LifeScan and its advisors have obtained nearly unanimous support from first and second lien lenders that will allow sponsor Platinum Equity to stay in control and give the glucose monitoring device maker a shot at growing into a profitable company, according to sources.

Non ad hoc group lenders had until 25 February to accept terms of a restructuring support agreement which already had the support of more than 80% of the company’s first lien debt and 70% of the second lien debt, these sources said.

The company, advised by Milbank and Alvarez & Marsal, negotiated a deal with an ad hoc lender group including Brigade and Canyon advised by Davis Polk and Houlihan Lokey.

Prior to this transaction, the capital structure consisted of $864m worth of first lien term loan debt due 2026 and $275m of second lien term loan debt due March 2027, and about $27m of essentially third lien term loan that has already come due, along with super-priority revolving credit facilities due July 2025 and October 2026, after the company executed a series of exchanges in May 2023 (the third-lien is a holdout). At the time, Platinum Equity itself kicked in a $50m equity contribution to pay down $37.5m on the first lien loan, and $12.5m of outstanding borrowings under its revolving credit facility.

Lenders were hoping they could get Platinum to kick in more money this time around but Platinum would not, according to sources. The resulting RSA provided first lien holders with a combination of a partial cash paydown and reinstatement of debt with a maturity extension at a certain discount to par with estimated consideration of 92 cents on the dollar. The first liens would then be supported by collateral from its blood glucose monitoring technology, or BGM, which is expected to decline over time.

The second liens — which prior to this announcement were quoted at pennies on the dollar — will all be cancelled and exchanged for preferred equity, with a valuation range that could see them recover more than par, but with no cash or take-back paper.

Platinum will retain all of the common shares and effective control of the company.

The RSA contemplated offering the third liens cash at an 80% discount to par, or to convert at 40 cents on the dollar into new term loan. But no such offer has been made to the third liens, as they have yet to make a request of their own.

The RSA has improved the prospects of all the deeply discounted debt: The third liens have been bid up from half a cent on the dollar to 5.75, while the first liens are up to the high 40s from the mid-30s, according to sources.

The key to a successful restructuring will require the company to come through with it’s long-touted but so far unsuccessful push into the continuous glucose monitoring business, or CGM.

Platinum’s acquisition of the LifeScan business from Johnson & Johnson in 2018 was ill-timed as the BGM product was a manual process with a pin prick requiring testing up to five times a day and if required one would have to take insulin themselves.

Subsequently, other companies got approval to sell continuous glucose monitoring products, which update throughout the day automatically and can automatically administer insulin as necessary.

The CGM business is dominated by a few players such as Abbott and Dexcom, while LifeScan has no foothold. LifeScan’s BGM business meanwhile is considered a “melting ice cube” with revenues declining in most developed nations, though with some growth in emerging markets, according to sources.

Much of LifeScan’s business is conducted through pharmacy benefit managers, or PBMs, which are middlemen for LifeScan and the buyers of its products.

LifeScan has been pushing out the payments it owes PBMs for rebates and medicaid reimbursements, making PBMs creditors holding $600m to $700m worth of claims, according to sources. While technically this is an unsecured claim, other lenders to LifeScan view this is a priority claim that would need to be honored ahead of even first lien debt because the PBMs as major customers are necessary to continue to run the business.

However, there are still some negotiations with these PBMs that need to take place that possibly could result in a more sustainable business, according to sources, and the stick is that in case of a bankruptcy, the PBMs would not fair well.

LifeScan, Platinum, Milbank, Brigade, and Canyon have and A&M have not responded by press time.

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