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Yahoo Finance exclusive: SmileDirectClub files for Chapter 11 bankruptcy, eyes restructuring

One final frown for SmileDirectClub (SDC) investors.

The tooth alignment outfit filed for voluntary protection under Chapter 11 of the US Bankruptcy Code on Friday, Yahoo Finance exclusively learned.

The company — hampered by years of losses, weak sales for clear aligners, and close to $850 million in long-term debt — plans to maintain normal operations thanks to an investment of at least $20 million by the company's founders Alex Fenkell and Jordan Katzman.

Up to $60 million of additional capital is available upon satisfaction of certain conditions, including the favorable conclusion of a marketing process for the company, which is expected to result in the disposition of the company’s equity.

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SmileDirectClub believes the restructuring process will be "brief."

Dental assistant Jessica Buendia looks at a scanned image of patient's teeth in SmileDirectClub's SmileShop located inside a CVS store Wednesday, April 24, 2019, in Downey, Calif. CVS Health is venturing into dental care with plans to offer the relatively new teeth-straightening service. (AP Photo/Jae C. Hong)
Dental assistant Jessica Buendia looks at a scanned image of a patient's teeth in SmileDirectClub's SmileShop located inside a CVS store Wednesday, April 24, 2019, in Downey, Calif. (Jae C. Hong/AP Photo) (ASSOCIATED PRESS)

SmileDirectClub is being represented by Kirkland & Ellis as legal counsel, FTI Consulting as its financial adviser, and Centerview Partners as its investment banker.

The company was founded in 2014 by former metal braces wearers — and longtime pals — Alex Fenkell and Jordan Katzman. The company's longtime CEO is Katzman's father, investor David Katzman, who provided the seed money to launch SmileDirectClub.

SmileDirectClub went public on Sept. 12, 2019, pricing its IPO at $23 a share for a market cap of $8.9 billion. In perhaps a foreshadowing event, the stock opened below its IPO price at $20.55. By the close of trading, shares had finished down close to 11%.

Since its tepid market debut, SmileDirectClub has sought to expand into new products such as teeth whitening, overnight retainers, and lip balm amid fierce competition for clear aligners with Invisalign maker Align Technology (ALGN).

But despite the promising aligner technology and consumer products push, SmileDirectClub has dealt with a series of challenges that have made profits elusive.

In February 2020, an investigative story run by NBC News called into question the safety of SmileDirectClub’s trademark clear aligners. The story focused in on various consumer complaints about tooth damage from wearing the aligners.

The company sought to battle back from that but has since been met with brutal supply chain inflation and more cautious consumers. The company has yet to turn a profit since going public.

Earlier this year, the company outlined a new restructuring plan that eyed more than $100 million in cost savings.

Wall Street has stayed cautious, however.

"While the cost-savings initially highlighted in January are encouraging and a step in the right direction to alleviate the company’s near-term P&L challenges and capital needs, we aren’t yet convinced in the top-line story," JPMorgan analyst Robbie Marcus wrote in recent client note. "Given the past execution missteps, uncertainty regarding the resiliency of the business in a more challenged economic environment as well as little visibility into the effectiveness of new strategies, we maintain our cautious view."

Before the bankruptcy filing, SmileDirectClub's stock had plunged 97% to $0.42. The company's market cap stood at $163 million.

Brian Sozzi is Yahoo Finance's Executive Editor. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.

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