Pacifica of the Valley Corporation - Chapter 11 DIP Terms

DIP Terms

Borrower / Guarantors

• Pacifica of the Valley Corporation d/b/a Pacifica Hospital of the Valley, as borrower; no guarantors
• The debtor operates a 231-bed safety net acute care hospital in Sun Valley, Calif., together with a 98-bed subacute skilled nursing unit, a behavioral health urgent care clinic and a medical surgical program, employing approximately 697 people as of the July 4 petition date and drawing roughly 85% of revenue from Medi-Cal; it filed Chapter 11 on July 4 after COVID-19 losses, rising labor costs, state-mandated seismic retrofit obligations and delayed Hospital Quality Assurance Fee and Disproportionate Share Hospital reimbursements produced a liquidity crisis.

Agent / Lender

• Axios Capital Solutions, LLC, or one or more of its designated affiliates, successors or assigns, as DIP Lender; no DIP agent
• Axios is also the prepetition senior lender, having purchased the debtor's Main Street Priority Loan from First Western Trust Bank in November 2025, so it consents to the priming of its own prepetition liens; the priming liens also reach the landlord's asserted liens, but the landlord is deemed to consent through its prepetition subordination agreement with Axios, so the debtor faces no priming litigation against an objecting creditor.

DIP Commitments

• $52.5 million senior secured superpriority multi-draw term loan facility consisting of:
  • $21 million of new money term loans, advanced in four tranches:
    • $7 million initial advance upon entry of the interim order
    • $4 million upon entry of the final order
    • $3 million upon the debtor's filing of the plan or private sale motion
    • $7 million upon the earlier of the plan confirmation milestone and the sale closing milestone
  • Up to $31.5 million roll-up of the prepetition senior loan obligations at 1.5x each dollar of new money actually advanced
• Interim availability is $7 million of new money plus $10.5 million of roll-up, for $17.5 million in the aggregate; the remaining $14 million of new money, and the roll-up that accompanies it, becomes available only after entry of the final order and as each later tranche's conditions are met.
• The motion's summary of requested relief and the Turnbull declaration describe the $52.5 million facility as consisting of the $21 million of new money, a $2.1 million commitment fee and the roll-up, components that at the full $31.5 million roll-up would total $54.6 million; the motion's term chart and the interim order instead state the facility comprises only the $21 million of new money and up to $31.5 million of roll-up, with total outstanding principal not to exceed $52.5 million.
• The DIP term sheet's own "DIP Facility" caption describes a multi-draw facility in the aggregate principal amount of $21 million, reflecting the new-money component only.
• As a condition to the debtor's execution of the term sheet and to entry of the interim order, Axios must deliver proof of funds by Sept. 28, 2026 showing immediately available, unrestricted funds of not less than $26 million, or a binding funding commitment from a creditworthy affiliate, on a professionals'-eyes-only basis to counsel for the debtor and the committee.
• Houlihan Lokey's Andrew Turnbull states that Axios, on request, provided information on its financial capacity to fund the facility, which he believes is sufficient to support the debtor's conclusion that Axios can fund the contemplated amounts.

Roll-Up

• Prepetition secured debt converts to DIP obligations at 1.5 times each dollar of cash actually advanced postpetition, automatically and as each advance funds, capped at $10.5 million under the interim order and $31.5 million on a final basis.
• The roll-up is a refinancing and continuation rather than a novation, satisfaction or discharge, and the rolled obligations remain senior indebtedness for purposes of any subordination, intercreditor or similar agreement benefiting the holder of the prepetition secured debt; the motion states that upon incurrence of the roll-up the corresponding portion of the prepetition obligations is automatically and irrevocably deemed satisfied in full.
• The interim order provides that the roll-up is consideration solely for the DIP Lender's agreement to extend the DIP loans and not on account of the prepetition loan obligations, and that Axios would not have consented to fund without it.

Interest Rate

• 12% per annum from the date of borrowing until repaid, payable in kind monthly in arrears by increasing the principal amount of the DIP loans
• Default Rate Increase: 4% per annum above the rate otherwise accruing
• Interest accrues on a 360-day year for actual days elapsed.

Fees

• Commitment Fee: 10%, capped at $2.1 million under the interim order, fully earned and non-refundable upon entry of the interim order; the term sheet applies the 10% to its $21 million new-money facility, consistent with the cap, though the motion's rates-and-fees argument describes the fee as 10% of the principal of the $52.5 million facility.
• The debtor pays all reasonable and documented prepetition and postpetition out-of-pocket costs and expenses of the DIP Lender, including counsel to the prepetition senior lender and fees incurred negotiating the DIP and plan term sheets; those amounts are not subject to the budget, require no fee application or U.S. Trustee guideline review, and are payable within 14 days of a summary invoice, with the debtor or the U.S. Trustee able to file an objection limited to reasonableness if unresolved in that period. Although the term sheet ties fee reimbursement to review procedures allowing U.S. Trustee and committee review, the interim order gives the committee no objection right, and its requirement that summary invoices be copied to the U.S. Trustee appears only in brackets.
• The DIP Lender may not seek reimbursement for fees or expenses incurred in connection with acquiring the hospital or transferring its operations, including regulatory approval, an interim management arrangement or landlord lease negotiation; negotiating or documenting any asset purchase agreement; or any other activity in furtherance of its acquisition of the debtor's assets. Its right to reimbursement for expenses incurred to preserve, monitor, enforce, protect or realize upon its collateral, including in a court-approved sale process or credit bid, is preserved.

