The Wall Street Journal reports on the winning bid in the 36-hour auction for control of Hertz in anticipation of its emergence from bankruptcy later this summer.  The winning bidders, a group of co-investors led by Knighthead Capital Management and Certares Management, will buy the bulk of Hertz’s equity upon emergence for $2.8 billion.  Assuming Hertz’s reorganization plan is confirmed next month as expected, that plan will return more than $7 per share in value to shareholders, a rare result in corporate chapter 11 bankruptcy cases. The winning bid was approved last Friday (May 14, 2021). [WSJ; May 12, 2021] [WSJ; May 14, 2021]

The fallout from Winter Storm Uri in Texas continues, with Bloomberg reporting that Goldman Sachs is having difficulty collecting on a $400 million natural gas trade with a state-owned Mexican power utility. Given that the investment bank has been expanding in the Mexican market and that the costs of the trade might ultimately be passed on to Mexican households, commentators suggest that it is uncertain whether and on what terms the trade will be settled. [Bloomberg; May 17, 2021]

Bloomberg reports that supply chains are at risk of seizing up as global corporate demand for materials has skyrocketed. Businesses are building up their inventory over fears that materials may not be available in the future, which has also stoked further concerns over inflation. [Bloomberg; May 16, 2021]

The Boy Scouts case is generating high legal fees as the parties work towards a resolution of sexual abuse claims; the New York Times reports that Judge Silverstein and other parties are taking a hard look at fee applications. [NYT; May 11, 2021]

The Bankruptcy Court for the Northern District of Texas dismissed the National Rifle Association’s (“NRA”) bankruptcy case on May 11, finding that the case was not filed in good faith.  In his opinion, Judge Harlin Hale found that there was cause for dismissal because the case was filed “to gain unfair litigation advantage and … to avoid a state regulatory scheme,” neither of which he considered to be a purpose intended or sanctioned by the Bankruptcy Code.

Continue Reading NRA Bankruptcy Dismissed for Lack of Good Faith in Filing

The Wall Street Journal reports that hedge-fund founder, Dan Kamensky, was sentenced to six months in prison for bankruptcy fraud in connection with his attempt to quash a competing bid for shares of Neiman Marcus subsidiary MyTheresa during Neiman’s bankruptcy case.  As a member of the official unsecured creditors’ committee, Kamensky had a fiduciary obligation to serve the interests of all creditors, not just his own firm’s financial interests.  Kamensky, who founded Marble Ridge Capital LP, pleaded guilty to the charge of bankruptcy fraud back in February 2021. [WSJ; May 7, 2021]

The New York Times reports that a Northern District of Texas bankruptcy judge dismissed the National Rifle Association’s bankruptcy case, writing that the NRA  did not file in good faith since its filing was being primarily used to gain an unfair advantage in litigation brought by the New York Attorney General and to avoid the New York state regulatory scheme.  The NYT had previously reported that in addition to vehement opposition to the filing from the New York Attorney General, the United States Trustee’s Office also joined the call for the case to be dismissed, which bankruptcy experts said underscored the unusual character of the NRA’s bankruptcy case.  [NYT; May 11, 2021; NYT; May 3, 2021]

The Wall Street Journal reports that as much as $4 billion in Paycheck Protection Program (PPP) loans went to thousands of venture-backed startups, many of whom ended up raising hundreds of millions of dollars by going public just a year later.  More than 30 such startups, each valued at more than $150 million, went public via special-purpose acquisition companies (SPAC) reverse mergers, and another 15, each valued at over $200 million, had initial public offerings within a year of taking the taxpayer-funded forgivable loans.  [WSJ; May 9, 2021]

