Pacifica of the Valley Corporation - Chapter 11 DIP Terms

DIP Terms

Overview and Posture

• The court entered the final order on Oct. 15, 2026 (Docket No. 250). It approves a senior secured superpriority multiple-draw term facility of up to $52.5 million from Axios Capital Solutions, LLC to Pacifica of the Valley Corporation, which does business as Pacifica Hospital of the Valley. The facility pairs $21 million of new money with a roll-up of up to $31.5 million of Axios's prepetition senior debt, at 1.5 times each new-money dollar funded.
• The facility funds a sale of the hospital to its lender. Axios holds the prepetition senior loan, provides the DIP and sponsors the plan. It must credit bid at least $40 million of DIP obligations to buy substantially all of the debtor's assets, through either a plan or a private section 363 sale, at Axios's election. A defined pool of excluded assets goes to a liquidating trust for unsecured creditors, and Axios's take from that pool is capped at $15 million. The pool includes Chapter 5 causes of action, director and officer claims, excess revenue under California's Hospital Quality Assurance Fee (QAF) program from reducing asserted setoffs and recoupments, and the debtor's ordinary-course cash on hand when hospital operations transition or the plan goes effective, whichever is earlier. The final order refers to the program's receivables as HQAF receivables.
• The debtor filed for Chapter 11 in the District of Delaware on July 4, 2026. The court approved the financing on an interim basis after a Sept. 29, 2026 hearing and entered the interim order on Sept. 30, 2026 (Docket No. 229). It held the final hearing on Oct. 15, 2026. Any objections were withdrawn, resolved or overruled, and the debtor, Axios and the prepetition secured parties, including the landlord, consented to the form and entry of the final order.
• The final order governs over the credit agreement and the other DIP documents in any inconsistency, and the credit agreement says the same. The final order also controls over the interim DIP order and the first and second interim cash collateral orders (Docket Nos. 57 and 148).

DIP Commitments

• Size: up to $52.5 million senior secured superpriority multiple-draw term facility, comprised of:
  • $21 million new money term loans:
    • $7 million available on an interim basis, which Axios advanced under the interim order
    • $14 million available only after entry of the final order
  • Up to $31.5 million roll-up of prepetition senior loan obligations, converted into DIP obligations at 1.5 times each new-money advance as it funds:
    • $10.5 million deemed borrowed alongside the interim new money loan
    • Up to $21 million more, deemed borrowed as and when each post-final-order advance funds, at 1.5 times the principal actually funded
• Draw schedule: the credit agreement funds the $14 million of post-final-order new money as:
  • $4 million upon entry of the final order
  • $3 million upon the debtor's filing of the plan or of a motion to approve the asset purchase as a private section 363 sale
  • $7 million upon the earlier of the plan confirmation milestone date (Dec. 8, 2026) and the private sale milestone date (the 30th day after Axios elects a private sale, as extended)
• The roll-up is cashless. Each deemed borrowing entitles the debtor to an equal principal amount of prepetition debt for cancellation, and the debtor receives no cash on account of it. Amounts repaid or prepaid, whether voluntarily or as required, may not be reborrowed.
• The final order finds that Axios, as both prepetition senior lender and DIP lender, would not have lent without the roll-up. It also finds the roll-up is consideration solely for Axios's agreement to extend the DIP loans, not payment on account of the prepetition debt. The roll-up stays subject to the committee's challenge rights and the carve-out, and no challenge can affect the new money loans or the liens and claims securing them.
• The final order's decretal authorization in paragraph 2(b), consistent with its facility description, is $21 million of new money plus $31.5 million of roll-up within the $52.5 million facility; its recital of the requested final-basis borrowing instead states up to $52.5 million of new money plus the $31.5 million roll-up.
• Operating advances that Axios makes under the interim management agreement after the budget period also constitute DIP obligations and count toward the credit bid floor.
• Under the credit agreement, Axios's obligation to fund each post-final-order advance is conditioned on, among other things:
  • The final order being in full force, in a form satisfactory to Axios in its sole discretion, and not stayed, vacated, reversed or modified without its consent
  • No default or event of default, accuracy of representations, and no material adverse change since the interim order in Axios's reasonable judgment
  • Satisfaction of every milestone due by the borrowing date, and budget compliance within permitted variances
  • Cash payment of all lender expenses then due
  • The landlord not having, in Axios's reasonable judgment, repudiated or abandoned the non-binding agreement in principle among the debtor, Axios and the landlord on lease terms if Axios acquires the hospital (the lease agreement in principle)
  • Delivery of a list of the debtor's accounting, cash and data platforms, and continuous real-time, read-only access to its bank accounts
  • For the third advance, the debtor holding all requisite licenses and permits, valid and active, to operate its business as currently conducted

Interest Rate

• 12% per annum, PIK. Interest accrues on a simple basis and is capitalized into principal on the last business day of each month, and later interest accrues on the increased principal, so PIK interest compounds on each monthly interest payment date. Interest is computed on a 360-day year.
• Default rate increase: 4% per annum, also payable in kind.
• The final order permits interest and fees, other than the DIP lender's professional fees and expenses, to be paid in kind monthly in arrears. The credit agreement's use-of-proceeds covenant likewise provides that all DIP obligations other than lender professional fees are paid in kind.

