Just after 5:00 p.m. Central Time on February 23, 2021, Belk, Inc. and its affiliates filed chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of Texas, along with a proposed “prepackaged” plan of reorganization. Before midnight, the US Trustee objected to Belk’s plan, and, by 8:00 a.m. the next day, the parties were in court to decide plan confirmation. Two hours later, Bankruptcy Judge Marvin Isgur confirmed the plan, and it became effective that afternoon, just 20 hours after the Chapter 11 cases were filed. Typically, chapter 11 debtors take many months, if not longer, to confirm a plan, and even prepackaged bankruptcy cases like Belk’s often take several weeks from filing to confirmation. As we discuss in this post, Belk’s swift bankruptcy case is part of a growing trend of bankruptcy courts confirming chapter 11 plans shortly after case filing where there is adequate notice and creditor buy-in prior to the filing.
On February 8, 2021, three student loan borrowers filed an involuntary petition against Navient Solutions LLC in New York bankruptcy court seeking to force Navient into bankruptcy. Navient Solutions is the loan servicing arm of Navient Corporation, a student loan originator which manages approximately $300 billion in student loan debt for more than 12 million borrowers. Involuntary petitions like the one instituted by the borrowers here are somewhat rare, at least in the case of larger companies like Navient, and the Bankruptcy Code provides special procedural rules, discussed below, which are designed in part to protect against potential abuses.
As Texas recovers from its winter energy crisis, hard hit consumers and retail power providers may be facing potential bankruptcies caused by the extreme price fluctuations experienced during the cold. The New York Times describes the plight faced by consumers who may face energy bills in the thousands. And retail power companies that supplied power to consumers may also be in trouble due to being forced to buy energy on the spot market at inflated prices, while not being able to pass the full cost to consumers, as covered by Bloomberg. [NYT; February 20, 2021; Bloomberg; February 16; 2021]
Ben Casselman with the New York Times breaks down the most recent U.S. Census Bureau retail and food services data in this Twitter thread. Retail sales are up 8% from their pre-COVID levels. Restaurants, however, while showing a significant rebound from the lowest sales levels, still lag significantly behind. [Ben Casslman via Twitter; February 17, 2021]
Low yields and high demand in the U.S. corporate debt market has caused some investors to focus on China, with comparatively higher yields, as reported by the Wall Street Journal. The default rate, which was already high for the market in 2020, is expected to remain high in 2021. [WSJ; Feb. 16, 2021]
The McKinsey Global Institute is taking a close look at the post-pandemic economy and specifically, the impact COVID will have on labor demand, the mix of occupations and workforce skills required in eight countries. McKinsey predicts that three trends that were accelerated by the COVID pandemic (namely remote work, e-commerce and automation / artificial intelligence) will continue to impact labor, resulting in as many as 25% of workers needing to change occupations by 2030. The sectors most likely to be impacted are those for which physical presence is a large part of the job (e.g., health care, retail, leisure). [McKinsey Global Institute; Feb. 18, 2021]
In a January 2021 decision issued in the re-opened United Refining Company1 bankruptcy case, Judge Lopez of the Southern District of Texas Bankruptcy Court addressed when a tort claim is deemed to arise for purposes of determining whether it was discharged. In particular, the court had to determine whether an asbestos-related claim arose at the time of exposure (in other words, the time at which the damaging act occurred) or at the time when the harm is diagnosed (in other words, when the claim was discovered). Complicating things for the court was a lack of records from the 1980s bankruptcy case at issue, which also led to uncertainty as to whether the claimant had notice of the bankruptcy. That in turn could have led to the conclusion that his claim had not been discharged regardless of the court’s determination of when the claim accrued. As discussed below, the Court concluded that the claim was a prepetition claim discharged under the plan, and that all creditors were bound by such plan absent a showing that there was no proper notice.
