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SmileDirectClub to Liquidate If It Can’t Quickly Find Buyer

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(Bloomberg) — Dental aligner company SmileDirectClub Inc. will spend about two months looking for a rescuer and will liquidate if no buyer emerges, according to court papers.

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The direct-to-consumer orthodontics company filed for Chapter 11 bankruptcy on Friday, just four years after raising $1.35 billion in an initial public offering. It hasn’t turned a profit since then and recently lost a legal battle with a rival teeth aligning company.

The company’s founders are lending it at least $20 million to fund its search for a rescuer, but that buys very little time, court papers show. If no bidder is found by Nov. 23, SmileDirectClub will shut down and liquidate, Chief Financial Officer Troy Crawford said in a sworn bankruptcy court statement.

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

SmileDirectClub, founded in 2014, sells low-cost teeth straightening treatments and counts lower-to-middle income customers as a key demographic. As many as 70% of its customers buy the teeth aligners using its financing program, SmilePay, Crawford said.

Bankruptcy often helps companies find buyers when they otherwise can’t because the process allows firms to be sold without old debts, including legal liabilities. Creditors can offer to forgive debts in exchange for ownership of the business, too.

SmileDirectClub had nearly $900 million of debt at the time of its filing, much of which it took on after racking up big losses during and after the Covid-19 pandemic. About $138 million of that is a private credit facility administered by HPS Investment Partners and secured by the company’s receivables and intellectual property, court papers show.

The company was on track to generate free cash flow by the fourth quarter of this year, but couldn’t find additional financing needed to get there, according to Crawford.

SmileDirectClub employs more than 1,800 people worldwide.

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

“It’s clear the debtor needs this cash,” Lopez said. The loan bears interest — to be paid in-kind — at 17.5% per annum, according to court papers. It can borrow an additional $30 million later if a bidder for the business emerges and a cash-flow test is passed.

(Upates with details from hearing in paragraphs 10 and 11.)

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