SmileDirectClub will liquidate if it cannot find a buyer quickly

(Bloomberg) — SmileDirectClub Inc. will eliminate… Orthodontics is about two months in search of a savior and will liquidate if no buyer emerges, according to court papers.

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The direct-to-consumer orthodontics company filed for Chapter 11 bankruptcy on Friday, just four years after raising $1.35 billion in an initial public offering. It has not been profitable since then, and recently lost a legal battle with a rival orthodontic company.

Court papers show the company’s founders are loaning it at least $20 million to fund its search for a savior, but that buys little time. If no bidder is found by Nov. 23, SmileDirectClub will be closed and liquidated, Chief Financial Officer Troy Crawford said in a statement to the bankruptcy court.

“SmileDirectClub is committed to completing this process as quickly as possible for the benefit of all stakeholders and our customers,” a SmileDirectClub spokesperson said in an email statement, noting that its founders have agreed to inject an additional $60 million into the business if certain conditions are met. he met.

SmileDirectClub, founded in 2014, sells low-cost orthodontic treatments and counts low- to moderate-income customers as a key demographic. Up to 70% of its customers buy orthodontics using its financing program, SmilePay, Crawford said.

Bankruptcy often helps companies find buyers when they can’t, because the process allows companies to be sold without old debts, including legal obligations. Creditors can offer to forgive debts in exchange for ownership of the company as well.

SmileDirectClub had nearly $900 million in debt at the time of its filing, most of which it assumed after incurring significant losses during and after the Covid-19 pandemic. About $138 million of that is private credit facilities managed by HPS Investment Partners and secured by the company’s receivables and intellectual property, court papers show.

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The company was on track to generate free cash flow by the fourth quarter of this year, but was unable to find the additional financing needed to get there, according to Crawford.

SmileDirectClub employs more than 1,800 people worldwide.

At its first bankruptcy hearing Monday, company attorney Josh Sosberg said SmileDirectClub only had $5 million in cash on hand. US Bankruptcy Judge Christopher Lopez then approved the company’s request to borrow $20 million from its founders.

“The debtor clearly needs this money,” Lopez said. The loan carries interest – paid in kind – at 17.5% annually, according to court papers. It can borrow an additional $30 million later if a suitor emerges and the cash flow test is passed.

(Continued with details of the hearing in paragraphs 10 and 11.)

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