Background

In a recent opinion issued in LCM XXII Ltd. v. Serta Simmons Bedding, LLC, No. 21-CV-3987, 2022 WL 953109 (S.D.N.Y. Mar. 29, 2022), US District Judge Katherine Failla of the Southern District of New York denied defendant Serta Simmons Bedding, LLC’s (“Serta”) motion to dismiss an action challenging its June 2020 non-pro rata uptier exchange transaction, thereby allowing the non-participating, minority lenders whose loans became subordinated to those of the participating, majority lenders to continue to pursue claims against Serta for breach of contract and breach of the implied covenant of good faith and fair dealing.  Specifically, the court rejected Serta’s assertion that its uptier exchange transaction was expressly permitted under the underlying credit agreement because the court found the term “open market exchange” as used in the credit agreement to be susceptible to more than one reasonable interpretation and, thus, ambiguous.  Accordingly, the court found no basis to dismiss the plaintiffs’ claims at the pleading stage.

The court’s reasoning in Serta is a partial victory for non-participating, minority lenders in a distressed debt market that has seen an uptick in uptier exchange transactions and subsequent litigation, commonly referred to by many in the industry as “lender-on-lender violence.”  See, e.g., Audax Credit Opportunities Offshore Ltd., et al. v. TMK Hawk Parent, Corp., et al., 150 N.Y.S. 3d 894 (N.Y. Sup. Ct. 2021) (denying defendant’s motion to dismiss breach of contract claims relating to Trimark’s September 2020 uptier exchange); Compl., ICG Global Loan Fund I DAC v. Boardriders, Inc., No. 655175/20 (N.Y. Sup. Ct. filed Oct. 9, 2020) (challenging Boardriders’ September 2020 priming financing transaction by alleging that the transaction purportedly “unfairly favors” the controlling and allegedly conflicted equity sponsor and certain of the company’s first lien lenders to the detriment of the excluded, nonparticipating first lien lenders).  Indeed, Judge Failla’s Serta ruling is likely to influence a potential challenge by the minority, non-participating lenders relating to Incora’s recent non-pro rata uptier exchange transaction.  Press Release, Incora, Incora Completes Comprehensive Recapitalization (Mar. 29, 2022), https://www.globenewswire.com/en/news-release/2022/03/29.html

The Serta Uptier Exchange Transaction

In June 2020, Serta entered into a transaction (the “Transaction”) with a majority of its existing first lien and second lien lenders (the “Participating Lenders”)—not including plaintiff LCM funds who held approximately $7.4 million of Serta’s first lien loans—that created two new tranches of debt, both of which ranked ahead of Serta’s existing first-lien loans:  (i) a $200 million new-money financing; and (ii) an exchange tranche comprised of $875 million of loans created through an exchange of the Participating Lenders’ first- and second-lien loans. As part of the Transaction, Serta obtained the approval of the Participating Lenders to amend the underlying loan documents, including the first lien term loan agreement (the “Loan Agreement”), toallow Serta to incur the priming loans.  The plaintiff minority lenders were not privy to the negotiations and their consent to the amendments was not sought by Serta.  Following the Transaction, the Participating Lenders held over $1.075 billion of super-priority loans with rights senior to those of the non-participating, formerly first-lien lenders, including plaintiffs.

Court Permits Claims for Breach of Contract and Lack of Good Faith and Fair Dealing
to Proceed to Discovery

Following the consummation of the Transaction, on May 4, 2021, the plaintiff minority lenders commenced an action alleging, among other things, that Serta breached the Loan Agreement in three primary ways when it engaged in the Transaction and ratified the amendments.  First, plaintiffs alleged that the Transaction effectuated a debt exchange that did not qualify as an “open market purchase” authorized under section 9.05(g) of the Loan Agreement.  Second, plaintiffs claimed that Serta violated their “sacred right” to receive pro rata payments under section 9.02(b)(A) by not seeking their consent prior to entering into the Transaction and amending the Loan Agreement, which allowed a select subset of first lien and second lien lenders to leapfrog plaintiffs’ priority rights.  Third, plaintiffs alleged that Serta breached the implied duty of good faith and fair dealing by depriving the plaintiffs of their senior secured position in Serta’s debt stack.

