting interim approval for the Debtors’ $110 million DIP from JMB and stating that the case also involves $5 million in trade, more than 100 leases and a $28 million intercompany obligation to CVS Pharmacy. The company has appealed the award and now can negotiate with the DOJ to try to resolve that judgment. Second days are scheduled for Oct. 21.