Fees and Lender Expenses

• Commitment fee: 10%, fully earned and non-refundable upon entry of the interim order. The final order's recital of the requested relief describes it as a DIP facility fee of 10%, up to $2.1 million. The credit agreement sets it at 10% of the aggregate new money loans, payable on the maturity date and paid by capitalizing it into loan principal as of the interim order.
• Under the final order, the debtor pays the DIP lender's reasonable and documented prepetition and postpetition costs, including attorneys' fees, within 14 days after delivery of a summary invoice. Those payments need no fee application, court approval or review under U.S. Trustee guidelines, sit outside the budget, are subject to the challenge provisions, and are otherwise non-refundable. Within the same 14 days, the debtor, the U.S. Trustee or the committee may file an objection limited to reasonableness.
• The credit agreement has its own expense mechanics. Lender expenses up to an amount not exceeding 20% of the amounts provided in the budget are paid in cash within five business days after a payment request or as a funding condition, and amounts in excess of 20% of the budget are added to loan principal. The budget carries $625,000 of DIP lender professional fees over its 13 weeks. The final order governs over the DIP documents in any inconsistency.
• Neither instrument reimburses Axios for costs of acquiring the hospital or transferring its operations, including regulatory approvals, the interim management agreement and lease negotiations with the landlord. Costs of negotiating any asset purchase agreement, and of any other activity in furtherance of the acquisition, are also excluded. The credit agreement limits this exclusion to fees incurred solely for those purposes. The final order preserves reimbursement of expenses incurred to preserve, monitor, enforce or realize on Axios's rights and collateral, including in a court-approved sale process or credit bid as DIP lender.
• As adequate protection, the final order also covers the reasonable fees of counsel to Axios as prepetition senior lender, including fees for negotiating the credit agreement and plan term sheet. The credit agreement's definition of lender expenses excludes costs related only to the prepetition loan.

Maturity

• Dec. 8, 2026, unless accelerated. Under the final order, unfunded commitments terminate and all DIP obligations become due in cash on the earliest of:
  • Dec. 8, 2026, extended to the plan effective date and closing of the related sale if a confirmation order is entered that is reasonably acceptable to Axios and approves the plan, the disclosure statement and the sale of the debtor's assets to Axios or its designee
  • The date a milestone is missed and not waived by Axios
  • Consummation of a section 363 sale of all or substantially all of the debtor's assets
  • Acceleration of the DIP loans and termination of the commitments, such as after an event of default
  • The effective date of a plan
  • Appointment of a Chapter 11 trustee
  • Conversion to Chapter 7 or dismissal of the case
• The credit agreement's version differs in three respects:
  • It requires the confirmation order to be entered on or before Dec. 8, 2026.
  • It caps the extended maturity at Dec. 15, 2026 unless Axios agrees in writing to a further extension; the final order's provision states no Dec. 15 outside date.
  • Its list does not include dismissal, which the final order lists.
• At maturity, the debtor repays all outstanding principal, accrued interest and fees in cash.

Parties

• Pacifica of the Valley Corporation, a Delaware corporation doing business as Pacifica Hospital of the Valley, as borrower.
• Axios Capital Solutions, LLC, a Delaware limited liability company, is the DIP lender and also the prepetition senior lender and plan sponsor and purchaser. Raines Feldman Littrell LLP is its counsel.
• The prepetition secured parties are Axios and the debtor's landlord, Reliq Pacifica LLC and Beverly Gemini Investments, LLC. To the extent necessary, the order extends references to the landlord to Taking the 5th LLC and Fifth/Arizona Investors, LLC.
• L.A. Care Health Plan is the counterparty to 2026 prepetition agreements covering $7.5 million of QAF receivables. An earlier court order (Docket No. 115) authorized a sale of HQAF receivables to L.A. Care, stipulated to the validity and non-avoidability of the prepetition sales, and granted L.A. Care a release of estate claims and administrative claims; the final order leaves that order intact.
• The official committee of unsecured creditors holds the challenge rights, two of three seats on the liquidating trust oversight committee, and consent rights over plan documents if it signs the plan term sheet.
• Paul R. Tuft, the debtor's director and shareholder, and Tuft's affiliates may receive no release, exculpation, injunction or indemnity under the plan, and the credit agreement's carve-out expressly preserves litigation against Tuft. The plan term sheet says a matter it calls the Colorado Litigation is to be treated as the credit agreement provides, but the credit agreement as filed contains no such provision.
• The debtor stipulates that neither Axios nor the landlord is an insider or control person. The credit agreement adds that Axios is never deemed to control the borrower, and is never deemed its affiliate, subject only to the challenge rights.

Prepetition Capital Structure and Stipulations

• Prepetition senior secured debt: approximately $50.9 million as of the petition date, including accrued and unpaid interest but excluding fees, costs and expenses; the credit agreement recites that Axios is owed at least that amount.
  • The debt arises under a Main Street Priority Loan agreement dated Dec. 10, 2020, among the debtor, First Western Trust Bank and the Federal Reserve Bank of Boston, under which First Western extended a $35 million senior secured loan.
  • It is secured by liens on substantially all of the debtor's assets, including a pledge and security agreement covering all personal property.
  • Axios bought the loan from First Western under a sale and assignment agreement dated Sept. 29, 2025.
• The landlord's liens are subordinated to Axios's under a lien subordination agreement, and the plan term sheet requires that agreement to be enforced. The debtor is party to a master lease with the landlord dated Aug. 30, 2013, which the estate reserves the right to seek to recharacterize.
• The debtor's stipulations bind the debtor on entry of the final order. They are subject to the committee's challenge rights as to Axios and are without prejudice to parties other than the debtor. Under them:
  • The prepetition obligations are valid and enforceable, with no defense or offset.
  • The liens are valid, perfected and senior, and no payment to Axios is avoidable.
  • Prepetition payments came from collateral or were made in the ordinary course for reasonably equivalent value.
  • All of the debtor's cash is cash collateral.
  • The debtor waives and releases any right to challenge.

