Perhaps proving the maxim that people should be careful what they wish for, in a second significant ruling stemming from the Jevic Holding Corp. bankruptcy case, on May 5, 2021, the US Bankruptcy Court for the District of Delaware found that Jevic’s Chapter 7 trustee, appointed following the conversion of the debtors’ cases from Chapter 11 to Chapter 7, did not have standing to continue claims originally brought against the debtors’ prepetition lenders by the Chapter 11 creditors’ committee. Assuming it is upheld on appeal, the decision leaves Jevic’s unsecured creditors without any further remedy against Jevic’s prepetition lenders—in other words, leaving those employees who successfully fought approval of a prior settlement offer by the same lenders all the way to the United States Supreme Court with no recovery from those lenders. Indeed, the decision appears to be a significant victory for secured lenders generally, underscoring the importance of “challenge” provisions typically included in DIP and cash collateral orders.
Fallout continues from the November 2020 bankruptcy sale of Town Sports’ assets to a new entity backed, in part, by an ad hoc group of Town Sports’ prepetition lenders. A separate group of prepetition lenders who did not participate in the sale filed suit in May against the ad hoc group and the administrative agent for the lender syndicate, alleging that ad hoc group’s actions had rendered the non-participating group’s secured loans “essentially worthless.” The case, which is still in its early stages, demonstrates the importance of properly documenting a multi-party transaction and also provides another recent example of “lender on lender” violence. Continue Reading Credit Bidding Gone Awry: Town Sports’ Prepetition Lenders Sue Each Other
Reuters reports that Limetree Bay refinery in the U.S. Virgin Islands, which filed for chapter 11 bankruptcy protection on July 12, 2021, requires at least $1 billion in funding in order to continue operating as a going concern. The Limetree refinery, which was only recently resurrected, was in operation for only three months before U.S. regulators shut it down in May 2021 due to public safety concerns. The reporting indicates that Limetree was unable to obtain emergency financing in an amount over $25 million. [Reuters; July 15, 2021]
The Hill reports that Senate Majority Chuck Schumer is calling for the National Rifle Association to be investigated for bankruptcy fraud. In May, a Texas bankruptcy court dismissed the association’s bankruptcy case, finding that it had been filed in bad faith for the improper purpose of avoiding litigation brought against it by New York state regulators. Prior posts on the bankruptcy, and subsequent dismissal, are available here and here. [The Hill; July 12, 2021]
The Washington Post reports that the U.S. Department of Education continues to routinely contest requests for student loan discharges in bankruptcy despite other government programs aimed at providing relief to student loan borrowers who have needed it in the wake of the COVID-19 pandemic. [WaPo; July 17, 2021]
Reporting from Yahoo Finance indicates that Puerto Rico’s financial oversight board recently reached a deal with the main group of the island’s unsecured creditors that brings it one step closer to restructuring around a proposal that involves reducing overall debt by approximately $35 billion. [Yahoo Finance; July 13, 2021]
With more than $1.7 trillion in student loan debt outstanding in the United States, student loan borrowers sometimes try to turn to the bankruptcy courts for relief, often without success due to the fact that most student loans are presumed to be nondischargeable. In its July 15, 2021 decision in In re Homaidan, the Court of Appeals for the Second Circuit considered one aspect of this issue—whether certain private student loans made directly to a borrower are automatically presumed to be nondischargeable as “educational benefits” under Section 523(a)(8) of the Bankruptcy Code. The Second Circuit found they are not, ruling against the appealing student loan lender. Continue Reading Opinion of Interest – In re Homaidan: Not all Private Student Loans are Presumptively Nondischarbeable in Bankruptcy
Bloomberg reports on shifting dynamics in the retail sector caused by the COVID-19 pandemic, highlighting the transition that certain financial advisory firms have made from advising on liquidating retail assets to sourcing and selling goods at brick-and-mortar retail locations they operate. The article highlights a new off-price department store, Shopper’s Find, that two global financial advisory firms recently opened with locations in Massachusetts and New Jersey. [Bloomberg; July 7, 2021]
On July 7, 2021, the U.S. Bankruptcy Court for the Southern District of Texas confirmed Griddy Energy LLC’s plan of reorganization. A key element of the plan is the debtor’s release of certain customer obligations to pay power bills incurred during the unprecedented winter storm Uri. [U.S. Bankruptcy Court S.D. Tex.; July 7, 2021]
Reporting from the Wall Street Journal indicates that Medley LLC, a unit of publicly traded Medley Management Inc., expects to wind down its business operations in connection with its pending chapter 11 bankruptcy case. Although the debtor initially proposed a plan of reorganization centered around a debt-for-equity swap, that plan was withdrawn and replaced with a liquidating plan. [WSJ; July 7, 2021]
Forbes reports that the U.S. Supreme Court will not hear arguments in Conti v. Arrowood Indemnity Co., a case involving a borrower who tried to discharge approximately $76,000 worth of private student loans in bankruptcy. As a result, the existing standard for student loan discharges—which requires that a debtor seeking to discharge their loans show that continued payments would impose an “undue hardship”—will remain in place for the time being. [Forbes; June 28, 2021]
Mayer Brown Restructuring Partner Lucy Kweskin recently discussed the current state of the restructuring market with the legal news site Law360.
