By Jeff Montgomery

Law360 (June 2, 2020, 6:33 PM EDT) -- LASIK Vision Institute owner LVI Intermediate Holdings Inc. secured interim approval in Delaware for $5.7 million of a proposed $27.5 million in Chapter 11 debtor-in-possession financing during an initial hearing Tuesday on plans for a company restructuring and sale effort.

G. David Dean of Cole Schotz PC, counsel to LVI, said during a videoconference hearing that the loan, provided by a group of prepetition lenders, would finance a case that now aims to reopen 85 laser eye surgery sites under the umbrella of Vision Group Holdings by the end of the month.

That number, including Vision Group affiliated LASIK Vision Institute and TLC Laser Eye Centers, would restore some 75% of the fleet that LVI was operating when the COVID-19 pandemic and a $160 million debt burden forced shutdowns and LVI's retreat into bankruptcy.

"The company was projected to run out of cash this week due to the devastating impact of the pandemic," Dean said while seeking initial approvals for the company, including the loans. "The only condition under which these lenders would provide funding was through a DIP loan and bankruptcy."

U.S. Bankruptcy Judge Karen B. Owens approved the bankruptcy loan measure with few changes during a video conference, describing it as "modest in relation to the amount of prepetition debt."

Dean said LVI's holdings were dealt a double blow over the past year, first as collateral damage from negative news reports involving a different type of laser eye surgery and then by the social distancing and business closure orders prompted by the COVID-19 pandemic.

"In the beginning of 2020, all trends were pointing back up and toward a very good year, when, unfortunately, as we all know, the world came to a screeching halt in early March. Revenues plummeted to close to zero," Dean said. "As a result, the company was forced to furlough or lay off many of its employees, and could not afford to pay landlord rent in April or May."

Although LVI had hoped that the company's lenders, represented by prepetition agent LBC Credit Partners III LP, would submit a stalking horse offer to buy the business, some in the lender group declined. No other stalking horse candidates emerged and no lenders would allow a bankruptcy financing loan that gave DIP lenders first-in-line repayment priority, LVI said.

In the end, LVI opened its case with a lender-funded DIP, and Dean said the same group reserved a right to put together their own credit bid offer to cancel a portion of their debt claim in lieu of cash.

Dean said LVI hopes that another party will emerge willing to offer more than the $27.5 million needed to pay off the DIP loan, which includes $11.5 million in new money, $4.6 in prepetition "protective" advances from the lenders and $11.5 million in other prepetition debt.

Although the pandemic dealt a near-fatal blow to the company, its troubles are rooted in an aggressive business acquisition and expansion effort in 2015 and 2016 that saw the business peak at 140 locations, then drop back as some sites proved unable to generate sufficient revenue and others were unable to overcome regulatory mandates, according to an initial declaration filed by interim LVI CEO and President Lisa Melamed.

Losses of senior executives complicated management of the business, while use of a discount program led to total revenue losses, instead of a gain based on increased patient volumes, the declaration said.

In March 2019, meanwhile, 9597930 Canada Inc. purchased an 84% majority ownership position in LVI Super Intermediate Holdings, LVI Intermediate's ultimate parent. Falcon Strategic Partners IV and LP Macquarie Sierra Investment Holdings Inc. bought minority equity positions in the parent at 8% each.

Dean said the DIP agreement includes a number of milestones, including the filing of a sale motion within three days of the petition date, entry of a sale procedures order three weeks after that and an auction six weeks after filing of the sale motion.

According to the DIP motion, a sale order should be approved 60 days after the petition date, with a closing to follow no more than 15 days after the sale order deadline.

Judge Owens said she agreed with other judges in the Delaware district, however, that DIP milestones were not to be considered approvals or authorizations of the court. Instead, the judge said, the court would consent to debtor agreement to designate failures to meet the dates as defaults under the DIP agreement.

LVI is represented by G. David Dean, Norman L. Pernick, Krista K. Kulp, Matteo Percontino and Mark Tsukerman of Cole Schotz PC.

LBC Credit Partners III L.P. is represented by Eric W. Moats of Morris Nichols Arsht & Tunnell LLP and Randall L. Klein of Goldberg Kohn Ltd.

The case is In re: LVI Intermediate Holdings Inc. et al., case number 1:20-bk-11413, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Alanna Weissman.

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