DVI bankruptcy leaves OEMs holding the bag on financing

OEMs tackle void created by DVI insolvency

When healthcare financing firm DVI filed for Chapter 11 bankruptcy, the company left a number of lingering questions and a spate of big-name medical imaging manufacturers apparently in the lurch. Although one of those questions involved the state of medical imaging itself, competitor De Lage Landen Financial Services (DLL), which picked up at least one major DVI client when things began to deteriorate, called the bankruptcy filing an anomaly rather than a statement about the industry.

DVI filed for protection in U.S. Bankruptcy Court, District of Delaware, Aug. 25 after defaulting on a portion of its debt and losing bank funding. The company secured $20 million in debtor-in-possession financing a week later, but the damage had been done.

The list of creditors on file with the bankruptcy court includes Philips Medical Systems, which claims DVI owes it $7.1 million; GE Medical Systems, $2.2 million; Hitachi Medical Systems, $1.6 million; Agfa, $921,490; Fuji Medical Systems USA, $776,628; CTI Molecular Imaging, $599,390; Canon USA, $545,167; and Eastman Kodak, $406,843. On Sept. 2, eight days after the filing, CTI and DLL signed a letter of understanding to form a new financing program for CTI customers.

"The DVI bankruptcy likely says more about DVI's circumstances than anything about the principal markets DVI served," said Donald R. Flassing, DLL vice president and general manager of healthcare. "DLL regards the imaging market very positively as a whole."

Joel Weiden, a spokesperson for DVI, was more specific.

"The financial problems that led DVI to file for Chapter 11 are linked to an unsuccessful diversification strategy that led to too much debt and liquidity issues," he said. "We hope to use the Chapter 11 process to sell DVI's assets to one or more bidders and maximize return to our creditors."

Weiden would not say whether any other DVI clients had jumped to DLL. However, Flassing indicated that hasn't happened.

"DLL almost exclusively contracts with vendors to do private label financing-financing provided in the name of the vendor, not in DLL's name," he said. "So we would not expect to have customers calling us directly."

DVI's troubles came to light in June when its auditor Deloitte & Touche abruptly resigned. The auditor said it could not complete its review of DVI's third quarter financial statements without additional documents regarding transactions made with an MRI facility in Texas. DVI refused to provide the documents.

Lenders, stockholders, company management, and finally employees began exiting, not all of them voluntarily. Then DVI announced it would investigate "the recent discovery of apparent improprieties in its prior dealings with lenders involving misrepresentations as to the amount and nature of collateral pledged to lenders." Despite all this, Flassing remained optimistic.

"The collateral value of imaging equipment is regarded as among the best of all medical equipment," he said. "Imaging is a growing market, and most transactions continue to have hospital, physician, or physician group ownership. These as a whole have positive credit profiles."

When asked how the void created by DVI's downfall would be filled, Steve Oakey, a vice president for Philips Medical Capital, predicted others would step in to fill it and that life would go on.

"I don't believe there's going to be a true void," he said.

Manufacturing-captive subsidiary or affiliate companies, such as DLL partner Philips Medical Capital, finance a lot of imaging equipment, Flassing said.

"The manufacturers will be the most likely replacements to fill the void for the market segment activity that DVI was providing," he said. "These companies are reportedly all very strong financially."