| Item 1.01. | Entry into a Material Definitive Agreement |
As previously reported, on April 7, 2020, Quorum Health Corporation (the “Company”) and certain of its direct and indirect subsidiaries (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) in order to implement the financial restructuring of the Company. The Chapter 11 Cases are being jointly administered under the captionIn re Quorum Health Corporation, et al.
“Debtor-in-Possession” Credit Agreement
On April 10, 2020, the Company entered into that certain Superpriority SecuredDebtor-in-Possession Credit Agreement, among the Company, as the borrower, certain subsidiaries of the Company party thereto as guarantors, the lenders party thereto (the “DIP Lenders”), GLAS USA, LLC, as administrative agent for the lenders (the “Administrative Agent”), and GLAS Americas, LLC, as collateral agent for the lenders (the “DIP Credit Agreement”). The Bankruptcy Court entered an order (the “Interim Order”) approving the DIP Credit Agreement on an interim basis on April 9, 2020.
The DIP Credit Agreement allows the Company to borrow term loans (the “DIP Loans”) with an aggregate principal amount of up to $100 million (the “DIP Facility”). The Company is permitted to draw up to $30 million of DIP Loans as of the date of the Interim Order. After the Bankruptcy Court enters a final order approving the DIP Credit Agreement, the Company may draw up to a maximum principal amount of $60 million under the DIP Facility, and thereafter may draw the remaining portion of the loan commitments not drawn subject to the consent of the required lenders under the DIP Credit Agreement or if needed under the Budget (as defined below).
The DIP Loans will bear interest at a rate per annum, at the option of the Company, equal to (i) an adjusted LIBO rate (with a floor of 1.00%) plus 10.00% or (ii) an alternate base rate (with a floor of 2.00%) plus 9.00%. The adjusted LIBO rate is equal to the rate of interest quoted as the London interbank offering rate for deposits in dollars for a term comparable to the interest period applicable to a DIP Loan, adjusted for certain statutory reserves applicable to the Administrative Agent or any DIP Lender under the regulations promulgated by the Board of Governors of the Federal Reserve System of the United States. The alternate base rate is equal to the greatest of (x) the federal funds rate plus 0.5%, (y) the prime rate established by the Administrative Agent, and (z) the adjusted LIBO Rate in effect plus 1.00%. Upon the occurrence of an event of default, the Administrative Agent is permitted to charge a default rate of interest equal to 2.00% above the rate otherwise applicable. The Company is required to make interest payments monthly, in arrears, on the first day of each month, upon any prepayment, and at the final maturity date of the DIP Facility.
The Company will use the proceeds of the DIP Loans to fund its operations and working capital during the Chapter 11 Cases, pay obligations arising from or related to the Carve Out (as defined below), pay professional fees in connection with the Chapter 11 Cases, make adequate protection payments, and pay fees and expenses incurred in connection with negotiating and implementing the DIP Credit Agreement.
As security for the DIP Loans, the DIP Lenders are entitled to joint and several superpriority claim status in the Chapter 11 Cases. Further, the Debtors are granting in favor of the DIP Lenders (i) a first priority security interest in and lien upon (x) the amounts deposited in a segregated deposit account for advances of DIP Loans under the DIP Credit Agreement, and (y) subject to order by the Bankruptcy Court, avoidance actions and the proceeds thereof, and (ii) a junior security interest in and lien upon all of the assets of the Debtors encumbered by the liens established pursuant to that certain Credit Agreement, dated as of April 29, 2016, among the Company, as borrower, each of the guarantors named therein, the lenders from time to time party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent for the lenders (the “Senior Secured Credit Agreement”). The guarantors under the Senior Secured Credit Agreement will also guarantee the obligations of the Company under the DIP Credit Agreement. The liens and superpriority claims of the DIP Lenders are subject in each case to a carve out (the “Carve Out”) that accounts for certain administrative, court and legal fees payable in connection with the Chapter 11 Cases.
Furthermore, the DIP Credit Agreement includes certain affirmative covenants applicable to the Company and its subsidiaries, including, among other customary covenants indebtor-in-possession financings, (i) the obligation to deliver a cash flow forecast, setting forth all line-item cumulative receipts and operating disbursements on a weekly basis for a thirteen-week period (the “Budget”), (ii) the obligation to update the Budget every four weeks, (iii) the obligation to achieve certain milestones established by the DIP Lenders, and (iv) the obligation to deliver weekly and monthly operating reports. The DIP Credit Agreement also includes negative covenants that, subject to certain exceptions, limit the Company’s and its subsidiaries’ ability to incur additional indebtedness, create liens on their assets, engage in mergers or consolidations, sell assets, pay dividends or distributions or repurchase their capital stock, make investments, or change their lines of business. The DIP Credit Agreement requires the Company to use the proceeds of the DIP Loans and operate its business in a manner consistent with the Budget, subject only to variances of 15% for aggregate collections and 15% for aggregate disbursements, tested on a rolling four-week basis.