Sale Path: Plan Sponsorship and Asset Purchase

• Axios, in its sole discretion, chooses whether to acquire substantially all of the debtor's assets through the plan or through a private section 363 sale. Either way, it takes the assets free and clear through itself or a designee acquisition vehicle, which the documents call Newco, and the excluded assets stay behind for a liquidating trust.
• The plan term sheet, which binds the parties in connection with their DIP obligations, provides for:
  • Allowance of Axios's prepetition secured claim in full with full credit bid rights, and release of all estate claims against Axios, subject to a 14-day committee challenge right that the term sheet ties to the DIP documents; under the final order, that 14-day window opens only if the challenge tolling ends on an Axios funding or IMA default
  • Newco's acquisition of all assets other than the excluded assets, including assumption of the master lease as amended, or entry into an amended or new lease, under the lease agreement in principle; there is to be no novation of the 2013 master lease and no prejudice to the estate's claims against the landlord
  • Plan funding from DIP proceeds, from the excluded assets in the liquidating trust, and from excess cash under the approved budget as of the earlier of the IMA transition date and the plan effective date, excluding extraordinary receipts not reflected in the budget
  • Payment in full in cash of allowed administrative claims, including section 503(b)(9) claims not already paid; section 1129(a)(9)(C) treatment of priority tax claims; and, at the debtor's option, payment in full, return of collateral or unimpaired treatment for secured claims other than those of Axios and the landlord
  • A pro rata interest in the liquidating trust for general unsecured creditors, subject to sharing with Axios, and no recovery for equity
• Any DIP or prepetition debt that is not credit bid (or, for prepetition debt, rolled up) survives the credit bid, sale and plan. However, Axios may assert no more than $15 million against the estate or for sharing in excluded-asset proceeds, with remaining DIP obligations satisfied first. Allowed claims above $15 million are assumed by Newco as senior secured indebtedness and remain senior debt under the landlord subordination agreement unless otherwise agreed. After a sale closes, Axios may not claw back amounts paid during the case.
• Toggle: if confirmation does not or cannot occur, the debtor must promptly complete a private sale to Axios on the same economic terms for Axios and with the same excluded-asset waterfall. Axios's election of a private sale does not stop the debtor from concurrently pursuing a plan of liquidation consistent with the term sheet.
• Interim management: whichever path Axios chooses, the debtor and Axios must sign, by Nov. 10, 2026, an interim management agreement (IMA) acceptable to Axios in its sole discretion. The IMA transitions financial and operational responsibility for the hospital to Newco pending regulatory approvals; the IMA transition date is when it takes effect and Newco assumes that responsibility.
  • From signing through closing, Axios keeps all net operating profits and funds operating shortfalls through DIP advances during the budget period, solely as the budget provides, and thereafter through operating advances that constitute DIP obligations.
  • Axios assumes no pre-transition professional liability, regulatory, seismic, tax or similar liability, other than ordinary-course payables accrued consistent with the budget.
  • On the private sale path, Axios bears all hospital operating costs and takes all revenue other than excluded assets from the IMA transition date until regulatory approvals are received and the sale closes.
• Conditions to confirmation under the term sheet:
  • No repudiation of the term sheet, and no contrary plan proposed
  • Approval of the disclosure statement
  • An asset purchase agreement reasonably satisfactory to the debtor and Axios
  • Plan documents reasonably satisfactory to the debtor, Axios and, if it signs, the committee
  • No force majeure event
  • Entry of the confirmation order
• The debtor may not pursue a materially inconsistent plan without the consent of Axios and, if it signs the term sheet, the committee.
• Conditions to consummation include contemporaneous effectiveness of the sale and the related interim management or management operations transfer agreement, and no stay of the confirmation order. They also require the California Department of Public Health to issue the hospital's general acute care license to Newco, or an interim arrangement reasonably satisfactory to Axios that lets Newco operate pending issuance; Axios may waive this condition. The asset purchase agreement is to require the debtor to remit to Newco all receipts for services rendered after the management transfer agreement, including Medicare, Medi-Cal and payor receipts paid to the debtor's provider numbers pending change-of-ownership processing.
• Regulatory cooperation: after Oct. 5, 2026, within five business days of Axios's written request, the debtor must execute the notices, applications and consents needed to transfer the hospital's licenses, provider agreements, program participations and accreditations to Axios or its designee. These include:
  • The CDPH change-of-ownership application and Form CMS-855A
  • DHCS Medi-Cal and HQAF program filings
  • HCAI notices and pending seismic compliance filings
  • LA County DMH (LPS designation) and EMS agency designations
  • DEA, CLIA, pharmacy and radiologic health registrations
  • Assignment of managed care, payor and graduate medical education participating-site agreements
  The debtor must also keep those authorizations in good standing and timely file Medicare and Medi-Cal cost reports, including any terminating cost report.
• The plan term sheet attached to the credit agreement carries signature blocks for the debtor, Axios and the official committee, all of which are unsigned.

