DLA Piper obtains approval of first coronavirus-impacted bankruptcy sale

Buildings

Restructuring Alert

COVID-19 Alert

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Having filed what is widely considered the first chapter 11 case related to the impact of the coronavirus disease 2019 (COVID-19), styled In re Valeritas Holdings, Inc., et al., Case No. 20-10290 (LSS) (Bankr. D. Del.), DLA Piper’s Restructuring practice is at the forefront of the intersection of COVID-19 and bankruptcy.

 

On March 20, 2020, the United States Bankruptcy Court for the District of Delaware—the busiest bankruptcy court in the country—conducted its first-ever video evidentiary hearing in Valeritas’s chapter 11 case. DLA Piper successfully obtained approval of an important going concern sale and global settlement among the parties on a consensual basis. The sale is expected to close in early April, saving more than 100 jobs and preserving access to the V-Go® Wearable Delivery Device for type 2 diabetes patients who depend on it to improve their health and their lives. We believe that this is a prime example of the creative way that results can be delivered for clients in distress even in these uncertain times. 

 

In late 2019, Valeritas suffered a number of operational setbacks due to a supply disruption caused by a yield issue, which resulted in lower than typical inventory reserves. In prior years, the impact of the Chinese New Year holiday on Valeritas’ manufacturing was limited. This year, however, the holiday and attendant work-stoppages were extended by the Chinese government’s measures to combat the rapid onset of COVID-19 (which, at that time, was believed to be largely confined to China). The combination of reduced inventory reserves and the delays in production in China caused by COVID-19 forced Valeritas to consider strategic alternatives, including a sale under chapter 11.

 

After substantial prepetition marketing efforts, on February 9, 2020, Valeritas and its affiliates (the debtors) commenced their chapter 11 cases to effectuate a going concern sale of the business. With Zealand Pharma A/S committed to serve as a stalking horse bidder for a competitive auction process, the debtors and their investment banker continued marketing the assets to a variety of potential bidders, including financial and strategic parties. 

 

On March 13, 2020, Valeritas designated Zealand as the successful bidder and proposed purchaser for its business; and, on March 20, 2020, the sale was approved in what may be the first fully remote, video evidentiary federal bankruptcy hearing in the country. The sale provides for payment of $23 million in cash, plus the assumption of certain liabilities, and includes offers of employment for a majority of the debtors’ current employees. The sale is intended to ensure that the debtors’ flagship product, the V-Go® Wearable Insulin Delivery device, remains available to type 2 diabetes patients who depend on it to improve their health and simplify their lives.

 

Additionally, following successful settlement negotiations among Valeritas, its prepetition lenders, and the Official Committee of Unsecured Creditors, the court approved a global settlement that, among other things, increases the potential for recovery by unsecured creditors and sets a path for a consensual chapter 11 plan process.

 

Notwithstanding the supply issues that contributed to Valeritas’s chapter 11 filing, the approval of its going concern sale and settlement in the midst of the global uncertainty wrought by COVID-19 was achieved.

 

Please contact your DLA Piper relationship partner with any questions or for more information.

 

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