Novation Companies, Inc. and three affiliates filed chapter 11 petitions in the U.S. Bankruptcy Court for the District of Delaware on August 13, 2023, opening lead case No. 23-11153 before Hon. J. Kate Stickles. The cases were jointly administered with Novation Holding, Inc., Healthcare Staffing, Inc., and NovaStar Mortgage, LLC and were anchored by an August 4, 2023 restructuring support agreement signed with the supporting noteholders before the petition.
The filings implemented a debt-for-equity prepack centered on roughly $97.8 million of senior secured note debt, full payment of general unsecured claims, cancellation of legacy parent equity, and preservation of approximately $731 million of net operating losses through plan-side section 382 protections. The case moved fast on the front end — 54 days from petition to confirmation and 74 days to the effective date on October 26, 2023 — but the administrative tail ran more than two years before the court closed the cases on March 3, 2026. This was Novation's second chapter 11; the same corporate group had filed a 2016 case in Maryland that emerged in 2017.
Novation Companies, Inc. (4 jointly administered entities)
Court
U.S. Bankruptcy Court, District of Delaware
Case Number
23-11153
Petition Date
August 13, 2023
Confirmation Date
October 6, 2023
Effective Date
October 26, 2023
Final Decree
March 3, 2026
Judge
Hon. J. Kate Stickles
DIP Facility
Up to $1.77 million new-money multiple-draw term loan from Nighthawks Holdings I, LLC and HOMF II Distressed Opportunities, Ltd.; 13% interest, 3% default uplift; $900,000 interim cap
Case Snapshot
From 2016 Maryland Reorganization to Second Filing
Two features of that earlier deal carried into the 2023 filing. The senior secured note structure remained the dominant capital instrument, with the same noteholder group as the supporting parties. The 2017 plan period also coincided with a $165 million class-action settlement involving NovaStar Mortgage's pre-crisis residential mortgage-backed securities, funded primarily through insurance and asset sources rather than ongoing operating cash flow.
The Wyse Declaration states that NovaStar Mortgage had ceased operations by 2018 and was a non-operating legacy entity at the 2023 petition, with Healthcare Staffing the only operating subsidiary.
Healthcare Staffing Losses and Run-Up to the RSA
The Wyse Declaration attributes the second filing to sustained operating losses at Healthcare Staffing and the inability to stabilize the platform outside a balance-sheet restructuring. The declaration reports a Healthcare Staffing net loss of approximately $0.4 million in 2021, $2.6 million in 2022, and $4.0 million year-to-date through the petition-period discussion in the declaration. Wyse identified the termination of customer contracts — including the loss of contracts with community service boards — as a specific operational driver of the deterioration.
Pre-petition, Novation retained Wyse Advisors LLC in January 2022, with Michael Wyse stepping in as chief restructuring officer and supplying interim management services. Over the next eighteen months, the debtors explored strategic alternatives, ran a sale and restructuring process, and negotiated successive term sheets with the noteholder group: an initial term sheet in January 2023, a revised term sheet in April 2023, and the executed RSA on August 4, 2023. The RSA bound the consenting noteholders to support the prepackaged plan, debt-for-equity treatment, and the new-money DIP, and locked in the section 382-based restrictions tied to the NOL stack.
By the time the petitions were filed, voting was largely complete, the disclosure statement was drafted, and the financing commitment was in place from the same noteholder group designated to receive the reorganized equity.
$97.8 Million Note Stack and the NOL Preservation Strategy
The Wyse Declaration reports approximately $97.8 million of secured funded debt outstanding under a July 27, 2017 note purchase agreement, inclusive of accrued interest and fees. Under that agreement, Novation Companies, Inc. is the issuer, Novation Holding, Inc. and Healthcare Staffing, Inc. are guarantors, the Taberna and Kodiak noteholder vehicles are the lender group, and Wilmington Savings Fund Society, FSB serves as collateral agent. The same noteholder group constituted the supporting parties under the RSA and received the reorganized equity under the plan rather than a third-party sale.
Outside the secured stack, the declaration reports approximately $1.3 million of trade and other prepetition unsecured claims, plus another $1.625 million of unsecured pre-bankruptcy funding extended by the plan sponsors and their affiliates. That pre-bankruptcy funding was treated as exit-funded rather than rolled into the DIP.
