If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in cash?

any one know?

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

The way the bankruptcy has been arranged, the auction is for all, or substantially all, of the non-cash assets (this is mostly intellectual property, prepaid expenses, accounts receivable, and manufacturing equipment / office furniture assets). Those assets are needed to continue the business and will become the legal property of the auction winner.

The cash proceeds from the auction, plus any remaining cash on the balance sheet, are thrown into the bear pit to satisfy creditor claims. Certain claims get priority treatment and are paid in full (mostly the cost of administering the BK case and certain types of taxes) and the rest is split pro rata according to the size of the allowed claims. If there is anything left over after 100% of creditor and expense claims are satisfied, the residual goes to the shareholders, again pro rata according to the number of shares held.

BTW, the remaining cash is not $120 million but $97 million as of December 31. Check the bankruptcy filings as the company must update the court on the remaining cash balance every thirty days. Don't plan on the bankruptcy being thrown out; the corporation is underwater by more than $300 million, and it would be nearly impossible for someone to argue with a straight face that the company is not legally insolvent. The court has approved the auction rules and either an auction or assignment for the benefit of creditors WILL happen two and a half weeks from now. After that point the business will belong to somebody else.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Do the bondholders get paid out of that pile of cash? Wouldnt they be next in line after the priority claims and then no one gets anything after bonmdholders?

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Yes, and no. Bondholders do indeed get paid out of that pile of cash, but these particular bonds have no seniority status so the bondholders have the same priority as any other unsecured creditor (but still ahead of equity holders). If creditors only recover 30 cents on the dollar, the $620 million of bonds will recover $186 million and lose $434 million.

One exception is a credit bid. In bankruptcy all parties have an absolute right of offset so if Dendreon owes a company $100 but that company owes Dendreon $125 then the claims can be offset and only $25 is owed. Expect that the largest bondholder, the four Deerfield Investment funds, will bid their debt for the assets as they will not have to put any additional cash at risk. If there is only one bidder, Deerfield will take all the assets in exchange for their debt and leave the other bondholders to fight over the residual cash. That will still cost Deerfield a lot of money, but they will take a smaller haircut than otherwise.

FYI, the remaining cash was not $97 million as of December 31, it was the remaining cash as of November 7. Law firms, consultants, and investment bankers that support the bankruptcy have priority claims and they are being paid millions every month, so figure that the number is now substantially smaller than $97 million. It is difficult to say exactly how much smaller until the next report comes out, but if the assets sell at auction the two investment bankers will get a contingent tail payment of close to $10 million plus the legal costs.

Absent some miracle sized bids, this is looking very ugly for all concerned (except the lawyers).

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

But isn't it the case that all the money owed to creditors is discharged except for the creditors supporting the bankruptcy, the bondholders, and the creditors that have non-dischargeable debts?

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

No, that is not correct. All money owed to creditors must be paid to creditors to the extent possible (with certain priority claims coming first in line) and the unpaid balance is cancelled along with the equity.

What you may be thinking about is debtor in possession financing (DIP) in which a creditor loans new money to an entity to help it recover. The DIP line becomes a priority claim if approved by the court (under very specific rules), but only the DIP line has priority and any other claims of that same creditor are treated equally with those not infusing new money. Lenders must put new money at risk to get priority after the case has started, they can't promote the status of an old debt.

Bonds, per se, have no priority at all and are just another creditor. However, bonds can be issued with contractual terms that give them priority and sometimes there are even several layers of bond priority (hence the terms like "senior bonds" which come first, and "junior" or "subordinated bonds" which come lower in priority) but these preferences must be agreed by contract when the bonds are issued and may require consent of other creditors since the bond holders are moving to the front of the line and impacting the pre-existing legal rights of others.

Regardless, in this case the bonds received no priority status in the security agreement so they are just creditors. The bond holders believed in Mitch Gold and his $4 billion a year sales forecast or else they would have demanded different terms including seniority status, but that needed to happen in 2011 when the bonds were issued. Now it is too late.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Do they have to wait until the amount they owe is known? All the litigation creditors have unknown as the amount owed to them.