Credit Bid

• Floor: at least $40 million. Under the final order, Axios may credit bid all or any portion, but not less than $40 million, of the DIP obligations, including the roll-up subject to the challenge rights. It may do so directly or through acquisition vehicles, in any sale or foreclosure of DIP collateral, including under section 363, under a plan, under the UCC or by a Chapter 7 trustee. Separately, Axios as prepetition senior lender may credit bid the prepetition obligations, subject to the challenge provisions. The debtor agrees not to challenge either right.
• The credit agreement requires any credit bid in the asset purchase to be at least $40 million of DIP obligations, including the commitment fee, the roll-up and operating advances, and bars any credit bid from including the excluded assets. The final order separately excludes the excluded assets, including avoidance actions, from any credit bid by Axios or its affiliates.
• The debtor waives any objection to the exercise or amount of Axios's credit bid. Other parties have until seven days before the sale or plan hearing, or as the court orders, to object; otherwise the bid is deemed valid and enforceable.
• No challenge limits the credit bid absent a final, non-appealable order fixing the specific amount of DIP obligations that may not be credit bid.

Excluded Assets and Liquidating Trust Waterfall

• Axios may not recover more than $15 million in aggregate from the excluded assets in any scenario, whether or not a plan or private sale is consummated. The excluded assets, with their proceeds, consist of:
  • The debtor's interests in or related to Pacific Gardens Medical Center; the credit agreement describes the debtor as having a potential interest in or ownership of Pacific Gardens Medical Center, LLC
  • Chapter 5 causes of action; however, absent a consensual resolution with the landlord, all estate claims against the landlord are retained and may be prosecuted by Newco after the effective date as estate representative. Those claims include recharacterization of the master lease and claims affecting title to or characterization of the site. Net cash recoveries on Chapter 5 claims against the landlord go to the trust waterfall, and all other relief goes to Newco.
  • Other litigation claims, including claims against directors, officers and other affiliated or related parties
  • Rights and claims under director and officer insurance policies
  • QAF delta: excess QAF revenue generated by successfully reducing asserted setoffs or recoupments beyond the budgeted QAF amount, provided it does not impair future QAF receipts
  • Cash on hand as of the earlier of the IMA transition date and the plan effective date, under ordinary course operations (with no discounts taken to accelerate payments), excluding cash from QAF funds not identified in the budget and from QAF delta
• On entry of the final order, Axios released its DIP liens on the excluded assets so the debtor can hold them in trust, monetize them and distribute the proceeds under the agreed sharing. The final order also frees them of all liens and claims of Axios and the landlord, including adequate protection liens and claims, for the benefit of general unsecured creditors. It deems them gifted to the estate for those creditors, excludes them from any sale, and directs that they be contributed to the liquidating trust on the plan effective date. The DIP superpriority claim and adequate protection claims reach them only through the waterfall.
• Net proceeds, after the costs of realizing the excluded assets, are distributed as follows:
  • First, $1 million to the estate or liquidating trust for holders of allowed general unsecured claims and/or expenses
  • Then, 50/50 between Axios and unsecured creditors until Axios has received $4 million; the credit agreement frames this tier as running until $8 million of net proceeds is realized, with each side receiving $4 million
  • Then, 75% to unsecured creditors and 25% to Axios until Axios has received a total of $15 million ($4 million plus $11 million)
  • Thereafter, all net proceeds to unsecured creditors
• The final order bars any party, including a Chapter 7 or Chapter 11 trustee, from challenging the excluded assets or the allocation of their proceeds.
• The liquidating trust has a three-member oversight committee, with two members selected by the committee and one by Axios. The committee selects the trustee in consultation with the debtor and Axios.

Milestones

• Plan confirmation is due by Dec. 8, 2026 if Axios elects the plan path. Under the credit agreement and its asset purchase terms, the debtor must meet the following deadlines unless Axios extends or waives them:
  • Oct. 5, 2026: file a motion under section 365(d)(4)(B)(i) to extend the deadline to assume or reject the master lease
  • Oct. 28, 2026, or a later date Axios and the landlord agree: a standing trigger rather than a debtor obligation. If no lease agreement with the landlord is reached by then, or the landlord repudiates or abandons the lease agreement in principle, the committee and Axios are each deemed to have standing to sue the landlord on all estate claims, including recharacterization of the master lease, and the bar on using DIP proceeds for that litigation is deemed terminated
  • Oct. 30, 2026: entry of an order extending the lease assumption deadline through a date no earlier than Jan. 29, 2027
  • Nov. 10, 2026: execution of the IMA, or a later date agreed in writing
  • Dec. 8, 2026: confirmation of a plan consistent in all respects with the plan term sheet and reasonably acceptable to Axios, if Axios elects the plan path, extendable by mutual written agreement; the debtor must use commercially reasonable efforts to confirm the plan by that date in any event
  • 30th day after Axios elects the private sale path: consummation of the asset purchase, extendable by mutual written agreement. If the IMA transition has not occurred, the parties enter an IMA, Axios pursues regulatory approvals, and the parties close thereafter; the asset purchase terms require the IMA by the 30th day after the election
• If a milestone is missed because the court is unavailable, it is deemed extended, with corresponding extensions of later milestones, by no more than three business days. Otherwise, a missed milestone that is not extended or waived is an event of default and, under the final order, triggers maturity.
• Landlord litigation:
  • The committee has 30 days after Axios commences any such action to join or intervene.
  • After the plan effective date, Newco handles unresolved litigation for its own benefit.
  • While the IMA is in effect and before Axios closes its purchase, any settlement or release of claims against the landlord requires Axios's written consent.
  • Neither a landlord deal nor pending litigation conditions or delays the sale. Absent agreement, the master lease is assumed and assigned to Newco solely to the extent it is a true lease. All estate claims against the landlord, including recharacterization, are preserved under section 1123(b)(3)(B) (or sold to Axios under section 363) and vested in Newco.