“I don’t think we’ll really know” where the market is headed, Kweskin noted, “until we see what happens at the end of the year and in the first quarter of 2022.” We need to “see a little more of what happens in post-pandemic life to wrap our arms around what’s happened.”
The article, titled “Restructuring Uncertainty To Continue Through 2021,” is available here.
Mayer Brown partners Dr. Thomas S. T. So and Vivien S. K. Yip and registered foreign lawyer Evan Zhou recently published an article for Mayer Brown’s Perspectives & Events portal on a new cooperation arrangement for mutual recognition of and assistance to cross-border corporate insolvency and debt restructuring proceedings between Mainland China and Hong Kong. The article is available here.
CNBC analyzes the Labor Department’s latest jobs report, which showed 850,000 jobs gained in the U.S. in June, much higher than economists expected. The hospitality sector, particularly bars and restaurants, accounted for the largest share of employment gains, with education and professional services also seeing increased employment. The article notes that hiring has accelerated as Americans continue to “return to normal,” and GDP growth for the second quarter of 2020 may end up approaching a staggering 10%. [CNBC; July 2, 2021]
The Wall Street Journal discusses the resurgence of coal as an energy source. Electricity consumption has surged as many countries emerge from the worst of the pandemic, and the shift towards electric vehicles has further increased demand. With prices of alternatives like natural gas rising, and renewables still unable to meet demand, countries are turning to coal as a reliable energy source to satisfy consumer needs and avoid outages. [Wall Street Journal; July 7, 2021]
Yahoo Finance shares Bloomberg’s reporting on Hertz’s emergence from Chapter 11 following a contentious thirteen months in bankruptcy court. Riding a surge in prices for used cars and competition among investors to finance the reorganized entity, Hertz was able to emerge from bankruptcy with a clean balance sheet, paying its bondholders in full. In addition to being a success for the car rental company and its creditors, equityholders, particularly “Reddit traders” who kept buying Hertz stock while the company said its equity was likely worthless, benefit from the receipt of cash, new equity, and warrants for stock in the reorganized company. In particular, since trading of the new stock commenced, Hertz’s stock price has been well above the $13.50 strike price of the equity warrants, a potential windfall to those stockholders. [Yahoo Finance; June 30, 2021]
In other post-bankruptcy news, The Wall Street Journal discusses Authentic Brands’ forthcoming IPO. Over the past couple of years, Authentic Brands has partnered with shopping mall owner Simon Property Group to acquire a variety of retail brands out of their bankruptcy proceedings. At a time when brick-and-mortar retail is on the decline, Authentic Brands is betting on improved fortunes for formerly bankrupt retailers in its portfolio, including Brooks Brothers, Nine West, Forever 21, and JCPenney. [Wall Street Journal; July 7, 2021]
Bloomberg Law analyzes how middle-market companies may be unable to address upcoming supply chain disruption shifts, leading to an increase in bankruptcy filings. [Bloomberg Law; June 22, 2021]
The Wall Street Journal discusses how the pandemic altered retail shopping habits, and the anticipated closure by 2025 of half of remaining mall-based retailers. [WSJ; June 25, 2021]
Bloomberg discusses the transition from LIBOR, and market concerns with the upcoming transition deadline looming. [Bloomberg; June 25, 2021]
Bloomberg reports that Hertz Corp. is tapping the asset-backed securities market this week as part of its emergence from chapter 11 protection, with the proceeds of an anticipated $2.2 billion ABS offering to be used to finance the purchase of new vehicles for Hertz’s rental fleet. [Bloomberg; June 21, 2021]
The Wall Street Journal discusses the $11.2 trillion in outstanding corporate debt, and considers whether companies that took advantage of “cheap money” this past year merely delayed a reckoning coming in the next economic downturn. [WSJ; June 14, 2021]
CNN Business covers the bankruptcy filing of Washington Prime Group, an owner of more than 100 malls across the United States. The company cited temporary closures and relaxation of rent payments from some tenants as the primary causes of its bankruptcy filing. Washington Prime Group is using chapter 11 to “implement a comprehensive and consensual financial restructuring” to deleverage nearly $1 billion in debt. [CNN Business; June 14, 2021]
Bloomberg analyzes retail investors’ continued interest in financially-distressed companies and the increased popularity of “meme stocks” (e.g., AMC Entertainment Holdings Inc., GameStop Corp.). AMC, once on the brink of bankruptcy, now has a “path to a sustainable capital structure,” in part because of the increased demand from retail investors allowed it to sell new shares. Investors also continue to purchase shares of companies already in bankruptcy, a risky bet that has paid off for some investors so far. [Bloomberg; June 11, 2021]
Barron’s analyzes why Hertz’s stock continues to rise when the company is still in bankruptcy, noting the recently-confirmed plan that provides a payout to shareholders. [Barron’s; June 16, 2021]