Maturity

• The interim order sets maturity at the earliest to occur of:
  • Dec. 11, 2026, extended to the effective date of the plan and closing of the sale of the debtor's assets to the DIP Lender or its designee if a confirmation order reasonably acceptable to the DIP Lender approving the plan, disclosure statement and related sale is entered
  • The date a milestone is missed and not waived by the DIP Lender
  • Consummation of any sale of all or substantially all of the debtor's assets under section 363
  • Acceleration of the DIP loans and termination of the commitments under the DIP documents, including on an event of default
  • The effective date of a plan of reorganization
  • Appointment of a Chapter 11 trustee
  • Conversion of the case to Chapter 7 or dismissal
• The outside maturity date differs across the documents on the same term: the interim order carries Dec. 11, 2026 (subject to the confirmation-order extension), the motion's summary chart carries Dec. 4, 2026, and the DIP term sheet carries Dec. 8, 2026.
• Mandatory prepayment: HQAF funds received by the debtor must first pay down the DIP loans, except for HQAF Program 8 or 9 funds identified in the approved budget (excluding the QAF Delta), which the debtor may apply in accordance with that budget.

Milestones

• Subject to extension with the DIP Lender's consent, and with failure to satisfy any milestone constituting an event of default:
  • Interim order entered in form acceptable to the DIP Lender no later than Sept. 29, 2026
  • Motion under section 365(d)(4)(B)(i) to extend the deadline to assume or reject the master lease filed no later than Oct. 5, 2026, with an order extending that deadline through a date no earlier than Jan. 29, 2027 entered no later than Oct. 30, 2026
  • If the DIP Lender elects a private sale, initial closing within 30 days of that election, with the parties entering an interim management or similar agreement while Axios obtains regulatory approvals and closing thereafter
  • If the DIP Lender elects to acquire through the plan, confirmation of a plan consistent with the plan term sheet and otherwise reasonably acceptable to the DIP Lender by Dec. 8, 2026 under the DIP term sheet, which also requires the debtor to use commercially reasonable efforts to obtain a confirmation order by that date; the motion's summary chart states Dec. 4, 2026 for this milestone

Sale/Plan Election and Interim Management

• Axios may elect to buy the debtor's assets either under the plan or through a private sale under section 363; if it elects a private sale, the sale must close by the sale closing milestone and Axios bears all hospital operating costs from closing. If plan confirmation does not or cannot occur, the plan term sheet requires the debtor to promptly execute a private sale to Axios on the same economic terms for Axios and the same Excluded Asset waterfall, and a private-sale election does not bar the debtor from concurrently pursuing a plan of liquidation.
• Under either path, the debtor and Axios must enter into an interim management or similar agreement, by a date the term sheet leaves to be determined, under which Axios keeps the hospital's net operating profits and funds its operating shortfalls until closing, within the budget period through DIP advances and thereafter through additional advances that constitute DIP obligations, which the term sheet calls Operating Advances; Axios assumes no pre-agreement professional liability, regulatory, seismic, tax or similar liabilities, other than ordinary-course payables that fall due after the budget period and before closing.

Cash Collateral

• All of the debtor's cash, wherever located, including cash in its deposit and other accounts, whether as original collateral or proceeds of other prepetition senior collateral, constitutes cash collateral; the interim order's definition also reaches cash proceeds of dispositions of real or personal property subject to a DIP or prepetition lien, deposits, refund claims and retainer rights, cash and cash equivalents in any depository or other account, and the proceeds of any disposition of DIP or prepetition collateral.
• Axios has consented to the use of cash collateral on the terms of the DIP documents and the proposed interim order; authority terminates automatically, without further order, on the earliest of the maturity date, entry of an order denying or terminating the debtor's authority, or the occurrence or continuation of an event of default.
• The debtor had not conferred with the landlord or L.A. Care before filing but submits no further consent is needed: the landlord is bound by a prepetition subordination agreement barring it from contesting cash collateral use approved by Axios, and the debtor has stipulated, subject to the challenge period under the L.A. Care sale order, that L.A. Care validly purchased $7.5 million of HQAF receivables prepetition and therefore holds no cash collateral interest in them.

Use of Proceeds

• Proceeds may be used solely, and in accordance with the budget subject to permitted variances, for working capital and other ordinary-course operating expenses; the costs and expenses of administering the case; funding the professional fee escrow contemplated by the budget for court-allowed estate professional fees; amounts expressly authorized under the DIP documents or by the court; documented and reasonable fees and expenses of the DIP Lender's professionals in Axios's lender capacity, including negotiating and preparing the DIP documents, with all other obligations under the facility paid in kind; and other purposes identified in the budget.
• No proceeds may be used to investigate, challenge, object to, contest or raise any defense to the validity, security, perfection, priority, extent or enforceability of amounts due under, or the liens or claims granted in connection with, the prepetition secured debt, the master lease with the landlord or the prepetition receivable sales to L.A. Care, except as specifically provided in the DIP documents.
• The interim order further bars use of proceeds, DIP or prepetition collateral or the Carve-Out to seek alternative postpetition financing other than from the DIP Lender unless it repays the DIP obligations in full in cash; to assert or prosecute any challenge or adverse action against the DIP Lender, the DIP Lender releasees or the prepetition senior lender, including avoidance actions and actions attacking the DIP or prepetition liens; to pay a prepetition creditor's claim over the DIP Lender's written objection; or to use cash collateral or dispose of DIP collateral other than as permitted.