Plaintiffs’ Breach of Contract Claim Allowed to Proceed Because the Agreement Did Not
            Clearly Permit the Transaction.

The parties dispute whether the Transaction was expressly permitted by section 9.05(g) of the Loan Agreement.  Generally, section 9.05(g) allows first lien lenders to assign their rights under the Agreement to Serta or its affiliates on a non-pro rata basis through either a Dutch Auction or an “open-market purchase” for the purpose of retiring the first lien loans.  Serta claims that the Transaction qualifies as an open-market purchase of the Participating Lenders’ loans under section 9.05(g) of the Agreement.  The plaintiffs contend that no aspect of the Transaction occurred in the open market since Serta negotiated in private only with a select subset of lenders and arrived at a price not set by open-market forces. 

In rejecting Serta’s view, at least for purposes of a motion to dismiss, the court found that the term “open market purchase” was ambiguous and thus did not expressly allow the Transaction.  To the contrary, the court reasoned that the Transaction did not take place in what is conventionally understood as an “open market” because it was negotiated in private and closed to a number of possible participants—i.e., the minority, non-participating lenders. Accepting the factual assertions in the complaint as true, Serta and the Participating Lenders agreed on pricing that served to induce the lenders to enter into the amendments allowing the Transactions—and not by pricing driven by conventional market dynamics.   The court disagreed with Serta’s argument that “open market purchase” could only be equated with fair market value, i.e., the price obtained in an arm’s-length negotiation between a willing buyer and seller.  The Court also did not find it determinative that the exchange followed a competitive process among many lender groups—a fact proffered by Serta.  Instead, the court also found plausible the plaintiffs’ definition that an open market  could reasonably be defined to mean a market in which “any buyer or seller may trade and in which prices and product availability are determined by free competition.”  Because the court found that the term “open market” was ambiguous, the court held that plaintiffs sufficiently alleged a breach of section 9.05(g) of the Agreement for that cause of action to survive a motion to dismiss and proceed to discovery.

Plaintiffs’ Claims for Breach of the Implied Covenant of Good Faith and Fair Dealing
            Allowed to Proceed as an Alternative Theory of Recovery.

In the alternative to their express breach-of-contract claim, plaintiffs allege that Serta breached the implied covenant of good faith and fair dealing.  Under New York law, a duty of good faith and fair dealing is implied in every contract, to the effect that neither party “shall do anything which has the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”  Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d Cir. 2006).  Further, the implied covenant includes promises that a “reasonable person in the position of the promise would be justified in understanding were included” in the contact and, when the contact involves the exercise of discretion, a promise “not to act arbitrarily or irrationally in exercising that discretion.”  Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995).  Thus, a claim for breach of the covenant of good faith and fair dealing may only be brought where one party’s conduct, without breaching the terms of the contract in a literal or technical sense, nonetheless deprived the other party of the benefit of the bargain.  See CSI Inv. Partners II, L.P. v. Cendant Corp., 507 F. Supp. 2d 384, 425 (S.D.N.Y. 2007).  

