According to Bloomberg’s U.S. Bankruptcy Tracker, the amount of distressed bonds and loans traded in U.S. markets had the biggest weekly boost of this year, with distressed debt in the telecommunications and oil and gas industries driving the jump. [Bloomberg, Sept. 28, 2021]

The Wall Street Journal discusses a report issued by the Government Accountability Office, the investigative arm of Congress, which recommended that Congress require court oversight of executive retention bonuses paid shortly before a chapter 11 filing.  According to the report, in the last fiscal year 42 businesses paid out $165 million in executive retention bonuses before filing for bankruptcy, avoiding scrutiny from bankruptcy judges which they would otherwise have been subject to had they sought such awards post-petition.  [WSJ; Sept. 30, 2021]

Forbes reports on a federal district court’s recent decision reversing a New York bankruptcy judge’s ruling that granted cancellation of a Navy veteran’s $221,000 student loan, reasoning that he failed to show why his student loans created an “undue hardship.”  While the standards for discharging student loans in bankruptcy have always been strict, the decision is notable given recent political debate and proposed legislation on student loan forgiveness.  [Forbes; Sept. 30, 2021]

Reuters reports that the Boy Scouts of America received tentative approval to start soliciting votes from its creditors, including sexual abuse victims, on its proposed reorganization plan.  The survivor groups reportedly have conflicting views on the settlement offers proposed by the plan. [Reuters; Sept. 29, 2021]

In a somewhat unexpected development given his recent appointment to a second 14-year term a mere 5 years ago, Bankruptcy Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York announced that he intends to retire as of June 30, 2022.  Judge Drain has presided over many large, high-profile chapter 11 cases, most recently the Purdue Pharma bankruptcy proceedings, in which he confirmed  the debtors’ proposed chapter 11 plan, including releases of non-debtor Sackler family members, over the objections of the U.S. Trustee and numerous other stakeholders.  Other major cases that Judge Drain has presided over include Momentive, Sears, Frontier Airlines, Windstream, and Frontier Communications.  Among other things, Judge Drain was well known for his willingness to confirm prepackaged chapter 11 plans of reorganization sometimes within days or even hours of case filing, provided the debtor could establish that creditors would not be harmed by the speed of the proceedings.   It will be up to the U.S. Court of Appeals for the Second Circuit to select a new bankruptcy judge to fill the vacancy left by Judge Drain’s departure.

Bloomberg Law discusses pending petitions for certiorari seeking the U.S. Supreme Court’s review of lower courts’ application of the “equitable mootness” doctrine, which places significant limits on dissenting parties ability to appeal from orders confirming Chapter 11 plans of reorganization.   One such petition arises out of the Nuverra Environmental Solutions case, which we previously discussed here.  The Bloomberg article, which quotes Mayer Brown Restructuring partner and Real Bankruptcy Intel editor Aaron Gavant, notes that equitable mootness is a judge-made doctrine that, as a practical matter, tends to preclude any meaningful appellate review of an already-confirmed plan.  The article also predicts that the doctrine may come into play in the context of the Purdue Pharma reorganization plan in the event that the plan is not stayed pending forthcoming appeals. [Bloomberg Law; September 27, 2021]

Reuters reports on the U.S. Federal Reserve’s plans to begin tapering its $120 billion in monthly bond purchases.  The reduction will depend in part on another month of strong jobs data, according to Fed Chair Powell and Governor Brainard. However, Fed Governor Brainard has also warned that August’s slower-than-expected jobs growth and the prevalence of the COVID Delta variant make it difficult to predict when the economy will be strong enough for the Fed’s taper plans to proceed. [Reuters; September 27, 2021]

Law360 notes that a bipartisan group of U.S. Senators have reintroduced a bill designed to make it more difficult for corporate debtors to select what they perceive to be friendly bankruptcy courts for their bankruptcy filings.  The Bankruptcy Venue Reform Act of 2021, which is nearly identical to a similar act that was proposed in 2018, was reintroduced in the Senate last week, and would amend the provisions of Judiciary Code governing venue to limit the options that businesses filing for bankruptcy have.  The article notes that the National Rifle Association attempted to use the current permissive bankruptcy venue statute to file in Houston, Texas, despite being incorporated in New York and headquartered in Virginia; likewise Purdue Pharma was able to select “the specific judge it wanted to hear its case by selecting the White Plains division” of the Southern District of New York.  The 2018 efforts to pass bankruptcy venue reform stalled in Congress and it is not clear whether this newest attempt will fare any differently.  [Law360; September 24, 2021]

In a case of art meets life meets bankruptcy, an entity owned by South Park creators Matt Stone and Trey Parker is seeking to purchase Denver’s Casa Bonita restaurant out of the chapter 11 proceedings of its owner, Summit Family Restaurants Inc. Despite being a local Colorado institution since 1974, and having its fame supercharged by a 2003 South Park episode, Casa Bonita, like so many other businesses in the hospitality industry, was unable to weather the COVID-19 pandemic.  According to court filings, the $3.1 million purchase price for Casa Bonita, if the sale is approved, will be sufficient to more than satisfy all claims filed in Summit’s bankruptcy case.  [Canon City Daily Record; September 27, 2021]