Securities and Priorities

• The interim order grants the DIP Lender valid, enforceable and fully perfected liens under sections 364(c)(2), 364(c)(3) and 364(d) on substantially all of the debtor's now-owned and after-acquired assets, including cash, accounts and accounts receivable, inventory, property, plant and equipment, commercial tort claims, intellectual property, contract rights, tax refunds, deposits, general intangibles, real estate, leaseholds, intercompany claims, all claims and causes of action and their proceeds, insurance proceeds, cash collateral, and all cash and non-cash proceeds, rents and products of the foregoing, subject only to prior payment of the Carve-Out and any prior permitted liens.
• Priorities:
  • Superpriority administrative expense claims under section 364(c)(1) senior to all other claims against the debtor, including section 503(b), 506(c) and 507(b) claims, subordinate only to the Carve-Out and, as to the roll-up, subject to the reserved challenge rights
  • First-priority senior liens under section 364(c)(2) on DIP collateral not subject to a valid, perfected and unavoidable lien as of the petition date, which the term sheet specifies includes all proceeds of HQAF receivables and avoidance and preference causes of action, subject to the DIP Lender's agreement as to Excluded Assets; the interim order limits the avoidance-action lien to proceeds and recoveries, effective only on entry of the final order
  • Junior liens under section 364(c)(3) on DIP collateral subject to prior permitted liens
  • First-priority senior priming liens under section 364(d)(1) on all DIP collateral securing the prepetition secured debt, other than property subject to prior permitted liens, which also prime any postpetition adequate protection liens granted on account of the primed liens; on effectiveness of the roll-up, the prepetition liens securing the rolled obligations are deemed replaced by the DIP liens
• The DIP liens are deemed perfected on entry of the interim order without any filing or recording, and the DIP Lender may nonetheless file financing statements describing the collateral as all assets of the borrower, with relief from the automatic stay to do so.
• Net proceeds of any disposition of DIP collateral are applied first to repay the DIP obligations in full, subject to the Carve-Out and the reserved challenge rights.
• The debtor may not seek or support alternative financing or any priming proposal, including future receivable sales or financings with L.A. Care or any other party involving HQAF receivables, or pledge cash collateral outside the approved budget, without the DIP Lender's prior written consent unless the DIP obligations are repaid in full in cash at or before consummation.

Avoidance Actions and Excluded Assets

• DIP collateral includes the proceeds and property recovered on chapter 5 causes of action, including sections 544, 545, 547, 548, 549, 550 and 553, and analogous state-law claims, but excludes the avoidance actions themselves; liens on avoidance action proceeds take effect only upon entry of the final order, as does the superpriority claim's recourse to those proceeds. The motion's Rule 4001 summary chart nonetheless reports liens on avoidance actions as "N/A."
• The DIP Lender has agreed that no credit bid will include the Excluded Assets, defined as the debtor's interests in or related to Pacific Gardens Medical Center; Chapter 5 causes of action; other litigation causes of action; director and officer insurance claims; the QAF Delta, being QAF revenue above the budgeted QAF that the debtor generates by successfully reducing asserted setoffs or recoupments, provided future QAF receipts are not impaired; and the debtor's ordinary-course cash on hand as of the effective date, excluding cash from QAF funds not identified in the approved budget.
• Excluded Assets vest in a liquidating trust and, on the plan effective date, are released from all DIP liens, adequate protection and replacement liens, superpriority claims and section 507(b) claims held by or for Axios, and are contributed free and clear of those interests. No Excluded Asset may be compromised, settled, released, abandoned or disposed of in a manner reasonably expected to impair the DIP Lender's rights without its prior written notice and consent.
• Net proceeds of Excluded Assets, after costs of prosecution and realization, are distributed: the first $1 million retained by the estate or litigation trust for holders of allowed general unsecured claims and payment of expenses; then 50/50 between the prepetition senior lender and general unsecured creditors until the lender receives $4 million; then 75% to general unsecured creditors and 25% to the lender until the lender has received $20 million in total, after which all further net proceeds go to general unsecured creditors. If the DIP Lender consents to a plan containing an alternative waterfall, that waterfall governs.