The Wall Street Journal reports that high demand for corporate debt has allowed even the riskiest of companies to refinance their debt at interest rates that have typically been reserved for only the safest types of debt. Since the beginning of the year through February 10, over $13 billion of new debt has been issued, ranked CCC or lower, which is twice the previous record pace. [WSJ; February 15, 2021]
The New York Times reports that London landlords with commercial real estate properties are being increasingly pressured to loosen lease terms. In the last year, retail and hospitality tenants commenced company voluntary arrangements, a form of out-of-court restructuring available in the United Kingdom, to reduce rents or allow rent to vary based on revenue. The government is also considering lease reforms such as abolishing lease terms that require rents to increase following regular review periods. [NYT; February 9, 2021]
Sustained declines in oil prices and demand have pushed Seadrill Ltd., an offshore oil-rig operator, into its second Chapter 11 bankruptcy in four years, as reported by the Wall Street Journal. The company has plenty of cash on hand ($650 million) but no deals with its lenders that hold more than $7 billion in debt. [WSJ; February 11, 2021]
Student loan forgiveness remains a focus of political discussion, and in this recent article, Forbes discusses forgiveness options for both federal and private student loan debt. One potential option is changes to the federal bankruptcy laws that would make it easier for borrowers to discharge student loan debt in bankruptcy. [Forbes; February 5, 2021]
Bloomberg reports that at least seven new-issue CLOs are currently marketing, with January new-issue volume at nearly $9 billion. The rise in sales comes as risk premiums for new transactions have tightened to pre-pandemic levels, prompting managers to market new deals at favorable terms and refinance and reset existing bonds at cheaper costs. [Bloomberg; Feb. 5, 2021]
The International Monetary Fund released a World Economic Outlook Update for January 2021, which reveals that despite the historic recession brought about by the COVID pandemic and related government-ordered lockdowns, 2020 bankruptcies declined over 25% relative to past years due to exceptional policy measures. Gina Gopinath, Chief Economist of the International Monetary Fund, notes that “[p]olicy makers should prepare for possible ‘pent-up bankruptcies.’” [World Economic Outlook Update; Jan. 2021]
Forbes reports that China-based coffee chain Luckin Coffee, once considered a major Starbucks competitor, filed for bankruptcy under chapter 15. Luckin Coffee had been slowly recovering, following a delisting from Nasdaq after it was discovered that the company’s prior management inflated sales figures, before COVID hit. [Forbes; Feb. 5, 2021]
Reuters discusses disclosure requirements in connection with potentially distressed and bankrupt companies amid social-media-fueled retail trading frenzies, analyzing the dilemma that Hertz and certain similarly-situated companies face. [Reuters; Feb. 8, 2021]
The National Rifle Association (“NRA”), along with its wholly owned Texas subsidiary, filed for chapter 11 bankruptcy protection on January 15, 2021 in the Bankruptcy Court for the Northern District of Texas. The case already has presented several threshold issues and challenges that are of interest to both bankruptcy practitioners and the market as a whole.
Mayer Brown partners Sean Scott and Aaron Gavant and associate Josh Gross discussed a recent decision arising out of the Samson Resources Chapter 11 case wherein the U.S. Bankruptcy Court for the District of Delaware concluded that securities transactions with a debtor in which the debtor itself is the “financial participant” may be protected from avoidance—which could mean that more recipients of transfers in failed leveraged buyouts, and similar transactions, are protected from avoidance claims in a legal update available here.
The Wall Street Journal analyzes the challenges and prospects of Gamestop Corp., AMC Entertainment Holdings Inc., Bed Bath & Beyond Inc., Nokia Corp., and Blackberry Ltd. In recent weeks, investors have bid up the share prices of these companies, as hedge funds and short sellers have bet against them. [WSJ; Jan. 31, 2021]
The New York Times reports that bankruptcy filings fell 40% last year in France and Britain and were down 25% on average in the European Union, noting that without government intervention, European business failures would have nearly doubled last year. Chapter 11 filings in the United States, by contrast, rose in Q3 2020 to the highest levels since the 2010 financial crisis. The New York Times asks whether Europe’s strategy of protecting businesses and workers will cement a recovery, or leave economies less competitive and more depending on government aid once the pandemic recedes. [NYT; Jan. 25, 2021]
Reuters reports that China’s HNA Group, whose flagship business is Hainan Airlines, is seeking private investors to help it emerge from bankruptcy. HNA Group’s creditors moved to file for bankruptcy in China after it was put under a restructuring led by the Hainan government to resolve its liquidity risks related to years of overseas acquisitions. HNA Group has $27.5 billion worth of outstanding bonds in various currencies and another $20.0 billion in loans. [Reuters; Jan. 31, 2021]
The Real Deal notes that the New York-based real-estate startup, Knotel Inc., filed for chapter 11 protection, citing work-from-home pressures driven by the coronavirus pandemic. Knotel filed bankruptcy to reorganize its real-estate footprint and effectuate a sale of itself to real-estate services firm Newmark Group Inc. [The Real Deal; Feb. 1, 2021]
As reported in Yahoo Finance, a bankruptcy court ruled in favor of Visium Technologies, Inc., dismissing the involuntary bankruptcy petition filed against it and allowing Visium to file a motion and seek compensatory and punitive damages. [Yahoo Finance; Feb. 1, 2021]
CNBC reports that slow rollout of the vaccines and more contagious strains of Covid-19 may threaten investor outlook that have been buoyed by optimism about a swift economic recovery. A possible K-shaped recovery may see companies of certain type and size start to recover while leaving out low-income families, and companies in the airline, restaurant, movie and hotel industries all of which were drastically impacted by the pandemic. [CNBC; Jan. 21, 2021]
Data compiled by S&P Global Market Intelligence shows a surge of corporate bankruptcies between Jan. 1 and Jan. 19, exceeding the number of bankruptcy filings during any comparable period since 2012. Companies in the consumer discretionary sector continue to suffer distress, accounting for 8 of the 33 filings made during the period. [S&P; Jan. 21, 2021]
Fitch Ratings notes that the Brazilian President’s veto of a provision in Brazil’s new bankruptcy law, which provision allowed asset sales in in-court restructurings to be free and clear of contingent liabilities, could lead to lower recovery prospects. Excluding such a provision could negatively affect asset values and discourage buyers from bidding. The Brazilian Congress may decide to override the veto, with a decision expected by early March 2021. [Fitch; Jan. 20, 2021]
The Houston Chronicle reports that over 100 oil and gas companies declared bankruptcy in 2020 after the coronavirus pandemic caused global demand for crude and petroleum products to crash. The downturn comes on top of increased investor/lender pressure the oil and gas industry has already been facing. [Houston Chronicle; Jan. 20, 2021]