On September 1, 2021, Judge Robert Drain issued a much-anticipated oral ruling approving Purdue Pharma L.P.’s plan of reorganization. The plan, which has garnered significant attention from the media, legislators, academics, and practitioners, releases current and future members of the Sackler family and many of their associates and affiliated companies – none of whom filed for bankruptcy themselves – from liability in connection with any possible harm caused by OxyContin and other opioids that Purdue Pharma manufactured and distributed. In return for the liability releases, the Sacklers will, over a nine-year period, contribute up to $4.325 billion to a settlement fund from which payments will be made primarily to compensate victims and to fund initiatives to abate the opioid epidemic.

Continue Reading SDNY Bankruptcy Court OKs Purdue Pharma’s Plan of Reorganization Featuring Third-Party Releases for Sacklers in Exchange for Contributing $4.325 Billion to Opioid Victim Settlement Fund

Law360 reported that the U.S. Trustee’s Office filed a motion opposing a “death trap” provision contained in Avianca Holdings’ Chapter 11 plan of reorganization. In bankruptcy, so-called “death trap” provisions reward classes of creditors for voting in favor of plans of reorganization with higher payouts as an incentive for them to vote to accept a given plan of reorganization that would nevertheless pay out less than what a given class is arguably owed under other provisions of the Bankruptcy Code. Pursuant to Avianca’s plan disclosure statement, Avianca’s general unsecured creditors, which, as a class, are owed between $2.5 and $3.5 billion, would receive their choice of either $36 million in cash or 2.5% of the equity in the reorganized Avianca if the class votes in favor of the plan as opposed to $30 million in cash and 1.75% of the equity if the class votes against the plan. The U.S. Trustee’s Office argued that Avianca, the second-largest airline in Latin America, failed to justify its use of the death trap provision in the plan.  [Law 360; September 8, 2021]

Federal Reserve officials have indicated they could begin tapering their $120 billion in monthly purchases of Treasurys and mortgage-backed securities in November, according to the Wall Street Journal.  Plans taking shape could reduce such purchases at a rate that would conclude asset buying sometime in the middle of 2022.  [WSJ; September 10, 2021]

Reuters reported that luxury furniture retailer ABC Carpet & Home gained approval to access $2.25 million of a $5.7 million loan on an interim basis to fund its continued operations during bankruptcy. ABC, which filed for Chapter 11 bankruptcy last week, is reportedly seeking to sell its assets by the end of October and already has a $15.3 million lead bid from 888 Capital, an entity controlled by Regal Investments. [Reuters; September 10, 2021]

Energy prices are soaring in Europe, which the Wall Street Journal reported was spurred by a sudden slowdown in wind-driven electricity production off the coast of the United Kingdom in recent weeks. To make up for the wind shortfall, gas and coal plants emerged to fill in the gaps, raising prices. For electricity, prices in the U.K. more than doubled at their peak and were almost seven times higher than the same time last year. The European markets could see even greater price shocks this winter, when energy demand is significantly greater, presenting possible system-wide stability issues. [WSJ; September 13, 2021]

The Wall Street Journal reports on bond managers’ continued chase for yield, in the continuing, historically low-rate environment, in which yields on even junk bonds have reached record lows not seen in over 30 years. In particular, the Journal notes that some fund managers have even started investing in unrated, illiquid bonds, increasing the risk to their portfolios given the potential for illiquidity in times of distress, while at least temporarily pumping up returns. [WSJ; September 5, 2021]

USA Gymnastics proposed a plan of reorganization that would include a $425 million settlement for the victims of Larry Nassar, the former national team doctor who has been convicted of sexually assaulting young gymnasts under the guise of medical treatment. According to the New York Times, while the survivors’ committee pushed for even greater financial compensation for victims to cover the cost of things like medical care and therapy, it nonetheless signaled its support for the plan based on USA Gymnastics’ commitment to reforming the organization to make its athletes safer. [NYT; August 31, 2021]

Reporting from Reuters indicates that the COVID-19 pandemic will cause the main U.S. Social Security trust fund reserves to be depleted in 2033, a year ahead of predictions made last year. After 2033, the Old Age and Survivors Trust Fund will only be able to pay 76% of scheduled retirement benefits. [Reuters; August 31, 2021]

A New York judge denied a motion by Trimark USA and certain of its lenders to dismiss claims brought by minority lenders alleging that certain new debt issued by the company violated the terms of the preexisting credit agreements and improperly allowed majority lenders to take priority over minority lenders.  The lawsuit has been tracked closely by the industry as another example of lender-on-lender violence. The case is Audax Credit Opportunities Offshore Ltd. v. TMK Hawk Parent Corp., 565123/2020, New York State Supreme Court, New York County. Stay tuned for a more fulsome analysis of the court’s decision in an upcoming post… [Bloomberg; August 17, 2021]

 