Credit Bid

• The DIP Lender, together with its affiliates, designees and acquisition vehicles, may credit bid under section 363(k) the full amount or any portion of the DIP obligations, including principal, accrued interest, fees, expenses, protective advances and other obligations, inclusive of the roll-up subject to the reserved challenge rights, in any sale or disposition of DIP collateral, whether under section 363, a plan confirmed under section 1129, a UCC sale under sections 9-610 or 9-620, a foreclosure by the DIP Lender, or a sale by a Chapter 7 trustee under section 725.
• The prepetition senior lender may credit bid the full amount or any portion of the prepetition senior loan obligations against the prepetition collateral. The debtor has agreed, on behalf of itself and the estate, not to challenge these rights.
• No challenge limits the credit-bid right absent a final, non-appealable order expressly determining the specific amount of DIP obligations that may not be credit bid.
• On any sale consummated through the plan or a private sale motion, the lender must credit bid not less than $40 million of outstanding DIP obligations, including the commitment fee, roll-up and Operating Advances funded under an interim management arrangement pending closing.
• Amounts not credit bid, and prepetition secured debt neither rolled up nor credit bid, are not waived, released, satisfied or discharged, but Axios may not assert more than $20 million against the estate or for purposes of sharing in Excluded Asset proceeds, with remaining DIP obligations satisfied first; allowed claims above $20 million are assumed as senior secured indebtedness by Newco, the Axios entity or designee that acquires the debtor's assets. Following any sale through a plan or private sale, Axios may not claw back amounts paid during the case or recover more than $20 million in the aggregate from the estate or liquidating trust.

Plan Term Sheet

• The plan term sheet, attached to the DIP term sheet with signature blocks for the debtor, Axios and the committee, provides that Axios or its designee acquires all of the debtor's assets other than the Excluded Assets free and clear, including by assuming the master lease as amended or entering into a new lease under the Sept. 15, 2026 lease term sheet; Axios's prepetition secured claim is allowed in full with full credit-bid rights; and the plan is funded from DIP proceeds and the Excluded Assets in the liquidating trust.
• The plan pays allowed administrative claims, including section 503(b)(9) claims, in full in cash; leaves priority tax claims unimpaired; pays other secured claims in full, returns their collateral or otherwise leaves them unimpaired, at the debtor's option, with the Axios–landlord subordination agreement enforced; gives Axios a secured claim for DIP and prepetition obligations remaining after its credit bid, capped at $20 million against the estate and in the trust waterfall, with Newco assuming the excess; gives general unsecured creditors pro rata liquidating trust interests; and gives equity nothing.
• The liquidating trust has a three-member oversight committee, two chosen by the creditors' committee and one by Axios, and a trustee selected by the creditors' committee in consultation with the debtor and Axios.
• The plan term sheet states that the committee's retained 14-day challenge right against Axios's prepetition claim and liens will not be pursued, and that neither Axios, the committee nor the liquidating trust will challenge L.A. Care over the $7.5 million of QAF receivables sold under the 2026 prepetition agreements.
• Subject to the plan tracking the plan term sheet, Axios must vote all claims it holds or controls to accept, may not object to the plan or support any inconsistent transaction, and must support the establishment of the liquidating trust and the free-and-clear contribution of the Excluded Assets to it.
• Confirmation is conditioned on the term sheet not being repudiated and no contrary plan being proposed, disclosure statement approval, an asset purchase agreement reasonably satisfactory to the debtor and Axios, plan documents reasonably satisfactory to Axios, no force majeure event, and entry of a confirmation order; consummation requires simultaneous effectiveness of the sale and related documents and no stay of the confirmation order.
• After Axios's written request, and within a number of business days the term sheet leaves blank, the debtor must execute and deliver all filings needed to transfer the hospital's licenses, provider agreements and program participations to Axios or its designee, including the CDPH change-of-ownership application, Form CMS-855A and Medi-Cal and HQAF program filings; it must also maintain those authorizations in good standing and timely file all Medicare and Medi-Cal cost reports.

Carve Out

• Post-Carve-Out Trigger Notice Cap: $200,000 of professional fees incurred after delivery of the notice, termed the Wind-Down Carve-Out in the DIP term sheet and carrying no incremental funding obligation for the lender
• The Carve-Out also covers clerk of court and U.S. Trustee fees under 28 U.S.C. § 1930(a) and allowed professional fees of the debtor's and committee's professionals incurred on or before delivery of the trigger notice to the extent provided for in the budget, whether allowed before or after delivery.
• A Carve-Out Trigger Notice may be delivered by email following an event of default to the debtor and its counsel, the U.S. Trustee, committee counsel and the prepetition secured parties, stating that the cap has been invoked, that the DIP loans have been accelerated, and that the DIP Lender will not fund further advances or consent to further cash collateral use.
• The Carve-Out, including the Wind-Down Carve-Out, is unavailable for fees or expenses of any party incurred investigating, initiating or prosecuting claims, adversary proceedings or other litigation against the debtor, the lender, L.A. Care or the landlord, or their affiliates and representatives, including challenges to the amount, validity, perfection, priority or enforceability of, or defenses, counterclaims or offsets to, the lender's obligations and liens; the Challenge Budget described below is unaffected.
• The debtor funds a professional fee escrow with its claims agent, Verita, weekly in amounts not exceeding the professional fee line items under the budget's "Restructuring Disbursements" heading, subject to an initial catch-up escrow for amounts accrued before the initial advance; no transfer may be made after a trigger notice other than the fixed cap. The escrow is outside the DIP Lender's control and is not subject to the DIP or adequate protection liens, though the DIP liens attach automatically to any residual interest and excess proceeds revert to the DIP Lender until the DIP obligations are satisfied in full. The debtor may continue funding and paying from the escrow notwithstanding an event of default, delivery of a trigger notice or termination of the DIP documents, without obligating the lender to advance further funds.

