Product Quest Manufacturing LLC

9/7/18

Product Quest Manufacturing LLC, a contract manufacturer of sunscreens and other sun care products, OTC drugs, prescription drugs, topical animal health products and cosmetics has filed for bankruptcy in the Middle District of North Carolina. At one point, the company produced $125mm worth of units per year, servicing the likes of drug store retailers (e.g., Walgreens, Rite Aid), big box retailers like Walmart and Target, and discount retailers like Dollar General. With an impressive customer list like that, what could've gone wrong?

The company provides a shockingly blunt reason:

These chapter 11 cases have been caused by ineffective senior leadership, employee turnover, extensive product quality issues and the subsequent recall of many products manufactured in the Daytona Facility due to stability and contamination issues and regulatory compliance issues affecting the Daytona Facility and the Kannapolis Facility.

Wowsers. You don't typically see such a harsh and to-the-point statement like that. But, the company apparently "suffered from operational cost overruns, ineffective production standards and poor pricing practices leading to significant margin erosion." Consequently, the senior lenders called a default and replaced the company's board of managers. It also received a Form 483 notice from the Food and Drug Administration regarding potential FDA violations that include, among other things, "potential cross contamination of human health and animal health products." And we were wondering why we recently started moo'ing. Now we know: it must've been the OTC treatments we purchased at CVS. This is f*cked up. And, accordingly and (apparently) appropriately, the company CEO got binned as a result. 

An investigation by King & Spalding revealed that there were, in fact, quality control issues. A little microbial contamination here. A little compliance deficiency there. Some out of specification products here. A little Staphylococcus aureus here and a little Pseudomonas aeruginosa there. The company implemented quarantines and initiated product recalls (including a CVS nasal spray product). The company also ceased operations at its two facilities. Jokes aside, we hope that no one was severely hurt. Luckily these issues were discovered before things became worse. 

The company will seek to sell its assets in chapter 11. 

• Jurisdiction: M.D. of North Carolina
• Capital Structure: $153.6mm secured debt (Madison Capital Funding LLC)    
• Company Professionals:
  • Legal: Northern Blue LLP (John Northern, Vicki Parrott, John Paul H. Cournoyer)
  • Financial Advisor/CRO: Conway MacKenzie Inc. (Joe Geraghty) 
  • Board of Directors Legal: King & Spalding LLP
  • Claims Agent: KCC (*click on company name above for free docket access)
• Other Parties in Interest:
  • Financial Sponsor: Kainos Capital LLC
  • Prepetition Secured Lender: Bank of America NA