In allowing the plaintiffs’ lack of good faith and fair dealing claim to proceed, the court held that plaintiffs had sufficiently pled, among other things, that:  (i) plaintiffs expressly bargained for “first-lien, priority, pro rata rights,” which rights were subverted by Serta’s creation of a new tranche of debt with priority rights senior to the plaintiffs; (ii) Serta engaged in furtive negotiations with a select few creditors, manipulated the Loan Agreement to subordinate the plaintiffs’ debt without their knowledge, and struck a deal at plaintiffs’ expense; (iii) the manner in which Serta exercised its contractual power to amend the Loan Agreement constituted bad faith because the economic reality of the Transaction indicated an intent to harm a subset of first lien lenders by subordinating their loans; and (iv) to the extent the Loan Agreement permitted Serta to effectuate the Transaction, Serta offered the new priming loans to only a subset of first lien lenders, rather to all of them on a pro rata basis.  Accordingly, assuming arguendo that the court ultimately finds the Transaction to be a permissible “open market purchase” under the Agreement, the court concluded that plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing could survive.  Thus, the court allowed the claim for breach of the implied covenant of good faith and fair dealing to proceed.

Potential Implications

The court’s reasoning in Serta is a victory – for now – for disgruntled lenders excluded from their borrower’s non-pro rata uptier exchange transaction, even where the underlying loan documents arguably permit such exchange.  As discovery proceeds, the Serta case bears close watching as a bellwether for how claims relating to such transactions may withstand summary judgment or be resolved at trial.

Reuters reports that the New Jersey bankruptcy judge overseeing the bankruptcy proceedings of Johnson & Johnson subsidiary LTL Management will allowing certain talc tort cases against Johnson & Johnson to proceed while LTL Management proceeds in bankruptcy. Specifically, Judge Michael Kaplan has stated that he may allow some of the 38,000 lawsuits against Johnson & Johnson to continue, despite LTL’s bankruptcy, which lawsuits allege that the company’s talc products caused cancer. Previous decisions in the LTL bankruptcy proceedings found that the automatic stay applicable in that case immediately paused all legal proceedings against both LTL itself and Johnson & Johnson, per Section 362 of the Bankruptcy Code.

On June 15th, the Wall Street Journal reported on the Federal Reserve’s decision to raise interest rates by 0.75 percentage points, the largest one-time increase since 1994. Such move raises the Federal Reserve’s benchmark federal funds rate to a range between 1.5% and 1.75%. Federal Reserve Chairman Jerome Powell stated that the bank’s ultimate goal is to reduce inflation to 2% based on which experts predict the Fed to further raise rates further to as high as 3% by later this year. Chairman Powell also warned that it is becoming increasingly unlikely that the economy will achieve a “soft landing” (i.e., avoiding a recession while the Fed nonetheless continues to raise interest rates). The Federal Reserve has indicated that it is seeking to reduce the amount of market volatility that could persist until inflation is curbed and to restore price stability.

Bloomberg reports on June 14th that EV-Truck startup Electric Last Mile has filed for Chapter 7 bankruptcy relief in the District of Delaware Bankruptcy Court. The filing marks the first bankruptcy by an electric-vehicle startup, that went public via a SPAC transaction.  The startup’s founders had planned to import electric delivery vans from China and assemble them in Indiana but had to resign in February amid accusations of improper stock purchases before the SPAC merger. The company listed $100 million assets and $100 million liabilities in its petition. Unlike a typical chapter 11 filing, the filing of a chapter 7 petition will provide a path towards liquidation, rather than reorganization, of the company.

On June 15th, Bloomberg Law reported that drug manufacturer Mallinckrodt Plc. is finally close to exiting Chapter 11 protection. The company filed its chapter 11 petition in October 2020, in the District of Delaware and had already spent $100 million by 2020 in fighting opioid-related lawsuits. Since entering bankruptcy, the Company was further accused of price gouging and proffering questionable third party releases in its plan of reorganization. Nonetheless, the Bankruptcy Court confirmed a plan which will allow the Debtor to slash a considerable amount of its debt amount.