Budget

• The 13-week budget covers the weeks ending Oct. 3 through Dec. 26, 2026 and was approved by Axios in its sole discretion and by the court. After DIP draws totaling $21 million, it projects ending cash of negative $1.7 million in the final week, its lowest point. From beginning cash of $1.6 million, it forecasts:
  • Total receipts of $22.4 million, led by government receipts of $7.4 million and QAF of $5.2 million, followed by other receipts of $3.5 million, L.A. Care receipts of $2.9 million, DSH receipts of $1.7 million and non-government receipts of $1.7 million; the line for QAF sales to L.A. Care carries no amounts
  • Total operating disbursements of $31.6 million, including:
    • Payroll of $10.2 million, benefits of $5.3 million and payroll taxes of $4.3 million
    • Rent of $3.1 million
    • Purchased services of $1.7 million and supplies of $1.5 million
    • Seismic and bed-opening capital expenditures of $1.5 million
    • Insurance of $1.3 million and medical professional fees of $1.1 million
  • Net operating cash flow of negative $9.2 million
  • Bankruptcy-related disbursements totaling $15.1 million, with line items for estate professional fees of $14.2 million, DIP lender professional fees of $625,000 and U.S. Trustee fees of $250,000
  • Net cash flow of negative $24.3 million
• The budget schedules the following DIP draws, the largest of which are the two $7 million draws:
  • $7 million in the week ending Oct. 3
  • $4 million in the week ending Oct. 17
  • $3 million in the week ending Oct. 24
  • $7 million in the week ending Dec. 5, 2026, which the budget says is intended to support administrative expenses of plan confirmation
• The budget schedules the final $7 million advance in the week ending Dec. 5, 2026, ahead of the Dec. 8 plan confirmation milestone date on which the credit agreement makes it payable (or the private sale milestone date, if earlier).
• Ending cash falls to $67,527 in the week ending Nov. 14, rebounds to $1.9 million the next week on QAF and government receipts, falls to $435,086 in the week ending Nov. 28, recovers to $2.6 million on the Dec. 5 draw, and turns negative in the week ending Dec. 26.
• The forecast assumes ordinary course operations throughout the 13 weeks and does not contemplate the asset purchase or the IMA. It shows professional fee escrow payments deferred in the three weeks ending Nov. 28, 2026.
• The budget may be modified only by written agreement, in Axios's sole discretion. Silence, inaction, course of dealing or funding an advance is not approval of any modification or variance. The credit agreement treats the budget's line items for amounts owed to Axios as estimates that do not limit the debtor's obligations.

Permitted Variance and Reporting

• Permitted negative variance: 15% in the aggregate and 20% for each line item. It is measured only on a cumulative basis, comparing actual operating disbursements from the start of the budget period through each testing date against budgeted operating disbursements for the same period, and not on a standalone weekly basis.
• The debtor delivers a weekly cumulative variance report to Axios each Monday. Each borrowing request must represent that the debtor has not exceeded the budget, inclusive of the permitted variance, on a cumulative basis for the prior week.
• Under the final order, each Monday the debtor must deliver to Axios, the committee, the landlord and L.A. Care:
  • Weekly 13-week budget-to-actual reports explaining all variances
  • Weekly accounts receivable aging, reimbursement, payor, denial, recoupment, setoff and HQAF reports
  • Weekly reports on payroll, vendor obligations, patient census, licensure, provider agreements and material regulatory matters
  It must also give immediate notice of any event of default, material litigation or regulatory proceeding, casualty, loss of material provider status, or threatened impairment of material reimbursement rights.
• The credit agreement also requires the debtor to provide copies of court filings to Axios at least two business days before filing.

Cash Collateral

• All of the debtor's cash, wherever held, constitutes cash collateral. So do proceeds of DIP and prepetition collateral, and deposits, refund claims and retainers subject to the secured parties' liens.
• The debtor may use cash collateral under the budget and permitted variances. That authority terminates automatically, without further order, on the earliest of the maturity date, entry of an order denying or terminating it, and the occurrence or continuation of an event of default.
• Without Axios's consent, the debtor may not pledge or use cash collateral other than as the budget provides, or seek alternative or priming financing, unless the financing would repay the DIP obligations in full in cash at or before consummation.

Use of Proceeds

• Proceeds must be used in strict compliance with the budget, subject only to permitted variances and notwithstanding any other order authorizing disbursements. The credit agreement limits use to:
  • Working capital and other operating expenses through the plan effective date
  • Costs of administering the Chapter 11 case
  • Funding the budgeted escrow for court-allowed estate professional fees
  • Amounts authorized under the DIP documents or by the court
  • Reasonable fees of Axios's professionals, with all other DIP obligations paid in kind
  • Other purposes identified in the budget
• Without Axios's written consent, the final order bars using DIP proceeds, DIP or prepetition collateral, cash collateral or the carve-out to:
  • Seek financing from anyone other than Axios, unless it would first repay the DIP obligations in full in cash
  • Investigate (beyond the challenge budget), bring or support any action against Axios as DIP lender or prepetition senior lender, including avoidance actions, attacks on the validity or priority of its claims or liens, and actions that hinder enforcement of the DIP liens
  • Pay any prepetition claim over Axios's written objection, subject to authority under the DIP documents
  • Use cash collateral or dispose of DIP collateral except as permitted
• The credit agreement extends the bar to challenges involving the master lease and the prepetition sales of receivables to L.A. Care, subject to the $50,000 investigation allowance.

