By Jeff Montgomery

Law360 (June 22, 2020, 10:42 AM EDT) -- Multistate drug rehabilitation and treatment chain American Addiction Centers Inc. sought Chapter 11 protection in Delaware on Saturday, carrying $517.3 million in debts and blaming long-standing debt and liquidity woes, worsened by business disruptions linked to the COVID-19 pandemic.

The Tennessee-based business, led by parent AAC Holdings Inc., operates 26 facilities in eight states, with 1,360 inpatient and "sober living" beds. It said in its initial filings that it plans either a Chapter 11 going-concern sale or a restructuring, with the approved plan taking effect 125 days after the petition date.

Chief restructuring officer J. Jette Campbell, a partner of Carl Marks Advisors, said in an initial Chapter 11 declaration that the company's debts include $316.6 million in junior lien debt, plus unpaid accrued interest, and $47 million on a senior lien obligation. The company's assets total only $449.3 million, against its more than $517 million in liabilities.

Campbell said the company had been working since the fourth quarter of 2018 to divest assets, consolidate, cut staffing and increase efficiencies. Despite the effort, the company was already unable to cover expenses and debts when mandatory stay-at-home orders triggered by the COVID-19 pandemic drove down inpatient admissions and outpatient visits.

"AAC's current level of cash on hand, internally generated cash flows, and borrowings under its credit facilities are not sufficient" to fund the company's various operating and debt service needs, Campbell said in the company's declaration, with secured creditor prepetition claims "already due and payable."

Prior to the filing, the company entered into a restructuring support agreement with lenders holding 89 percent of senior debt and a majority of junior debt. The secured lenders group agreed to provide a $62.5 million debtor-in-possession loan, with $25.5 million to be made available in the early weeks of the case.

Documents filed with the court on Monday said the company's secured lenders, represented by agent Ankura Trust Co., plan to charge 18 percent interest on the DIP loan, with 10 percent payable in cash and 8 percent payable in kind.

The loan assumes a 125 day schedule to confirmation, and requires the chain to provide an 18-week budget.

Based on current capital market conditions, after consultation with their advisors, the debtors determined that postpetition financing on an unsecured basis would be unobtainable," the company said in a motion seeking approval of the bankruptcy loan.

Charles Edelman, a managing director and global head of restructuring, mergers and acquisitions for Cantor Fitzgerald & Co., said that AAC agreed to seek creditor financing for its case because it was unlikely that the business could secure financing from other sources that would have priority over the claims of its present senior and junior secured creditors.

The DIP loan was linked to case performance milestones calling for filing of a reorganization plan and disclosure statement in 35 days and a bid procedures order in 40 days, with a confirmation order in 110 days.

A budget included with the proposed bankruptcy loan agreement estimated that the company's case would open with a $13.5 million cash balance and close the 18-week period with $7.3 million.

AAC operates sites in California, Florida, Massachusetts, Mississippi, Nevada, New Jersey, Rhode Island and Texas.

AAC Holdings Inc. is represented by Dennis A. Meloro, David B. Kurzweil and Alison Elko Franklin of Greenberg Traurig LLP.

The case is AAC Holdings Inc. et al., case number 1:20-bk-11648, in the U.S. Bankruptcy Court for the District of Delaware.

--Editing by Kat Laskowski.

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