The Wall Street Journal reports that the U.S. Treasury moved on Tuesday to block U.S. investors from purchasing Russian debt in secondary markets. As a response to the Russian invasion of the Ukraine, Treasury had originally prohibited the purchase of newly issued Russian government and corporate debt but Treasury has now expanded that policy to include new and existing debt and equity securities issued by any entity in the Russian Federation. Under the new rules, investors can continue to hold already issued debt and remain free to sell or transfer securities as long as they do so to a non-U.S. counterparty. [WSJ; June 7, 2022]

Bloomberg reports the Puerto Rico’s will be hosting its first annual event for bondholders since its bankruptcy in 2017. Notably, in 2017, the Commonwealth of Puerto Rico filed for bankruptcy, becoming the largest municipal bankruptcy in U.S. history. In March 2022, Puerto Rico formally exited bankruptcy after completing the largest public debt restructuring in U.S. history, nearly five years later. As part of an effort to put slash the commonwealth’s deficits, officials will be hosting a two-day conference in San Juan, in which local business leaders will attempt to convince more investors to buy into the economy so that bonds can move out of the hands of hedge funds and other distressed debt purchasers. This conference will also be overseen by the oversight board which Congress created in 2016 to help resolve Puerto Rico’s financial crisis. Such board will ensure bondholders get repaid. [Bloomberg; June 6, 2022]

The USA Today reports that JetBlue Airways Corp. will bolster its efforts to purchase budget airline, Spirit Airlines. Initially, JetBlue offered $3.6 billion in cash and then launched a $3.2 billion tender offer in an attempt to ward off a rival bid by Frontier Airlines, another budget airline. Intensifying the bidding war between the 2 companies, Frontier added a $250 million termination fee to its initial proposal. In response, JetBlue announced that it will provide a $350 million reverse break-up payable to Spirit if the deal isn’t completed due to anti-trust reasons, over $150 million more than JetBlue’s initial bid. Spirit is expected to vote on these proposals on June 10th. [USA Today; June 6, 2022]

The Wall Street Journal reports that the developer of American Dream, the $6 billion mega-shopping mall in East Rutherford, New Jersey, has failed to make a semiannual interest payment on its $800 million issuance of municipal bonds. As a result, bondholders were paid from an $11.35 million debt service account, rather than receiving their interest payments directly. American Dream is the second largest mall in the country and is located near the Meadowlands Sports Complex (a popular concert venue and home to several major league sports teams). The developers issued $2.7 billion of debt to build the mall but faced years of construction delays, followed by closures due to the coronavirus pandemic. [WSJ; June 3, 2022]

Law 360 reports that a ruling by the Chancery Court of Delaware has left the chapter 11 bankruptcy sale of cosmetics company, Stila Styles LLC, at a standstill based on a dispute over the authority of a manger appointed in Stila’s bankruptcy proceedings. The Court found that, as a matter of contract, the company’s 2017 takeover by Lynn Tilton was invalid, and thus Tilton did not have the right to appoint a manager in the company’s bankruptcy. The Chancery Court, however, stopped short of stating who possessed the right to appoint Stila’s manager. [Law 360; May 31, 2022]

Law 360 also reports that certain affiliates of Alex Jones’ Infowars have agreed to drop their bankruptcy cases after defamation claims stemming from Jones’ espousing of conspiracy theories relating to the Sandy Hook school shooting were removed from the Chapter 11 proceedings. The Infowars affiliates at issue had filed under Subchapter V of the U.S. Bankruptcy Code, which is intended to streamline the bankruptcy process for small businesses.  To be eligible to file under Subchapter V, a debtor must have, among other things, an operating business, and several parties challenged the Infowar affiliates’ filing based on that requirement since it was not clear that they actually had operating businesses. Rather than fight those claims, and given that the defamation claims had, in any case, already been removed from the cases, the debtors’ chief restructuring officer determined that it was in the best interests of the debtors’ estates and other creditors to drop the Chapter 11 cases all together. [Law 360; June 2, 2022]