Bloomberg reported that USA Gymnastics asked the Southern District of Indiana Bankruptcy Court to enforce the automatic stay and enjoin litigation filed by four plaintiffs seeking to hold the US Olympic & Paralympic Committee (USOPC) liable for sexual abuse committed by convicted child sexual predator Larry Nassar.  USA Gymnastics said allowing the litigation to proceed would be disruptive to its chapter 11 proceedings and its settlement talks with survivors.  In its motion to enforce the automatic stay, USA Gymnastics argued that the claims against the USOPC are property of its estate because they are general and common among its creditors, which include over 500 survivors of Nassar’s abuse.  The plaintiffs objected to enforcement of the stay with respect to their lawsuit against the USOPC, arguing that their claims are not general and common, but rather personal and particularized such that they are not estate property and should be allowed to proceed.  A hearing was held on April 28, and a ruling is pending.  [Bloomberg; April 27, 2021]

After facing opposition from California state regulators, Law360 reported that Lambda School agreed to strike language suggesting that students might not be able to wipe out their income-tied tuition repayment agreements in bankruptcy.  Lambda School, a San Francisco-based online coding school that offers many tech and web-based courses, allows students to pay no tuition until after they start earning money post-graduation.  According to the California Department of Financial Protection and Innovation, the repayment agreements falsely stated they were qualified education loans subject to the dischargeability limits of the Bankruptcy Code.  [Law 360; April 26, 2021]

Bloomberg reported that more than 700,000 small businesses in the United Kingdom are facing serious cash flow shortages.  The number of small- and medium-sized companies facing financial distress is up 15 percent from the end of last year, putting an estimated 3.2 million jobs at risk.  [Bloomberg; April 28, 2021]

After more than one year since the Paycheck Protection Program, or PPP, was established pursuant to the US Cares Act in March 2020, the Small Business Administration (“SBA”) has recently reversed its policy that prohibited companies in bankruptcy from applying for PPP funding due to their status as debtors in bankruptcy.  Specifically, on April 6, 2021, SBA released new guidance as part of its eighth version of Frequently Asked Questions for Borrowers and Lenders Participating in the Paycheck Protection Program,[1] which clarifies what it means to be “presently involved in any bankruptcy.”  As set forth in greater detail below, this newly-issued guidance removes bankruptcy as a roadblock to PPP funding and now permits companies on the road out of bankruptcy to apply for PPP loans before the program’s May 31, 2021 deadline. Continue Reading Too Little Too Late? After Much Debate, SBA Allows Debtors to Access PPP Loans – But Only on a Limited Basis

In a March 30, 2021 announcement, the Biden administration announced that it would be extending relief to approximately 1.14 million student loan borrowers who previously were not covered under the CARES Act relief enacted last year. These are borrowers who have defaulted on loans issued pursuant to the Federal Family Education Loan Program (“FFELP”). Specifically, under the measure, borrowers who have defaulted on FFELP loans will not face further penalties (and will see penalties already assessed unwound) and will also see their current interest rates reset to 0%.[1] The Biden administration’s action will be retroactive to March 13, 2020—the day the governmental formally declared a state of emergency due to the COVID-19 pandemic—and will return FFELP loans that defaulted during this period to good standing, with credit bureaus asked to remove any related negative credit reporting, allowing the applicable borrowers to rehabilitate their credit scores.[2] Continue Reading Approaching Student Loan Relief Piecemeal: The Biden Administration Extends CARES Relief to Defaulted FFELP Student Loan Borrowers; Weighs Options for Further Measures

In a March 2021 decision in the jointly administered bankruptcy cases of Fencepost Productions, Inc. and certain of its affiliates, Judge Dale L. Somers of the Bankruptcy Court for the District of Kansas declined to enforce a voting restriction in subordination agreements between two of the debtors’ creditors, but nonetheless found that the deeply subordinated creditors were barred from voting on the debtors’ plan because they lacked prudential standing.[1] In declining to enforce the contractual voting restriction, the decision defies a trend toward enforcing subordination and intercreditor agreement terms – so long as they are specific and express – even if such terms may limit a party’s statutory rights as a creditor in bankruptcy. Instead, Judge Somers applied a federal court jurisdictional doctrine, the relevance of which can only be determined on a case-by-case basis. Continue Reading In re Fencepost Productions: Prudential Standing Doctrine Blocks a Subordinated Creditor from Voting

