By Dietrich Knauth
April 16 (Reuters) - The U.S. Department of Justice's bankruptcy watchdog said on Monday that genetic test maker Invitae Corp should not be allowed to hire Kirkland & Ellis as bankruptcy counsel because of the law firm's work for one of Invitae's lenders.
The Office of the U.S. Trustee, a part of the DOJ that oversees the administration of bankruptcies, said in a court filing that Kirkland has a conflict of interest because one of its current clients is private equity firm Deerfield Partners, which is Invitae's top lender and the "main beneficiary" of a 2023 debt restructuring that placed Deerfield at the front of the line for repayment in Invitae's bankruptcy.
Kirkland, which has said it represents Deerfield in matters "unrelated" to Invitae's bankruptcy, did not represent Invitae at the time of the debt transaction. Deerfield is represented by separate counsel in Invitae's bankruptcy case.
But the U.S. Trustee argued that Kirkland could not concurrently represent Invitae while Deerfield was its client.
"The fact that K&E represents Deerfield in unrelated matters does not change the existence of a conflict of interest," the U.S. Trustee wrote in an objection filed on Monday in New Jersey bankruptcy court.
Kirkland, Invitae, and Deerfield did not immediately respond to requests for comment.
U.S. Bankruptcy Judge Michael Kaplan will consider Invitae's request to hire Kirkland at an April 29 hearing in Trenton, New Jersey.
Invitae filed for bankruptcy protection in February, seeking to find a buyer and reduce its $1.5 billion in debt. Invitae does not expect equity shareholders to receive any recovery in its bankruptcy, according to court documents.
Invitae's junior creditors raised concerns about Kirkland's role in the bankruptcy in an objection filed about a week before the DOJ's objection.
The creditors may seek to unwind the 2023 debt transaction so that they can free up "hundreds of millions of dollars" to repay junior creditors, instead of Deerfield.
Deerfield is the largest holder of $305 million in secured bonds that were created in the 2023 debt deal. Those secured bonds would be repaid before Invitae's $1.2 billion in junior bonds.
Invitae and Deerfield previously defended the 2023 debt restructuring in court documents, saying that the transaction provided $30 million in cash to Invitae and also deferred some debt payments from 2024 to 2028.
When it filed for bankruptcy, Invitae said it had taken on too much debt to fund its expansion from 2019 to 2021.Invitae made 13 acquisitions during that period, increasing its debt by $1.5 billion and leaving the company ill-prepared for a recent rise in interest rates, increased competition, and declining demand for elective genetic tests.
The case is In re Invitae Corp, U.S. Bankruptcy Court for the District of New Jersey, No. 24-11362
For Invitae: Joshua Sussberg, Nicole Greenblatt, and Francis Petrie of Kirkland & Ellis LLP; Michael Sirota, Warren Usatine, and Felice Yudkin of Cole Schotz PC, among others
For the junior creditors committee: Christopher Shore, Ashley Chase and Aaron Colodny of White & Case LLP; among others
For the U.S. Trustee: Jeffrey Sponder of the Office of the U.S. Trustee
Read more:
Genetic test maker Invitae files for bankruptcy protection in US
Invitae gets court approval for five-month bankruptcy sale
(Reporting by Dietrich Knauth)
((Dietrich.Knauth@thomsonreuters.com;))
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