Carve Out

• Post-carve-out trigger notice cap: $200,000 for debtor and committee professionals.
• Under the final order, which governs over the DIP documents, the carve-out consists of:
  • Clerk and U.S. Trustee fees under 28 U.S.C. § 1930(a)
  • Allowed, unpaid fees and expenses of debtor and committee professionals incurred on or before delivery of a trigger notice, solely to the extent provided in the budget, including transaction fees but excluding success fees
  • Up to $200,000 of allowed professional fees incurred after the earlier of delivery of a trigger notice and the maturity date
• Under the final order, the trigger notice is either the occurrence of the maturity date or a written notice delivered during a continuing event of default. That notice must state that the cap is invoked, that the loans are accelerated, and that Axios will not fund further or consent to further cash collateral use.
• The credit agreement's carve-out differs from the final order's:
  • It adds up to $25,000 for Chapter 7 trustee fees under section 726(b), plus statutory interest on U.S. Trustee fees.
  • It applies the budget limit only to committee professionals.
  • It defines the trigger notice as a written notice that may be delivered only after an event of default.
  • It states that the carve-out creates no additional funding obligation for Axios.
• The final order bars use of the carve-out or DIP proceeds to challenge or sue Axios or the landlord as prepetition secured parties, except as the order provides. The credit agreement's carve-out excludes fees for litigation against the debtor, Axios, L.A. Care or the landlord, except up to $50,000 of DIP proceeds, and expressly preserves litigation against Paul R. Tuft.
• Professional fee escrow: each week, the debtor wires into an escrow account set up by its claims agent, Verita, the amounts in the budget's professional fee line items for that week.
  • An initial catch-up for amounts accrued before the initial advance is also permitted, but aggregate pre-trigger funding may not exceed the budgeted aggregate, and after a trigger notice only the fixed $200,000 cap may be added.
  • The escrow is outside Axios's control and liens, and it is used only to pay allowed professional fees without capping them.
  • Axios's liens attach to any residual, which reverts to Axios until it is paid in full and then to the debtor.
• The debtor may keep funding and paying from the escrow even after an event of default, a trigger notice or termination of the DIP documents, without any obligation on Axios to advance further. After a default, the credit agreement lets the debtor use new money proceeds or cash collateral, subject to the budget, to fund the carve-out and the escrow.
• Nothing in the final order caps professional fees or U.S. Trustee fees payable from sources other than DIP or prepetition collateral.

Securities and Priorities

• Axios holds a section 364(c)(1) superpriority administrative claim for all DIP obligations, including the roll-up; the roll-up portion is subject to the challenge rights. The claim is senior to every other superpriority claim in the case and subordinate only to the carve-out, and it reaches the excluded assets only through the agreed waterfall.
• DIP liens cover all of the debtor's property other than the excluded assets, subject only to the carve-out and prior permitted liens, with the following priorities:
  • Section 364(c)(2): first-priority liens on property unencumbered at the petition date
  • Section 364(c)(3): junior liens on property subject to valid, perfected, unavoidable third-party liens existing at the petition date, other than the liens being primed
  • Section 364(d)(1): first-priority priming liens on property subject to the liens of Axios and the landlord as prepetition secured parties, which also prime any adequate protection liens granted on account of those liens
• Axios consented to the priming of its prepetition liens. The final order also recites the prepetition secured parties' agreement, with the landlord's consent, to subordinate their liens to the DIP obligations, the carve-out and the DIP liens. Once the roll-up takes effect, the DIP liens securing the DIP obligations, including the roll-up, are deemed to replace the liens securing the prepetition senior loan, subject to the challenge rights.
• Net proceeds of any disposition of DIP collateral go first to repay the DIP obligations in full, subject to the carve-out and the challenge rights.
• Until the DIP is paid in full in cash, the debtor may not seek to prime the DIP liens or Axios's prepetition liens, or seek any administrative claim senior to or pari passu with the DIP superpriority claim and adequate protection liens, unless the proposal would pay the DIP in full in cash. The only exceptions are the excluded assets and the carve-out.

Avoidance Actions

• Chapter 5 causes of action go to unsecured creditors as excluded assets. Axios released its DIP liens on them on entry of the final order, the final order excludes them from any credit bid, and their net proceeds are shared under the waterfall, in which Axios's share is capped at $15 million.
• The credit agreement's collateral grant reached avoidance-action proceeds and recoveries, but not the actions themselves, only until entry of a final order.
• The debtor releases avoidance actions against Axios in both its DIP lender and prepetition senior lender capacities, subject to the committee's challenge rights. Chapter 5 claims against the landlord are retained for prosecution by Newco, and net cash recoveries on them go to the liquidating trust waterfall.

Adequate Protection

Prepetition Secured Parties (Axios and the Landlord)

• Replacement liens on the same types of collateral as the prepetition collateral, other than the excluded assets, junior only to the DIP liens, the DIP superpriority claim, the carve-out and valid senior liens permitted under the prepetition loan documents; these liens are subject to the challenge rights
• Section 507(b) superpriority claims, junior to the DIP obligations, the DIP superpriority claim and the carve-out, with recourse to all property other than the excluded assets
• Payment of Axios's reasonable postpetition fees and expenses, including those of counsel to Axios as prepetition senior lender, excluding acquisition-related costs
• All protection is granted to the extent of any diminution in value of the prepetition collateral from the petition date.