The Wall Street Journal reported that the wave of cash raised by special-purpose acquisition companies (SPACs) is fueling activity in the junk debt market at levels not seen since the dot.com-boom from two decades ago.  So far this year, SPACs have issued roughly $100 billion of stock to purchase private companies and take them public, with some of that money going toward companies with below investment-grade credit ratings, significantly boosting their gains on paper.  [WSJ; April 23, 2021]

Bloomberg reported that bonds issued by Hertz Global Holdings, Inc. have made a drastic turn-around since the Covid-19 pandemic tanked the value of securities due in 2022 and 2028 to an average of less than 10 cents on the dollar on May 4, 2020.  Those bonds are now trading at over a dollar, an increase of roughly 1,000 percent.  The likely cause for the dramatic turn-around?  Predictions of a post-Covid-19 travel and vacation boom, which has spurred a bidding war among investors seeking to capitalize on Hertz’s situation.  [Bloomberg; April 22, 2021]

Although cheap credit has masked distress in the markets, Bloomberg reported that BlackRock says it’s nevertheless still out there – if you know where to look.  BlackRock, an NYC-based multinational investment management corporation, predicts that, despite the availability of cheap financing, bankruptcy filings will increase in sectors hit hard by the pandemic, like retail and energy.  Data compiled by Bloomberg show bankruptcy filings have slowed in recent weeks, with only one new filing from a company with at least $50 million in liabilities.  [Bloomberg; April 20, 2021]

Bloomberg and CNN reported on the potential impact the pause in the use of Johnson & Johnson’s Covid-19 shot could have.  In the wake of the announcement, stay-at-home company stocks bounced, while travel company stocks fell as investors worried about the potential long-term impact.  [Bloomberg; April 13, 2021 & CNN; April 14, 2021]

The Wall Street Journal reported on an intensifying bidding war for Hertz as previously-outbid investors returned to the table with a counteroffer for the car rental company in chapter 11 with a valuation of $6.2 billion. The revised bid by Knighthead Capital Management LLC and Certares Management LLC challenges a restructuring offer that Hertz accepted earlier this month, backed by Centerbridge Partners LP, Warburg Pincus LLC and Dundon Capital Partners LLC valuing the company at about $5.5 billion. [WSJ; April 16, 2021]

Following the death of Bernie Madoff last week, the WSJ reported on the continued fallout from his Ponzi scheme. The Madoff liquidation case, overseen by three bankruptcy judges since it began, could easily continue for years especially after the Supreme Court last year gave the court-appointed trustee the green light to pursue the return of some Ponzi scheme proceeds that passed between foreign institutions. As of February, the trustee had recovered or reached settlements to recover about $14.4 billion of the estimated $17.5 billion of client money.  [WSJ; April 14, 2021]

Per reporting from Bloomberg, distressed debt investors are continuing to have a tough time finding opportunities in the United States, where access to cash has enabled more and more companies to borrow their way out of trouble. Chapter 11 filings slowed to just four in the last week, and the total amount of troubled debt outstanding fell below $90 billion from almost $1 trillion at the height of the pandemic. [Bloomberg; April 13, 2021]

In its recent opinion arising out of the Orexigen Therapeutics Inc. bankruptcy case, the US Court of Appeals for the Third Circuit affirmed that while a creditor retains its direct setoff rights against a debtor under Section 553 of the Bankruptcy Code when both it and the debtor owe debts to one another, so called “triangular” setoffs – setoffs relating to affiliated third party debts –  are not similarly protected, even if provided for contractually.1 In so holding, the Third Circuit became the first US circuit court of appeals to reach the issue and affirmed a substantial body of law on the topic developed by numerous lower courts. Continue Reading Opinion of Interest – In re Orexigen Therapeutics Inc.: “Mutual” Means Mutual Third Circuit Confirms that Triangular Setoffs not Entitled to Protection under Section 553 of the Bankruptcy Code