Challenge Period and Budget

• The committee's rights to challenge the stipulations and releases and, with L.A. Care's consent, prepetition transactions between the debtor and L.A. Care are tolled through the plan effective date and, on that date, deemed waived and released under the plan; if the plan is not confirmed due to the DIP Lender's failure to fund, the committee has 14 days to commence and pursue a challenge, and the rights terminate if that period lapses without one. The DIP term sheet further requires that the failure to fund be the exclusive cause, excludes the lender's declining to fund an advance whose conditions precedent are unsatisfied or after an event of default or the termination date, and waives the challenge rights if the plan fails to confirm for any other reason; the interim order's version carries none of those three terms.
• No extension of the challenge period is effective without the prior written consent of the DIP Lender and the prepetition senior lender. The committee has derivative standing to bring a challenge against the prepetition senior lender or the prepetition senior liens on the terms of that paragraph.
• A timely challenge must be commenced by a properly filed adversary complaint or contested matter identifying with particularity each challenged lien, obligation, payment or transaction and the specific legal and factual basis for relief; a Rule 2004 examination request, discovery request, motion to extend, objection or reservation of rights does not qualify.
• Pending a final, non-appealable order sustaining a properly commenced challenge to a specifically identified portion of the roll-up, the roll-up remains a valid and enforceable DIP obligation entitled to all DIP protections, and no challenge, investigation, discovery request, grant of standing or reservation of rights affects the new money term loans or their DIP protections.
• Challenge Budget: $25,000 in the aggregate of DIP facility proceeds, DIP collateral, cash collateral and the Carve-Out, available solely for an initial investigation by committee professionals of challenges against the prepetition secured party releasees and of the legality, validity, priority, perfection, enforceability and extent of the prepetition senior liens. The cap is hard and may not be used to seek or litigate an extension of the challenge period, prosecute an appeal, conduct discovery beyond that reasonably necessary to the investigation, challenge the new money term loans or related protections, or pursue claims against any other person; unused amounts may not be reallocated without the DIP Lender's prior written consent.
• The facility is governed by a 13-week cash flow budget and funding schedule approved by the DIP Lender, in form and substance acceptable to the debtor and the lender, designed to fund a plan process culminating in December 2026. Compliance is mandatory and failure to comply is an immediate event of default. The debtor and the DIP Lender may modify the budget in writing at the lender's sole discretion while the facility remains outstanding; silence, inaction, course of dealing or funding of an advance does not constitute approval of a modification or variance.

Permitted Variance

• Beginning on the second Monday after entry of the interim order, operating disbursements are tested against the budget with permitted variances of 15% in the aggregate and 20% per line item, measured solely on a cumulative basis from the beginning of the applicable budget period through the testing date, not on a standalone weekly basis.

Budget Economics

• The 13-week forecast attached to the proposed interim order runs from the week ending Oct. 3, 2026 through the week ending Dec. 26, 2026 and opens with a beginning cash balance of approximately $1.55 million, consistent with the roughly $1.6 million of cash on hand the debtor reported as of the date of the motion.
• Across the 13 weeks, the forecast's total column shows receipts of $22.4 million against operating disbursements of $31.6 million, a net operating outflow of $9.2 million, and $15.1 million of bankruptcy-related disbursements, including $14.8 million of professional fees and $250,000 of U.S. Trustee fees, for a net cash outflow of $24.3 million before DIP draws.
• The forecast schedules the $21 million of DIP draws as $7 million in the week ending Oct. 3, $4 million in the week ending Oct. 17, $3 million in the week ending Oct. 24 and $7 million in the week ending Dec. 5, and projects an ending cash position of negative $1.73 million in the final week, after a low positive balance of roughly $67,500 in the week ending Nov. 14.
• The forecast's own footnotes state that it has not yet been agreed to by the DIP Lender, although the Chadwick declaration describes the 13-week budget as approved by the lender, and lender approval of the budget is a condition to the initial advance; the footnotes also state that the forecast assumes ordinary-course operations across the 13 weeks without giving effect to the transactions contemplated by the term sheet, excludes DIP Lender contributions to operating losses after Nov. 7, 2026 that remain under discussion, treats the fourth advance as supporting plan confirmation costs, and defers professional fee escrow payments in the three weeks ending Nov. 28, 2026.
• Near-term liquidity drivers stated in the motion and the Chadwick declaration: the debtor forecasts expenses exceeding receipts by $5.6 million over the two weeks following the filing, driven by medical malpractice insurance renewal, monthly premiums, rent, physician compensation and legally required scheduled capital expenditures, on which it is accruing $5,000 in penalties per day.