Thanks for your contributions to this board.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Technically yes. The court must allow each claim and there may be objections filed to the amount of the claim although for the vast majority they are routinely allowed (like accounts payable to utility companies and supplier invoices, for example). The sum total of allowed claims must be known before payouts can begin, and to this end Dendreon filed a motion last week to set the "bar date" after which no further claims can be made (bar date of March 16th for non-government entities, May 11 for government entities). This started the process of finalizing the claim pool. If it is obvious that enough money will be available, priority claims (like accrued employee salary) can be paid earlier.

For litigation, the debtor can generally remove the cases to bankruptcy court and have the BK court hear the case and issue a final judgment. Just like the bar date, the company has asked for an extension of the date to decide which cases it want the court to hear until July 9. This further indicates the desire to wind up this case promptly as a case heard before the BK court does not have a jury and the process moves much more quickly than in a state or district court. This case is picking up speed, not slowing down.

In cases with multiple defendants, the case can proceed as regards the other defendants so long as it does not affect the outcome in bankruptcy. In other cases where an insurance carrier will pay the loss and the cost of defense, the case might proceed but no bankruptcy estate assets will be involved. If plaintiffs want to maintain the case outside of bankruptcy court, they can drop the bankrupt defendant, settle for a negotiated amount, stipulate that any recovery will be from insurance proceeds only, or take some other pragmatic action. Litigating to final death in bankruptcy court is rarely a good idea.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

What about the SEC Case? The other litigation is filed lawsuits. The SEC case is listed as investigation.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Maybe the only way to get at least some money back in the hands of shareholders would be a fair fund set up by the SEC.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

All actions of any sort are automatically stayed during the pendency of bankruptcy unless the judge issues an order allowing them to move forward. A mere investigation could probably continue but the SEC couldn't bring any form of enforcement action in response to any findings.

If a potential SEC action would actually benefit the bankrupt estate in some way (like returning money to the company) then the US Trustee will be all over that, and the action will be brought forward and heard in the bankruptcy court. Any proceeds of such an action would be added to the cash available to pay claims.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Do not think SEC actions can be derivative actions. They do not return money to the company. The SEC can put money in a fair fund and return money to shareholders that way. You seem to be making contradictory statements. On one hand you say the results of private litigation and government investigations with unknown creditor values would have to be completed before any creditor claims are paid out and on the other hand you are saying none of this can be determined during the bankruptcy.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

The SEC can force disgorgement of ill-gotten gains, such as proceeds of insider trading. Those proceeds are generally returned to the company under the theory that if the insider information was known, that information would be reflected in the public market price and thus it is some compensation to the injured shareholders for diminution in value.

Litigation can be brought into the bankruptcy court for final resolution, or not, at the election of the debtor on a case by case basis. Last week the company filed a motion to extend the time for making those decisions until July 9. Generally, if a lawsuit is a potential ASSET of the estate (net of attorney fees and costs) then the debtor and/or trustee will push to have the claims removed to the bankruptcy court for fast track adjudication. This happens more often when a debtor is a plaintiff.

If the lawsuit is a potential LIABILITY the debtor will usually leave the case where it is and the case can proceed after conclusion of the bankruptcy. If the company is effectively wiped out in bankruptcy that gives the plaintiff little relief, which is why the plaintiff can petition the court to lift the stay during the bankruptcy to insure an equitable result. For example, in the recent City of Detroit bankruptcy case certain prepetition personal injury claims against the city were allowed to proceed and be settled while most litigation remained in limbo.

In any case, what is prohibited is creation of, enlargement of, or enforcement of a judgment relating to prepetition actions of the debtor absent the explicit permission of the court. If the person or agency conducting an investigation finds wrong doing they cannot create a new judgment claim AGAINST THE DEBTOR without court permission. Some cases with multiple defendants can proceed so long as the debtor can be left out of the fray without undue prejudice to the other defendant parties. A stay of actions against the debtor do not automatically extend to co-defendants.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

By co-defendants you likely mean individuals.