According to Law 360, the Chapter 7 trustee for LeClairRyan PLLC has asked Judge Kevin R. Huennekens of the U.S. Bankruptcy Court for the Eastern District of Virginia to approve an approximately $21 million settlement with legal services provider, UnitedLex, for its alleged part in driving the law firm into liquidation. In July 2021, the Bankruptcy Court rejected UnitedLex’s attempts to dismiss the majority of the trustee’s $128 million in claims. The case was scheduled to go to trial in April 2022 but was postponed because the trustee informed the Court that a deal had been reached. [Law 360; May 31, 2022]

Mayer Brown partners Tyler R. Ferguson, Aaron Gavant, and Sean T. Scott and associate Samuel R. Rabuck recently published an article for Mayer Brown’s Perspectives & Events portal on the January 13, 2022, decision in which Judge David Novak of the US District Court for the Eastern District of Virginia vacated the bankruptcy court’s order confirming the Chapter 11 plan of the Mahwah Bergen Retail Group (formerly known as Ascena Retail Group), holding that the plan’s non-consensual third-party releases were unenforceable. The ruling arrived shortly after an opinion issued by the US District Court for the Southern District of New York in the Purdue Pharma bankruptcy case, in which the district court there held that the Bankruptcy Code does not authorize non-consensual third-party releases outside of the asbestos context.

The full article is available here.

Reuters reports that an April 12, 2022, decision by Judge Ernest Robles of the Bankruptcy Court for the Central District of California, “highlights what appears to be a substantial drafting error” in Subchapter V of the Bankruptcy Code.  Subchapter V is a relatively new Bankruptcy Code intended solely for small businesses.  The drafting error identified by Judge Robles, however, could significantly limit the number of small businesses eligible for relief under that subchapter, a result that Congress does not appear to have intended.  Specifically,  under section 1182(1)(B)(iii) of the Bankruptcy Code, affiliates of “issuers” may not be debtors under Subchapter V with the term “issuers” defined by cross-reference to the Securities Exchange Act of 1934 implying that what was intended was issuers of publicly issued stock.  The definition in the Exchange Act, however, is not expressly limited to publicly issued stock.  And so, on its face, Judge Robes held that an affiliate of any entity that issues any stock – even in a private issuance – is not eligible for Subchapter V treatment.  Judge Robles encouraged Congress to further amend Subchapter V to make clear that the only “issuers” ineligible for Subchapter V treatment are publicly-listed issuers and their affiliates. [Reuters; May 24, 2022]

Law 360 reports that a non-profit Dallas-area nursing home operator, Christian Care Centers Inc., filed for Chapter 11 protection in a Texas bankruptcy court, emphasizing its weakened financial position, in the wake of the COVID-19 pandemic, and indicating that the debtors would pursue a sale process in an attempt to address $64.5 million in outstanding debt. Court papers indicate that the debtors have a $44.2 million stalking horse bid lined up for their facilities, and plan to turn over operations to Georgia-based Bonecrest Resource Group. [Law360; May 23, 2022]

According to CNN Business, discount retailer Century 21 is reopening in spring 2023 in its former location in downtown Manhattan, marking a return following the retailer’s bankruptcy in 2020. The family owners of the original store (the Gindi family) bought back the intellectual property for $9 million during Century 21’s bankruptcy proceedings in 2020 and plan to redevelop the 60-year old brand. [CNN Business; May 17, 2022]

 

Law360 reports that Coinbase included new bankruptcy-related risk factors in a recent SEC filing, explaining that “custodially held” digital assets (i.e., cryptocurrency) could be considered property of a bankruptcy estate if the company were to file for bankruptcy and that Coinbase customers could be treated as general unsecured creditors, which would decrease their likelihood of recovery.  Coinbase’s CEO subsequently explained that Coinbase currently has “no risk of bankruptcy” and that these additional disclosures were included only because of new guidance issued by the SEC.  Nonetheless, such disclosures could result in customers finding cryptocurrency custodial services less attractive. [Law360; May 11, 2022]