Prepetition Debt and Stipulations

• The debtor entered the Main Street Priority Loan Agreement on Dec. 10, 2020 with First Western Trust Bank and the Federal Reserve Bank of Boston, under which First Western extended a $35 million senior secured loan, secured by a pledge and security agreement covering the debtor's personal property. Axios purchased the loan in November 2025.
• Outstanding prepetition senior loan obligations are approximately $50,943,321.41 as of the petition date; the interim order states that figure is inclusive of accrued and unpaid interest but exclusive of fees, costs and expenses, while the motion's background section and the Chadwick declaration state the same amount is inclusive of accrued and unpaid interest, fees, costs and expenses.
• Subject to the challenge rights, the debtor stipulates that Axios holds valid and enforceable prepetition claims of $50,943,321.41; that those claims are secured by valid, binding, enforceable, perfected and non-avoidable liens; that the obligations and liens are not subject to avoidance, recharacterization, subordination, disallowance, reduction, offset, recoupment, counterclaim, defense or other challenge; that the debtor holds no claims or causes of action against Axios arising from the prepetition loan documents; that the assignment from First Western is valid and enforceable and Axios has standing to enforce; that neither Axios nor its principals is an affiliate under the CARES Act or the Bankruptcy Code or an insider; and that all prepetition payments to or for Axios's benefit were valid and not avoidable. The interim order makes the stipulations binding on the debtor on entry and deems it to have irrevocably waived all challenges as of the petition date; the term sheet and the motion's chart extend the stipulations to all other parties in interest on entry of the final order.
• The debtor also stipulates that prepetition payments on the obligations were made out of the prepetition collateral and/or in the ordinary course for reasonably equivalent value without diminishing property otherwise available to unsecured creditors, and that neither the DIP Lender nor any prepetition secured party is a control person or insider under section 101(31).
• Landlord: the hospital operates under a long-term master lease with Reliq Pacifica LLC, Beverly Gemini Investments, LLC, Taking the 5th, LLC and Fifth/Arizona Investors, LLC, which assert approximately $9.5 million of accrued and unpaid rent and other obligations as of the petition date and a security interest in all of the debtor's personal property, for which a UCC-1 was filed in November 2022; that lien is subordinated to Axios's interest under a Dec. 17, 2020 lien subordination agreement. The interim order treats the landlord as a prepetition secured party and deems it to have consented to the priming facility through that agreement, though the interim order and plan term sheet define the landlord as Reliq Pacifica and Beverly Gemini only, while the motion and DIP term sheet name all four entities. The debtor may not assume, reject, extend, amend or modify the master lease, or stipulate to any cure amount or adequate assurance, without the lender's prior written consent.
• L.A. Care: prepetition, the debtor sold the Local Initiative Health Authority for Los Angeles County, operating as L.A. Care Health Plan, the right to receive $7.5 million of designated future HQAF receivables for immediate cash under two 2026 purchase agreements structured as true sales, with a back-up security interest granted as a protective measure. On Aug. 3, 2026 the court entered an order [Docket No. 115] that authorized a section 363 sale of HQAF receivables to L.A. Care, granted L.A. Care a release of estate claims and administrative claims, and recorded the debtor's stipulation that the prepetition transactions were true sales, subject to a challenge period that remains pending for the committee and Axios; the plan term sheet, however, provides that neither Axios, the committee nor the liquidating trust will challenge L.A. Care over those receivables. The interim order preserves the L.A. Care sale order but controls in any inconsistency. If a successful challenge recharacterizes L.A. Care as a secured creditor with a lien on the HQAF receivables, L.A. Care has consented to the facility and would receive adequate protection as a prepetition secured party in exchange for subordination to the Carve-Out, the priming DIP liens and the adequate protection superpriority claims.

Adequate Protection — Prepetition Secured Parties

• The interim order grants the prepetition secured parties, Axios and the landlord, adequate protection for diminution arising from the incurrence and payment of the DIP obligations, use of cash collateral and other prepetition collateral, the grant of the DIP liens and superpriority claim, the subordination of the prepetition secured obligations to the DIP obligations and the Carve-Out, and imposition of the automatic stay, in each case subject to the DIP liens, the DIP superpriority claim and prior payment of the Carve-Out, consisting of:
  • Replacement liens on all DIP collateral, perfected by operation of law on entry of the interim order, subordinate only to the DIP liens, the Carve-Out and liens senior by operation of law or permitted under the prepetition loan documents
  • Section 507(b) superpriority administrative expense claims junior and subordinate in all respects to the DIP obligations and the Carve-Out, with recourse to all pre- and postpetition property and, after entry of the final order, to avoidance action proceeds
  • For Axios alone, reimbursement of actual and documented fees and expenses in its lender capacity, subject under the term sheet to review and payment procedures allowing U.S. Trustee and committee review
  • The stipulations and releases described above
• Because the DIP Lender and the prepetition lender are the same entity, the interim order records that the prepetition lender consented to the priming of its own liens; the motion adds that the lender also benefits from the roll-up, which converts a portion of its prepetition debt into DIP obligations carrying superpriority claim status and enhanced collateral coverage.