The debtors reported approximately $731 million of aggregate NOLs as of the petition date, including unrealized losses on legacy NovaStar mortgage securities. The plan and disclosure statement embed section 382-based eligibility and transfer restrictions on the reorganized equity to protect the post-emergence usability of those NOLs, and the debtors filed an NOL motion at the start of the case to lock in trading restrictions during the chapter 11 window.
$1.77 Million DIP From Nighthawks and HOMF
The DIP motion sought authority for up to $1.77 million of new-money, multiple-draw term-loan financing from Nighthawks Holdings I, LLC and HOMF II Distressed Opportunities, Ltd. — the same plan sponsors slated to receive the reorganized equity. Interim access was capped at $900,000 under the August 15, 2023 interim DIP order, with the remaining commitment unlocked on entry of the final order on September 11, 2023. The pricing was 13% annual interest with a 3% default-rate uplift, and the package included priming liens on substantially all assets subject to the carve-out and specified senior third-party liens.
The fee structure was equally compact. The motion set a 6% facility fee, with $55,000 payable on entry of the interim order and the remaining $51,200 payable on entry of the final order. Maturity was the earliest of 90 days after the petition date, the effective date of a confirmed plan, dismissal or conversion, or the debtors' support of a restructuring path outside the RSA. Adequate protection for the prepetition collateral agent took the standard form of replacement liens and related protections rather than a separate cash-pay component.
The DIP did not roll up the $1.625 million of pre-bankruptcy funding from the plan sponsors; that funding sat outside the DIP and was addressed through exit financing under the plan. The interim authorization was sized to a roughly two-month chapter 11 path rather than a full operating runway.
Class 3 noteholder claims were the only impaired voting class. In exchange for the secured note position, Class 3 was to receive interests in the Class 3 Equity Pool, preferred stock consideration, and limited additional cash consideration subject to plan mechanics and offsets. The reorganized common and preferred equity went to the same noteholder group.
Class 4 general unsecured claims were designated unimpaired and entitled to payment in full in cash on the later of the effective date, 30 days after allowance, or the ordinary-course payment date. Class 7a equity interests in Novation Companies, Inc. were impaired, deemed to reject, and cancelled without any distribution.
The confirmation order records that Class 3 voted to accept and that Class 7a along with certain other impaired classes were confirmed over deemed rejection under section 1129(b)(1). The same order approved the plan's release, discharge, injunction, and exculpation provisions in Article X and found the reorganized governance disclosures consistent with creditor interests and public policy. The plan also preserved the section 382-based transfer restrictions tied to NOL preservation and authorized the corresponding governance and stock-issuance mechanics.
Confirmation, Effective Date, and Closing the Cases
The court entered the bar date order on August 23, 2023, and notice subsequently set the general claims bar date for September 25, 2023. The combined confirmation hearing was held on October 4, 2023, and the combined disclosure statement approval and confirmation order was entered on October 6, 2023.
The reorganized debtors filed the notice of occurrence of the effective date on October 26, 2023. That notice fixed November 27, 2023 at 4:00 p.m. Eastern as the administrative claim bar date and November 16, 2023 at 4:00 p.m. Eastern as the final fee claim bar date. For executory contracts and unexpired leases rejected as of the effective date, rejection-damages claims were due November 27, 2023; for later rejections, the notice provided a rolling 30-day deadline after service of the rejection notice by the reorganized debtors. The same notice confirmed emergence for public-market purposes.
The reorganized debtors did not move for a final decree until February 13, 2026, and the court entered the final decree on March 3, 2026 — more than two years after emergence. That order closed the chapter 11 cases effective immediately, required Stretto to prepare and docket a final claims register, forward electronic proofs of claim and the creditor matrix to the clerk within 28 days, authorized destruction of physical proofs of claim 60 days after the clerk received the electronic copies, and required any remaining post-confirmation reports within 30 days.
Professional Retentions and Fee Awards
Young Conaway Stargatt & Taylor, LLP served as Delaware counsel to the debtors. The firm's third monthly and final application covered August 13, 2023 through October 26, 2023 and sought $358,572.50 in fees plus $356.15 in expenses, building on earlier monthly fee requests of $92,314.50 for the August period and $180,120.00 for the September period.