The Wall Street Journal reports that the U.S. Court of Appeals for the Third Circuit will hear argument on direct appeal (bypassing the District Court) as to whether the bankruptcy of Johnson & Johnson affiliate LTL Management should be dismissed as a bad faith filing.  The appeal is being pursued by the Official Committee of Tort Claimants, which comprises roughly 40,000 tort claimants who allege damages in connection with Johnson & Johnson’s talc products.  The bankruptcy court previously denied the Tort Claimants’ Committee’s motion to dismiss, which was based on LTL Management’s and Johnson & Johnson’s use of a controversial Texas divisional merger statute which led to LTL Management’s creation prior to the bankruptcy (i.e., the “Texas Two Step”).  [WSJ; May 11, 2022]

Reporting from Reuters indicates that Google’s Russian subsidiary plans to file for bankruptcy after Russian authorities seized its bank account, stifling its ability to pay workers and business vendors.  The reporting reveals that the Alphabet Inc., which owns Google, has been under pressure from Russia for not deleting content Russian authorities have deemed illegal. [Reuters; May 18, 2022]

The Wall Street Journal reports that Pennsylvania-based Armstrong Flooring Inc. filed for chapter 11 bankruptcy relief in Delaware on May 8, 2022, citing supply chain disruptions and increased costs for materials and transportation.  Armstrong Flooring, a publicly-traded company that was founded in 1860, stated that it intends to pursue a sale of its business through the bankruptcy process. [WSJ; May 9, 2022]

Reporting from Reuters on the LTL Management, LLC chapter 11 bankruptcy case indicates that a mediator will be appointed by May 24, 2022, to resolve allegations that Johnson & Johnson violated state consumer protection laws in connection with its talc products.  The claims asserted by various states exceed the $2 billion that Johnson & Johnson initially set aside for LTL-related settlements, and at least 40 states have sought to join the mediation.  LTL Management, LLC is an affiliate of Johnson & Johnson that was formed to resolve thousands of lawsuits against Johnson & Johnson and filed for chapter 11 bankruptcy relief in October 2021. Some talc claim plaintiffs have argued that the filing was an abuse of the bankruptcy system and are appealing the judge’s decision to allow the case to proceed in bankruptcy. [Reuters; May 4, 2022]

The Wall Street Journal reports that the Federal Reserve’s half point interest-rate increase it announced last week is expected to further raise borrowing costs for troubled companies as the sustained period of ultralow interest rates appears to be nearing its end. In 2021, U.S. companies borrowed a record $1.8 trillion in junk-rated loans.  However, bond and loan defaults are nevertheless expected to remain low because of the large amounts of private capital available, and it is possible that the effects of higher interest rates will not be seen for several years. [WSJ; May 5, 2022]

Yahoo! Finance reports that the total number of U.S. bankruptcy filings in April 2022 was down 21 percent compared to April of last year, according to data provided by Epiq Bankruptcy.  Additionally, commercial bankruptcy filings specifically were down 16 percent year-over-year, and April 2022 saw a 3 percent drop-off in commercial filings compared to March 2022. [Yahoo! Finance; May 4, 2022]

The Wall Street Journal reports on the surprise Thursday announcement from the U.S. Commerce Department that the U.S. gross domestic product unexpectedly shrank at a 1.4% annualized rate during the first quarter of 2022.  The WSJ does not expect the GDP report to alter the Federal Reserve’s plan to raise interest rates this year, including at its upcoming meeting this week.  Meanwhile, some are concerned that that this could be the start of a period of stagflation—stagnant economic growth combined with high inflation that, together, significantly weakens purchasing power. [WSJ; April 28, 2022]