Per SCOTUSblog, on Friday, August 20, property owners and real estate groups asked the Supreme Court to halt the Biden administration’s new eviction moratorium after a federal appeals court let it stay in effect. The realtors argue that the Biden administration ignored an earlier Supreme Court decision signaling that the Centers for Disease Control and Prevention did not have authority to impose the latest ban on August 3. The Biden administration issued the new moratorium anyway indicating its hope that, even if the moratorium was eventually struck down, while the issue was being litigated, additional rent relief could be distributed. [SCOTUSblog; August 20, 2021]

 

Back in July, Federal Reserve officials indicated they were on track to begin tapering some of their stimulus programs later this year, despite lingering differences over when exactly to pull back support. The WSJ followed up and reported that minutes of the Fed’s July 27-28 meeting, which were released last week, revealed an emerging consensus to support scaling back at one of the the Fed’s three remaining policy meetings this year. The Fed’s next meeting is on September 21-22, and several Fed officials have said they would argue in favor of beginning to taper bond purchases shortly after that meeting if the recent run of strong hiring continues. But the July minutes don’t necessarily indicate that such a step will happen in September, and the WSJ suggests a reduction is more likely come after the Fed’s November 2-3 meeting. [WSJ; August 18, 2021]

In its August 5th, 2021 VeroBlue Farms decision,[1] the Eighth Circuit lent its voice to a growing body of criticism of the equitable mootness doctrine contending that its use to bar challenges to confirmed reorganization plans should be circumscribed.  Laying out a new investigation that must be undertaken before using the doctrine to bar confirmation order appeals, the Eighth Circuit emphasized that reviewing courts must: (1) make “at least a preliminary review of the merits” of an appeal to determine the strength of the claims at issue; (2) assess the “amount of time that would likely be required” to resolve the merits of such claims on an expedited basis; and (3) consider the potential equitable remedies that might still be available even after a plan’s implementation, should the appeal prove successful, which would not undermine the plan or harm third parties.

Continue Reading Mootness Muted? – Eighth Circuit Circumscribes Use of Equitable Mootness Doctrine to Bar Bankruptcy Plan Appeals

The Wall Street Journal reports on Purdue Pharma’s continuing confirmation hearing covering the company’s proposed reorganization plan centered around a $4.5 billion settlement with its founders, the Sackler family.  Currently, the Sackler family is named in civil litigation which alleges that the family knowingly fueled opioid addiction through the marketing of OxyContin, an opioid painkiller. A restructuring specialist who had joined the Purdue board before its chapter 11 filing testified on the first day of the confirmation hearing that the Sackler family required releases so as “to be able to put all of the litigation behind them.” The settlement, and related third-party releases of the Sackler family, are being challenged by state and federal authorities as well as some members of Congress. If the plan is approved, the Sacklers would make an immediate payment of $300 million as well as yearly installments until 2030. [WSJ; Aug. 12, 2021]

The Associated Press reports on an ongoing hearing in the Boy Scouts of America bankruptcy regarding a proposed settlement that would be the centerpiece of a proposed reorganization.   The settlement would consist of an $850 million distribution to sex abuse victims, $250 million of which would be paid by Boy Scouts of America itself with remaining $600 million to be contributed by local councils.  On the first day of the hearing, to Judge Silverstein’s surprise, the Boy Scouts noted that their national board had never adopted a resolution approving the settlement.  However, the debtor claims the agreement is nonetheless a valid exercise of its business judgment and should be accepted as the cornerstone of its final bankruptcy plan. [AP; Aug. 12, 2021]

Forbes reports on a recent trend of major financial institutions (in this case Bank of America) losing their status as their millennial consumers “primary” account banks to digital banks.  Top platforms, in this regard, include PayPal, Current, Dave, and Square Cash. Forbes chalks up the continuing shift to the more personalized nature of digital banks and the changing nature of what consumers consider to be their primary “checking account.” [Forbes; Aug. 16, 2021]

The Wall Street Journal reports that the creators of South Park have made a deal to purchase Casa Bonita, a Mexican restaurant and family entertainment center outside Denver which was featured on the pilot of the popular cartoon. The creators announced they would purchase the restaurant, which filed for bankruptcy earlier this year due to the Covid-19 pandemic, pending court approval. Casa Bonita is a Mexican resort-themed restaurant with 30 foot high waterfalls in which cliff divers famously jump to entertain guests. The deal comes after South Park was renewed for another six seasons with Viacom-CBS. The show is expected to earn the creators more than $900 million. [WSJ; Aug. 13, 2021]

Mayer Brown Restructuring lawyers Lucy Kweskin and Tyler Ferguson recently published an article in Westlaw Today highlighting key bankruptcy trends in the first half of 2021, including recent court pushback on granting debtors “extraordinary” relief from rent obligations in light of the COVID-19 pandemic, lofty valuations placing equity holders in the money, and developments in recent high profile mass tort cases. The article also discusses industries to watch over the remainder of the year.

The article, titled “Key Bankruptcy Trends in the First Half of 2021,” is available here.