Lotsa legalese here, but at what point can a government agency officially initiate an enforcement action against a company and at what point can the private lawsuits have settlements? The creditor money pool can not be determined until all the creditor amounts listed as "unknown" are known. Please avoid the legalese and answer!

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Co-defendants can mean any type of entity that can be sued (like another corporation), but in Dendreon's case I think all the co-defendants are in fact individuals.

The stay is quite simple, no legalese required. So long as there is a stay of action in place nobody, neither the government nor a private person, can attempt to impose a new liability on a bankrupt company through any form of legal action based on events that happened BEFORE the bankruptcy petition was filed. The stay is automatically imposed the instant the bankruptcy petition is filed, and it remains in place until the bankruptcy case is concluded.

After the bankruptcy case is over, that is the point where agencies and individuals can resume their legal battle. The problem is that after the bankruptcy is over the company may no longer exist, or it may exist in name only with all or nearly all the assets having been paid out to creditors. That is why the judge has the authority to grant exemptions from the automatic stay on a case by case basis.

So, for example, Glaxo SmithKline has sued for more than $25 million on a breach of contract claim. The judge might lift the stay to allow the Glaxo suit to go forward in bankruptcy court, but enforce the stay on the securities suits brought by individual shareholders against the company. We all have to wait and see how this unfolds over the coming months.

As for the creditors that are unknown, the court will set a "bar date" after which no additional proposed claims can be added. The company has asked this bar date be set at March 16 for non-governmental entities and May 11 for government entities. Anybody with a claim must file it on or before the bar date or lose the chance to do so. Once all the proposed claims are in, Dendreon can agree with the amount of each claim or disagree. The court will quite promptly settle any disagreements and that is how the amount of approved unsecured claims is finally determined. Liabilities arising from suits the bankruptcy court agrees to hear will be included in the final amount.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

A judge usually would keep a stay a new SEC enforcement or a DOJ enforcement action if it is not for ill gotten gains? If it is for ill gotten gains the proceeds would go back to the company and the judge would likely allow it? If individuals are gone after by government agencies, it would appear they would have to pay any fines or restitution out of pocket without the aid of D&O insurance? Is that correct? if so, the MG regime maggots deserve that.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

Still do not understand this BS. Are you saying instead of litigating, the private suits and the federal agencies can just put in a claim and try to get it settled?

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

No. What is means is that while the court and the debtor are struggling to keep the company alive, which is the entire purpose of a Chapter 11 bankruptcy, litigants cannot try to add to company's troubles and make things worse. They can still sue, but they have to wait until later.

However, in exceptional cases they can try to get the bankruptcy court to hear their case and, if they win, whatever damages they might receive will be added to the pile of unsecured creditor claims where they may be paid out at less than 100 cents on the dollar, just like other creditors.

And no, they cannot just file a claim and have it allowed. They must first apply for permission from the court to start or continue their lawsuit, then they have to win the suit when it is heard by the court, and then they will have an allowed claim.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

The stay of enforcement actions does not apply to anybody OTHER THAN the bankrupt company. If somebody files a suit against Dendreon, the corporation, and its officers and directors, the individuals, the stay applies to the corporation only. That is the general rule, but the exceptions are too complicated and numerous to discuss here. However, anything that adds money to the bankrupt estate increases the recovery for creditors so will generally be allowed. Anything that distracts the company from completing the bankruptcy or depletes the cash remaining in the estate will generally be disallowed because it reduces recoveries for creditors.

Whether D&O insurance still cover the officers and directors depends on how the policy was written (i.e. who were the intended beneficiaries) and whether the policy limits were large enough to cover the case. D&O insurance does not work the way most people think it does, and the officers could well be on the hook personally for some damages. Whether the officers are found liable for those damages in court is an entirely different matter.

 

Re: If bankruptcy is not thrown out and DNDN is bought, what happens to the 120M in c

But why wouldnt the SEC just do an enforcement action for a huge amount, say 200M. That would drain everything from D&O insurance and all that money as you say would go to the pile of cash.