Reuters provides an update on the Sackler family’s latest efforts to finalize settlements and obtain releases of opioid-related claims in connection with the Purdue Pharma bankruptcy.  The Sacklers had originally promised to contribute $5 billion to Purdue Pharma to pay claims under Purdue’s confirmed chapter 11 plan, but the District Court, on an appeal of the Bankruptcy Court’s plan confirmation order, rejected the plan, holding that the non-consensual releases in favor of the Sackler family were unlawful.  Purdue appealed further to the Court of Appeals for the Second Circuit, which held oral argument this past Friday.  At the argument, the Sackler family representatives noted that their contribution had been increased to $6 billion while also arguing that settlements of this nature, including non-consensual releases of claims under a chapter 11 plan, are not prohibited under the U.S. Bankruptcy Code.  A decision from the Second Circuit could have widespread implications, not just for the Purdue bankruptcy case but as to the lawfulness of non-consensual plan releases more broadly. [Reuters; April 29, 2022]

Law360 discusses recent developments in the chapter 11 bankruptcy cases of three non-operating affiliates of Alex Jones’ InfoWars enterprise.   Bankruptcy Judge Lopez of the Southern District of Texas scheduled the U.S. Trustee’s and tort claimants’ motions to dismiss the three bankruptcy cases for May 27, and stated that those motions would be heard before the InfoWars debtors’ motion to appoint trustees for litigation trusts.  The U.S. Trustee argues that the cases should be dismissed for cause as bad-faith filings because the cases “serve no valid bankruptcy purpose and were filed to gain a tactical advantage in the Sandy Hook Lawsuits.” Meanwhile, under the debtors’ proposal, Alex Jones and another related entity would fund up to $10 million into the litigation trusts, over time, for the settlement of defamation claims brought against Jones and InfoWars. [Law360; April 29, 2022]

SCOTUSBlog notes that the U.S. Supreme Court just agreed to hear a case that poses the question of whether Section 523(a)(2)(A) of the Bankruptcy Code may be used to exclude debts from an individual debtor’s discharge on the basis of “imputed fraud.” This provision of the Bankruptcy Code allows creditors to seek to exclude debts incurred via “false pretenses, a false representation, or actual fraud” from an individual debtor’s bankruptcy discharge, rendering such debts permanently nondischargeable.  By granting certiorari as to this case, the Supreme Court is positioned to resolve a circuit split as to whether fraud can be imputed to an individual who was entirely unaware of any wrongdoing, thereby rendering the innocent individual permanently liable for the fraud of another individual despite obtaining a discharge of other debts.  [SCOTUSBlog; May 2, 2022]

The Wall Street Journal reports that Russia has taken another step closer to defaulting on its sovereign debts after an industry watchdog overseeing the credit-default swaps market ruled Wednesday that Russia failed to meet its obligations to foreign bondholders when it paid them in rubles earlier this month.  While Russia has continued to deny reports that it is close to default on its sovereign debts, analysts say that payments for the subject bonds in any currency other than the US dollar would constitute a breach of contract.  Following the decision, credit-default swaps tied to Russia’s creditworthiness can be triggered if Russia fails to make dollar payments before a grace period expires on May 4.  The current upfront cost of buying a five-year contract for a Russian credit-default swap is roughly 73% of the total value of the debt to be insured, implying a default probability of 93%.

The bankrupt Roman Catholic Diocese of Camden, New Jersey, has agreed to pay $87.5 million to more than 300 sexual-abuse victims, as reported by The New York Times.  Under the settlement agreement, the diocese will establish a trust to be funded over a four-year period, with claims against certain of the diocese’s insurance carriers to be assigned to the trust.  The parties are seeking bankruptcy court approval of the settlement agreement by early June.

According to Law360, Ireland-based aircraft lessor Nordic Aviation Capital obtained bankruptcy court approval for its chapter 11 plan following support from 99% of the company’s voting creditors.  Under the confirmed plan, which also had support of all existing shareholders, will wipe out more than $4 billion of debt by equitizing approximately $3.6 billion in secured debt and converting those obligations into 100% of the equity in the reorganized company, while also infusing $377 million into the reorganized company through a new equity rights offering.  The company expects to emerge from bankruptcy by the end of May.