L.A. Care

• L.A. Care's protection is contingent. If its prepetition purchase agreements are finally determined, after a successful challenge under the L.A. Care sale order, to be secured loans rather than true sales, it receives adequate protection as a prepetition secured party for any diminution in value. In exchange, its interest is subordinated to the carve-out, primed by the DIP liens and subordinated to the adequate protection superpriority claims. The final order otherwise leaves the L.A. Care sale order, including its stipulations and releases, intact.

Challenge Rights, Releases and Indemnity

• Challenge deadline: the challenge rights are tolled until the earlier of the closing of a private sale and the effective date of a confirmed plan. At that point they are deemed waived and released under the plan or sale, consistent with the plan term sheet.
• The challenge rights consist of the committee's right to challenge the stipulations and releases, and the right of the committee or Axios to file a standing motion, as the L.A. Care sale order permits, to challenge prepetition transactions between the debtor and L.A. Care. The debtor waived its own challenges as of the petition date.
• Springing window: the tolling ends if all of the following occur:
  • The plan is not confirmed.
  • Axios either fails to fund under the facility or fails to perform a material operational duty or material financial obligation under the IMA.
  • The failure continues three business days after Axios's counsel receives written notice from the debtor or the committee, copied to L.A. Care.
  • The failure causes the hospital a negative financial impact above $500,000.
  Axios declining to fund an advance whose conditions are unmet, or after a debtor default, is not a failure to fund. If tolling ends, the committee (or Axios and the committee, as to L.A. Care) has 14 days after Axios's counsel receives written notice of the continuing breach to commence a challenge, and the right terminates as to each party if that period lapses without one.
• Pending any such challenge, Axios escrows recoveries on its collateral in excess of the new money loans and the commitment fee. If a challenge succeeds, damages first reduce Axios's $15 million allowed claim against the liquidating trust, to offset the harm to unsecured creditors, in an amount the court sets that does not exceed the amount actually due and unfunded under the budget or the IMA. Any excess damages reduce Axios's remaining claim against the estate.
• Procedure:
  • The committee has derivative standing to challenge Axios's prepetition claims and liens by an adversary complaint or contested matter that identifies each challenged lien, obligation, payment or transaction with particularity. Rule 2004 requests, discovery requests, motions to extend, objections and reservations of rights do not count as challenges.
  • The roll-up remains a valid DIP obligation until a final, non-appealable order sustains a challenge as to a specifically identified portion.
  • Challenges against L.A. Care must comply with the L.A. Care sale order.
  • No extension is effective without the written consent of Axios or L.A. Care, as applicable.
• Challenge budget: up to $50,000 in aggregate of DIP proceeds, collateral, cash collateral and carve-out, for the committee to investigate challenges against Axios and its releasees and the validity, priority and extent of Axios's prepetition liens.
  • It is a hard cap, usable solely for an initial investigation by committee professionals.
  • It may not be used to seek an extension or appeal, to conduct discovery beyond what the investigation reasonably requires, to challenge the new money loans, or to pursue anyone other than the Axios releasees.
  • Unused amounts cannot be reallocated without Axios's consent.
  • The credit agreement's version of the $50,000 allowance also covers investigating challenges against the master lease landlord and the obligations owed to it.
• The plan term sheet adds that, except as the credit agreement provides, neither Axios, the committee nor the liquidating trust will challenge L.A. Care over the $7.5 million of QAF receivables covered by the 2026 prepetition agreements. L.A. Care is a released party under the plan or private sale, effective at the earlier of plan effectiveness and private sale closing.
• Releases: on entry of the final order, and subject to the challenge rights, the debtor releases Axios from all claims arising before the petition date, including all avoidance actions, in both of the following capacities:
  • As DIP lender, together with its affiliates and predecessors and their officers, directors, employees, owners, advisors, attorneys and other representatives
  • As prepetition senior lender, with the same related parties
  Claims finally adjudicated to result from actual fraud, gross negligence, bad faith, self-dealing or willful misconduct are excepted. The prepetition release covers only conduct through entry of the final order and does not reach Axios's ongoing obligations under the prepetition loan documents.
• The credit agreement carries its own release of Axios and its related parties, subject only to the challenge rights. It covers matters on or before the agreement's date arising from the DIP documents, the prepetition loan, the Chapter 11 case or the DIP orders, and adds a waiver of fiduciary-duty claims. The final order governs over the DIP documents in any inconsistency.
• The debtor indemnifies Axios as DIP lender, except for losses resulting from actual fraud, gross negligence, bad faith or willful misconduct. It owes no indemnity or reimbursement for losses arising from a successful challenge.

Waivers

• The final order grants:
  • Section 506(c): no surcharge of administrative costs against Axios, the prepetition secured parties, the DIP or prepetition collateral, or the carve-out without the consent of Axios and the prepetition secured parties and, for the carve-out, of its professional beneficiaries; the waiver does not alter the challenge budget
  • Section 552(b): waiver of the equities-of-the-case exception for the prepetition secured parties
  • Marshaling: Axios and the prepetition secured parties are not subject to marshaling, and no other party may direct remedies or marshal collateral after an event of default

Prepayments

• Voluntary prepayment is permitted at any time, without premium or penalty, on three business days' notice and with accrued interest.
• The credit agreement requires mandatory prepayments from:
  • QAF receipts other than QAF delta, except budgeted QAF program 8 or 9 funds, which the debtor may use as budgeted
  • 100% of net cash proceeds of dispositions and of casualty or condemnation events, other than excluded assets, within three business days; the debtor may instead reinvest insurance proceeds in repair or replacement
  • 100% of net cash proceeds of debt not permitted under the agreement, or of equity issuances, within three business days
• Prepayments and payments at maturity are applied first to fees, expenses and indemnities, then to accrued interest other than PIK interest already capitalized, and then to principal.

