Delaware Chapter 11: AAC Holdings, Inc.
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Significant first day motions can be accessed by clicking on the case title above.
CASE DETAILS
On June 20, 2020 (the “Petition Date”), AAC Holdings, Inc. and forty-eight affiliates (collectively, the “Debtors” or “AAC”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware. The Debtors are represented by Greenberg Traurig, LLP and Chipman Brown Cicero & Cole, LLP. The case has been assigned to the Honorable John T. Dorsey. A hearing on the Debtors’s first day motions was held on June 23, 2020. A second day hearing has been set for July 16, 2020. The response date for the committee questionnaire is Tuesday, June 30, 2020 at 4:00 p.m.
INTRODUCTION
AAC is a leading provider of inpatient and outpatient substance abuse treatment services, treating adults struggling with drug addiction, alcohol addiction, and co-occurring mental/behavioral health issues. In connection with its treatment services, AAC performs clinical diagnostic laboratory services and provides physician services to its clients. AAC has developed the company and the American Addictions Centers national brand through investment in its clinical expertise, facilities, professional staff, and national sales and marketing program. The Debtors operate a total of twenty-six facilities and 1,360 inpatient and sober living beds in California, Florida, Massachusetts, Mississippi, Nevada, New Jersey, Rhode Island, and Texas. As of the Petition Date, the Debtors have approximately 2,000 employees. Approximately seventy-six employees at the Sunrise House Treatment Center in New Jersey are part of the Health Professionals and Allied Employees labor union. None of AAC’s other employees are represented by a union or covered by a collective bargaining agreement.
The Debtors have had ongoing financial difficulties and in late 2018 had begun taking steps to consolidate and divest certain of its markets, reduce corporate staffing and administrative expenses, and increase operational efficiency. However, 2019 was a particularly difficult year, with changes in liquidity having a material adverse effect on AAC’s assets, business, cash flow, financial condition, prospects, and the results of operations despite AAC’s implementing cost-savings initiatives, targeting to sell the company’s real estate, exploring potential recapitalization, and obtaining additional financing. Savings initiatives completed in the second half of 2018 and into the first quarter of 2019 reduced operating expenses by over $30 million annually, but were not enough to significantly improve liquidity. AAC engaged financial advisors to continue exploring ways improve the balance sheet, in particular through monetizing the value of AAC’s real estate portfolio and evaluating assets for a recapitalization, but efforts were not successful. AAC then faced additional challenges due to the COVID-19 pandemic, including a decline in inpatient admissions, supply chain disruptions, and the need to take necessary additional preventative measures which resulted in the Debtors’ costs rising at the same time that their cash on hand and access to credit became more limited. Despite the financial assistance the Debtors were able to receive via the Paycheck Protection Program established by the CARES Act, AAC is still experiencing financial distress related to COVID-19 and its liquidity issues.
DEBTORS’ FINANCIAL POSITION
As the Petition Date, the Debtors had prepetition secured indebtedness in excess of $363.6 million, consisting of two credit facilities, each with Ankura acting as administrative agent and each with a different group of affiliated lenders – a junior lien credit agreement in the aggregate principal amount of $316,612,692.97, and a senior lien facility in the aggregate principal amount of $47,000,000, both of which are subject to additional fees and interest (Affidavit pp. 14-22). In addition, the Debtors owe over $31 million to their top thirty unsecured creditors.
DEBTOR-IN-POSSESSION FINANCING AND Restructuring Support
The Debtors commenced these cases to effectuate a balance sheet restructuring and implement operational improvements. Prior to the Petition Date, the Debtors’ prepetition loan parties entered into a restructuring support agreement with lenders holding in excess of 89% in aggregate principal amount of the loans outstanding under the senior lien facility, and a majority in aggregate principal amount of loans outstanding under the junior lien facility. The agreement set forth terms including a postpetition continuation of the marketing process for the sale of the Debtors’ assets, certain case milestones, a proposed treatment for holders of claims and interests, and mutual releases and exculpation by and among the parties thereto.
In addition, the prepetition lenders committed to providing debtor-in-possession financing in the form of a multi-draw superpriority senior secured priming term loan in an aggregate principal amount of up to $62.5 million, including up to $25.5 million on an interim basis. The Debtors believe that the financing, along with the terms contemplated by the restructuring agreement, will provide them with sufficient liquidity to fund these cases, allowing them to emerge as a viable enterprise going forward (Affidavit pp. 27-28).
Several milestones are included as conditions to the Debtor’s financing (DIP Motion pp. 23-24):
- On or before fifteen calendar days after the Petition Date, the loan parties shall have filed a motion approving the bidding procedures.
- On or before thirty-five calendar days after the Petition Date, the loan parties shall have filed a plan of reorganization, a disclosure statement, and a motion to approve solicitation of the plan.
- On or before forty calendar days after the Petition Date, the Court shall have entered an order approving bidding procedures.
- On or before sixty-five calendar days following the Petition Date, the Court shall have entered an order approving the disclosure statement, including the solicitation of the plan.
- On or before one hundred calendar days following the Petition Date, the Court shall have entered an order confirming the plan.
- On or before one hundred twenty-five calendar days following the Petition Date, the effective date of the plan shall have occurred.
Significant first day motions can be accessed by clicking on the case folder above and the link below.
TOP UNSECURED CREDITORS LIST AND FIRST DAY MOTIONS
- Taxes & Fees Motion
- Insurance Motion
- Employee Wages Motion
- Client Programs Motion
- NOL Motion
- DIP Motion