Waivers and Releases

• The waivers consist of:
  • Section 506(c): no costs or expenses of administration may be surcharged against the DIP Lender, the prepetition secured parties, the Carve-Out, the DIP collateral or the prepetition collateral, other than by the professional persons who are Carve-Out beneficiaries under the budget, without the prior written consent of the DIP Lender and the prepetition secured parties; the Challenge Budget is unaffected. Under the interim order the bar protects the DIP Lender on entry and reaches the prepetition secured parties and the roll-up only on entry of the final order, while the motion's chart and the term sheet place the entire waiver at the final order. As to the prepetition secured parties, consent to use of cash collateral stands in lieu of any section 506(c) claim.
  • Section 552(b): upon entry of the final order, the equities-of-the-case exceptions under sections 552(b)(1) and (2) do not apply.
  • Marshaling: upon entry of the final order, neither the prepetition secured parties nor the DIP Lender is subject to the equitable doctrine of marshaling or any similar doctrine, and no other party may direct the exercise of remedies or seek to control the disposition of DIP or prepetition collateral after an event of default.
• Releases: effective on entry of the interim order and subject only to the reserved challenge rights, the debtor releases the DIP Lender in its lender capacity, its affiliates and predecessors in interest and their respective officers, employees, directors, agents, representatives, owners, members, partners, advisors, shareholders, managers, consultants, accountants and attorneys, in each case solely in those capacities, from all prepetition claims, including avoidance actions, excepting liabilities determined by final, non-appealable judgment to have resulted from actual fraud, gross negligence, bad faith, self-dealing or willful misconduct; nothing relieves the DIP Lender of its funding commitments. Subject to entry of the final order and the challenge rights, the debtor grants a parallel release to the prepetition senior lender and the same categories of related parties, limited to conduct on or before entry of the final order and not extending to future conduct or ongoing obligations under the prepetition loan documents.

Covenants and Reporting

• Beginning on the second Monday after entry of the interim order, the debtor delivers weekly 13-week budget-to-actual reports with variance explanations; 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; and immediate notice of any event of default, material litigation, material regulatory notice or proceeding, casualty, loss of material provider status or threatened impairment of material reimbursement rights. Weekly liquidity reports, budget-to-actual reporting and information on plan solicitation and confirmation go simultaneously to the DIP Lender and the committee.
• The debtor must preserve all material licensure, provider agreements, reimbursement rights and governmental-program participation, and may not settle, compromise, sell, assign, factor, advance against or otherwise dispose of any material receivable or reimbursement right without the DIP Lender's prior written consent. HQAF receivables and their proceeds carry a separate consent requirement in the lender's sole discretion and, if applicable law requires, further court order; following a Carve-Out Trigger Notice, however, the DIP Lender and prepetition senior lender consent to HQAF advance or sale agreements funding the reasonable, necessary and documented costs of safely closing the hospital, excluding legal fees and determined in consultation with the lender, with excess amounts turned over to the DIP Lender.
• The debtor must prepare, file, solicit, prosecute and seek confirmation of a combined disclosure statement and Chapter 11 plan consistent in all material respects with the plan term sheet and reasonably satisfactory to the lender, and may not file, support or seek confirmation of any inconsistent plan or amendment without the lender's prior written consent. The plan contemplates the sale of the health care system to Axios, a litigation trust funded with Excluded Assets for general unsecured creditors, and funding of the case's administrative expenses.
• Until the DIP obligations are paid in full in cash, the debtor may not prime or seek to prime the DIP liens or the prepetition senior liens, or seek allowance of any administrative expense claim superior to or pari passu with the DIP superpriority claim or the adequate protection liens, other than the Carve-Out, unless the proposal would pay the DIP obligations in full in cash; it also may not use cash collateral or sell or otherwise dispose of DIP collateral except as the interim order or DIP documents permit.

Conditions Precedent

• Initial advance: documentation in form and substance reasonably satisfactory to the lender; entry of an interim order acceptable to the lender, not stayed or reversed, authorizing entry into the facility; the lender's receipt and approval of the budget; no event of default; an interim order providing that the lender has at all times acted in good faith and is entitled to section 364(e) protection; and the grant of the superpriority DIP claim and valid, perfected liens on the DIP collateral.
• Subsequent advances: the final order remaining in effect as a final, non-appealable order; no default or event that would become one with notice or lapse of time, including satisfaction of applicable milestones, with all representations and warranties true and correct in all respects; payment of all fees and expenses owing to the lender; no material adverse change in the debtor's operations, performance or properties since entry of the interim order, other than the commencement and continuation of the case, that in the lender's reasonable judgment could materially and adversely affect its rights and remedies or the debtor's ability to perform; and no repudiation or abandonment by the landlord, in the lender's reasonable judgment, of the agreement in principle reflected in the lease term sheet.
• The initial advance funds on entry of the interim order and the term sheet, each in form and substance satisfactory to the lender, but the lender has no obligation to provide any further funding without an agreed DIP credit agreement.
• The lender may waive any condition precedent at any time, by email confirmation.

Events of Default and Remedies

• Events of default include failure to comply with the budget subject to permitted variances; failure to make timely payments; incurrence of unauthorized debt; unauthorized sale of assets; breaches of representations or warranties; a change of control; documentation not in form reasonably satisfactory to the lender; failure to satisfy a milestone; and occurrence of a termination date.
• On an event of default the DIP Lender has no obligation to make further advances or consent to further cash collateral use. After five business days' prior written notice to the debtor, committee counsel, the prepetition secured parties and the U.S. Trustee, the lender is granted relief from the automatic stay to exercise its rights and remedies under the DIP documents, at law or in equity, including all remedies under the Bankruptcy Code; the stay terminates automatically at the end of that remedies notice period unless the debtor, committee, prepetition secured parties or U.S. Trustee obtains a stay enforcement order, which may be sought on an expedited basis. The lender also has immediate stay relief to perfect the DIP liens. The motion's summary chart instead describes remedies as subject to obtaining relief from the court, while the term sheet provides for their exercise without further court order.
• After the remedies notice period expires without a stay enforcement order, the prepetition senior lender, solely as a party to prepetition deposit account control agreements, has limited stay relief to deliver notices of exclusive control or activation notices confirming exclusive control of the applicable accounts for its own and the DIP Lender's benefit; depository institutions may comply without further court order and receive section 364(e) and other protections of the interim order for good-faith action. Nothing requires any sweep, transfer or application of funds before the notice period expires.