Key Covenants

• QAF receivables:
  • The debtor may not sell, factor, borrow against, settle or otherwise dispose of any HQAF receivable or its proceeds without Axios's consent, which is in its sole discretion, plus a court order if required.
  • It may not enter future sale or financing transactions with L.A. Care or anyone else involving HQAF receivables.
  • Exception: if a carve-out trigger notice is delivered, or if the plan is not confirmed and the alternative private sale does not occur, Axios as DIP lender and prepetition senior lender consents to advances against or sales of HQAF receivables. The proceeds are to fund reasonable, necessary and documented costs, excluding legal fees, of safely closing the hospital, as determined in consultation with Axios, and any excess goes to Axios.
• The debtor must preserve all material licensure, provider agreements, reimbursement rights and government program participation. It may not dispose of any material receivable or reimbursement right without Axios's consent.
• Without Axios's written consent, the debtor may not assume, reject, extend, amend or modify the master lease, or agree to any cure amount or adequate assurance for it. It may reject other contracts and leases only after notice to and consultation with Axios.
• The debtor may make no critical vendor or other prepetition unsecured claim payments, no section 503(b)(9) payments, and no management incentive or section 503(c) payments unless the court approves them after notice and a hearing. If they are funded from borrowings, Axios must also approve them and they must be within the budget.
• Capital expenditures must follow the budget, except those needed for immediate life-safety issues or regulatory requirements, which require immediate notice to Axios. Payments to affiliates need Axios's consent, and payments to officers, directors and employees are limited to budgeted amounts.
• The debtor may not incur debt pari passu with or senior to the DIP, form subsidiaries, make restricted payments, or amend the DIP order without Axios's consent. Fundamental changes and dispositions other than permitted ones require a final, non-appealable order acceptable to Axios. Standard affirmative covenants on existence, insurance, books, inspection, taxes, ERISA and environmental compliance apply.
• The debtor may not commence any adversary proceeding, contested matter or other action against Axios arising from the prepetition credit documents or the related transactions, and may not apply, without Axios's consent, for any superpriority claim or lien pari passu with or senior to the DIP obligations, the prepetition liens or Axios's adequate protection liens.

Events of Default

• Events of default under the credit agreement are also events of default under the final order unless Axios waives them in writing. The case-specific triggers include:
  • Failure to pay principal, interest or lender expenses within two business days of the due date, or other amounts within six business days after knowledge or notice
  • Breach of any affirmative or negative covenant (milestones carry their own trigger), or breach of any other term left unremedied five business days after notice
  • Any milestone not met when required, unless extended or waived
  • Cross-default on other debt or guarantees above $50,000, and uninsured judgments above $50,000 that remain unstayed for 45 consecutive days
  • Appointment of, or the debtor's application for, a trustee or an examiner with expanded powers; conversion to Chapter 7; or dismissal without payment of the DIP in full in cash
  • Confirmation of a plan that does not provide for all of the following: payment of the DIP in full in cash by the effective date (or, for the plan, treatment consistent with the plan term sheet and the asset purchase terms); continuation of Axios's liens through the effective date; and consummation of the asset purchase with Newco. The last requirement does not apply if the court has already approved the private sale motion and the IMA transition has occurred.
  • Any order entered without Axios's consent that modifies the DIP orders, grants administrative priority equal or senior to the DIP obligations (other than certain allowed administrative expenses), or grants non-permitted liens on DIP collateral
  • Stay relief, not stayed pending appeal, granted to any creditor on a claim of $100,000 or more
  • An application by the debtor, or by another party and not contested by the debtor in good faith, for an order impairing DIP collateral, appointing a trustee, or converting or dismissing the case
  • Any application, without Axios's consent, for cash collateral use, DIP collateral use or lien-secured financing
• Standard defaults for misrepresentation, other insolvency proceedings and invalidity of the DIP documents or liens also apply.

Remedies

• Notice period: five business days. Upon an event of default, Axios has no obligation to advance or to consent to cash collateral use, and may accelerate the loans and terminate the commitments.
  • After five business days' written notice to the debtor, committee counsel, the prepetition secured parties and the U.S. Trustee, Axios may exercise all remedies.
  • The automatic stay is deemed terminated unless a party obtains a contrary order before the notice period expires, and a hearing on the stay may be sought on an expedited basis.
  • The credit agreement lets the debtor attempt a cure during the notice period.
• If the notice period expires with no stay enforcement order, Axios as prepetition senior lender may deliver exclusive-control notices under prepetition deposit account control agreements for its own benefit and as DIP lender. That relief is limited to implementing exclusive control, and the final order does not require any sweep of funds before the notice period ends.
• Axios's setoff rights exclude accounts used exclusively for payroll, payroll taxes or employee benefits. Post-default collections are applied to expenses and fees, then to accrued interest other than capitalized PIK interest, then to principal.

Documentation

• The credit agreement's cover dates it Oct. 15, 2026, but its preamble leaves the date blank and its signature page is unsigned.
• The credit agreement's schedules of tax payments, labor matters, existing liens, existing investments and existing indebtedness are each marked as to come; the existing-liens schedule feeds the definition of permitted liens.
• A note in the representations article states that the lender will review the comments to that article and the representations once all comments have been received.