Wyse Advisors LLC — the firm that had supplied the chief restructuring officer and interim management services since January 2022 — sought approval of a $125,000 amended success fee in its first and final fee application, with retention treated as effective August 13, 2023 for purposes of the case-period work. Counsel and CRO compensation reviewed in this pass support at least $483,928.65 of professional comp and expense requests for Young Conaway and Wyse Advisors combined; that figure does not include every retained professional in the case.
Stretto served as claims and noticing agent and was identified by name in the final decree as the party responsible for the final claims register, electronic claims forwarding, and disposition of physical proofs of claim.
Key Timeline
Date
Event
August 4, 2023
RSA executed with Nighthawks Holdings I, LLC, HOMF II Distressed Opportunities, Ltd., and supporting noteholders
Stretto serves as the claims and noticing agent. The firm maintains the official claims register and was identified in the final decree as the party responsible for preparing the final register, forwarding electronic proofs of claim and the creditor matrix to the clerk, and managing the disposition of physical proofs of claim.
What was the size of the DIP facility?
The court approved up to $1.77 million of new-money DIP financing from Nighthawks Holdings I, LLC and HOMF II Distressed Opportunities, Ltd., with $900,000 available on an interim basis. The facility carried 13% annual interest plus a 3% default-rate uplift and a 6% facility fee.
How were noteholders treated under the plan?
Class 3 noteholder claims, totaling approximately $97.8 million of secured note debt under the July 2017 note purchase agreement, were impaired and exchanged for interests in the Class 3 Equity Pool, preferred stock, and limited additional cash consideration. Class 4 general unsecured claims were unimpaired and paid in full, while Class 7a equity in Novation Companies, Inc. was cancelled with no recovery.
Why was preserving net operating losses so important?
The debtors reported approximately $731 million of aggregate NOLs as of the petition date, including unrealized losses on legacy NovaStar mortgage securities. The plan embeds section 382-based eligibility and transfer restrictions on the reorganized equity to protect the post-emergence usability of those tax assets for the new ownership group.
Was this Novation's first chapter 11?
No. Novation Companies and certain affiliates previously filed chapter 11 in the U.S. Bankruptcy Court for the District of Maryland in July 2016 and emerged in 2017 after restructuring roughly $84 million of senior note obligations and acquiring Healthcare Staffing for $24 million. The 2023 Delaware case was the corporate group's second chapter 11.
When were the cases closed?
The court entered the final decree on March 3, 2026, more than two years after the October 26, 2023 effective date, closing the jointly administered cases.
August 4, 2023 restructuring support agreement https://www.sec.gov/Archives/edgar/data/1025953/000119380523001191/e618881_ex10-1.pdf
effective date https://www.marketscreener.com/quote/stock/NOVATION-COMPANIES-INC-120787360/news/Novation-Companies-Inc-Emerged-from-Bankruptcy-45218474/
filed chapter 11 in the District of Maryland https://www.reuters.com/article/business/novation-companies-commence-voluntary-chapter-11-business-reorganization-idUSFWN1A6109/
$33.15 million in assets against $85.65 million in liabilities https://www.marketscreener.com/quote/stock/NOVATION-COMPANIES-INC-120787360/news/Novation-Companies-Inc-Filed-for-Bankruptcy-35398229/
$84 million https://www.olshanlaw.com/newsroom/news/Distressed-MandA-Deal-ofthe-Year
$24 million acquisition https://www.staffingindustry.com/Editorial/Healthcare-Staffing-Report/Archive-Healthcare-Staffing-Report/2017/Sept.-14-2017/Novation-acquires-Atlanta-based-healthcare-staffing-firm-in-24-million-deal
$165 million class-action settlement https://www.kansascity.com/news/business/article138711158.html
final order https://www.marketscreener.com/quote/stock/NOVATION-COMPANIES-INC-120787360/news/Final-DIP-Financing-Approved-for-Novation-Companies-Inc-45149883/
joint prepackaged plan https://www.marketscreener.com/quote/stock/NOVATION-COMPANIES-INC-120787360/news/Pre-Packaged-Reorganization-Joint-Plan-and-Disclosure-Statement-Filed-by-Novation-Companies-Inc-44605337/
This article was researched and written with AI assistance, using court filings, public records, and news sources. AI-generated content can contain errors. Verify all information against primary sources before relying on it. This is not legal or financial advice. See the disclaimer.