Indemnification

• The debtor indemnifies and holds the DIP Lender harmless for claims and liabilities relating to negotiating, implementing, documenting or obtaining approval of the DIP loans, including the grant of the DIP liens and any challenges or objections to the facility, excluding amounts determined by final, non-appealable judgment to have resulted from the party's actual fraud, gross negligence, bad faith or willful misconduct, and excluding any losses, claims, damages, liabilities or expenses arising from or relating to a successful challenge.
• So long as it complies with reasonable commercial lending practices, the DIP Lender bears no responsibility for safekeeping of the DIP collateral, loss or damage to it, diminution in its value, or the acts or defaults of any carrier, warehouseman, bailee or forwarding agency, except as to CERCLA liability; all risk of loss remains with the debtor.

Case Posture and Related Matters

• The debtor filed Chapter 11 on July 4, 2026 in the District of Delaware and operated for nearly three months without incremental postpetition financing; the U.S. Trustee appointed a five-member creditors' committee on July 20, 2026 [Docket No. 78], and the motion states the debtor remains in discussions with the committee and hopes to have its support before the hearing. The debtor sought interim approval at a hearing set for Sept. 29, 2026 at 11:00 a.m. (prevailing Eastern time), with objections to interim relief permitted at or before the hearing; the final hearing date and objection deadline are left blank in the proposed interim order.
• Marketing: Houlihan Lokey contacted capital providers postpetition, running the financing process in parallel with a sale process. The Axios proposal is the only actionable one received; two other postpetition financing proposals are, in their current form, not actionable and would require nonconsensual priming of Axios's liens, and the debtor concluded that even if made actionable their terms would not justify the added cost, execution risk and uncertainty. Axios was unwilling to extend the facility without priming liens or without the roll-up. The facility is contingent on transitioning hospital ownership to the DIP Lender through a plan or private sale, with the lender acquiring the hospital as consideration for its DIP claim; based on the process to date, the debtor's banker states there may not be other viable parties positioned to overbid, citing significant seismic remediation and capital expenditure requirements, turnaround execution risk and dependence on continued federal and state supplemental funding programs.
• Landlord litigation trigger: the debtor, Axios and the landlord entered a non-binding lease term sheet dated Sept. 15, 2026. If the landlord repudiates or abandons that agreement in principle, or no agreement is reached by Oct. 21, 2026, the committee and Axios are each immediately deemed to have standing to sue the landlord on all estate claims, including recharacterization of the master lease, and the restriction on using DIP proceeds to prosecute that litigation terminates; the committee must commence suit within five business days unless it reasonably determines the claim lacks merit, after which Axios may do so. Any settlement, compromise or release of those claims requires Axios's prior written consent. Neither the absence of a landlord agreement nor the pendency of that litigation conditions or delays the sale to the lender; in that event the master lease is assumed and assigned to Newco to the extent it is a true lease, the estate's claims against the landlord, including recharacterization, are preserved and vested in Newco, and any litigation unresolved at the plan effective date is handled by Newco for its own benefit.
• Colorado litigation: First Western sued the debtor and Paul R. Tuft in Denver County District Court in May 2025 over the debtor's alleged failure to repay the Main Street loan; Axios substituted in after purchasing the loan in November 2025. The Colorado court appointed a special monitor to investigate the debtor's operations on May 15, 2026, and on June 26, 2026 denied Axios's summary judgment motion, ruling a jury must first resolve whether common ownership invalidated the loan transfer. The debtor removed the action to the U.S. District Court for the District of Colorado, and Axios's motion to remand the portions against non-debtor defendants remains pending. Within five business days after entry of the interim order the debtor agrees to remand and not to object to Axios's pursuit of a judgment against Tuft; Axios agrees to dismiss its Colorado complaint against the debtor without prejudice and to limit its recovery from Tuft under the guaranty to the allowed prepetition secured debt amount plus post-petition interest, fees, costs and expenses.
• Hospital closure contingency: if the plan is not confirmed and the alternative private sale does not occur, and the debtor determines to proceed to an orderly closure, the lender consents to an agreement with L.A. Care or another party funding the wind-down in exchange for HQAF funds, on terms similar to the debtor's recent L.A. Care transaction, with proceeds applied to the reasonable, necessary and documented costs of safely closing the hospital, excluding legal fees, and any excess turned over to the lender.
• The DIP term sheet remained unexecuted at filing and, by its own footnote, subject to client approval; it does not become effective until executed by both parties and approved by the court. The proposed interim order also carries bracketed placeholders for the interim new money and roll-up amounts, which the order's operative authorization paragraph states as $7 million and $10.5 million respectively.