HIMA San Pablo: DIP Financing Denied Due to Lack of Adequate Protection to CRIM
HIMA San Pablo: DIP Financing Denied Due to Lack of Adequate Protection to CRIM
With over $400 million in liabilities, HIMA San Pablo’s bankruptcy could be the largest filing in the District of Puerto Rico in the last thirty years, according to El Nuevo Día.
The case has been eventful right from the start, with the participation of local bankruptcy heavyweights such as Wigberto Lugo (debtor), Luis Marini (AAFAF), Fernando Van Derdys (CRIM), Hermann Bauer (Island Healthcare), Nayuan Zouairabani-Trinidad (Alter Domus), Conde & Associates (Consejo de Titulares Torre San Pablo), Brian Tester (Fajardo Integrated Medical), Myrna Ruiz Olmo (Caribbean Med.), among others.
Given the debtor’s serious cash crunch, the first major controversy has been the proposed DIP financing which, according to the debtor, is necessary for the debtor to survive as a going concern until the group of hospitals is sold.
The debtor’s senior lender offered DIP financing consisting of $6 million in new money, subject to the following: (i) a superpriority and senior priming lien over all of the debtors’ pre and post-petition property, which includes priming CRIM’s statutory lien; (ii) a superpriority administrative expense claim senior to all other administrative expenses and unsecured claims; (iii) a 5:1 roll-up of pre-petition debt; (iv) liens on the proceeds of avoidance actions, (v) among other conditions.
CRIM, AAFAF and the U.S. Trustee objected. CRIM objected on several grounds, including that its first rank statutory lien would be subordinated without affording CRIM the required adequate protection.
AAFAF raised several arguments in opposition, including, among others, that (i) the proposed terms appeared to be an impermissible sub rosa plan; (ii) they were neither fair, equitable, nor the product of a fair and arm’s length process, and (iii) the debtor failed to show that it attempted to obtain alternative financing.
The U.S. Trustee raised, among others, the following arguments: (i) the time to consider the proposed extraordinary conditions was inadequate, especially when the unsecured creditor’s committee had not yet been appointed; (ii) the roll-up constitutes extraordinary relief that is unsupported by case law and could create an undesirable precedent; (iii) interim relief should be limited to what is strictly necessary to prevent immediate and irreparable harm to the estate.
The court denied the DIP and cash collateral motion. It held that the debtor did not satisfy its burden to establish that CRIM’s first ranked statutory lien would be adequately protected since crucial financial information was not provided, including current values of the debtor’s assets and the amounts owed to the senior lender.
However, the court did authorize the continued use of cash collateral on an interim basis, and subject to strict compliance with the proposed budget.