Reuters reports that Mahwah Bergen Retail Group – the former owner of the Ann Taylor retail clothing brand – obtained bankruptcy court approval of its revised reorganization plan, from which certain non-debtor releases were removed.  The revised plan comes after the U.S. District Court for the Eastern District of Virginia held that the non-debtor releases contained in an earlier version of the plan were void and unenforceable. [Reuters; March 3, 2022]

Bloomberg reports on a new bankruptcy filing by Lear Capital Inc., a gold and silver coin dealer previously accused of deceiving customers.  The company was sued in recent years by both the City of Los Angeles and the State of New York for its deceptive business practices.  While those suits have since been settled, the company explains in its Chapter 11 petition that the bankruptcy process would help it simplify its process for resolving any potential future legal claims.  [Bloomberg; March 2, 2022]

Law360 discusses the United States Trustee’s recent filing in support of the dismissal of a Chapter 11 case filed by government contractor Team Systems International LLC.  The US trustee argues that Team Systems’ case appears to have been improperly filed merely to avoid a $6.25 million court judgment and should therefore be dismissed as having been filed in bad faith.  [Law 360; March 2, 2022]

According to a recent Fitch report, U.S. airlines generally avoided bankruptcies due to sizable liquidity balances, manageable debt and substantial government support while Latin American airlines were harder hit with three of Latin America’s largest carriers filing for Chapter 11.  [Fitch; March 1, 2022]

In its January 14, 2022 decision in In re Wolfson, the United States Bankruptcy Court for the District of Delaware discharged Chapter 7 debtor Ryan K. Wolfson of nearly $100,000 in student loan debt.[1] Chief Judge Laurie Selber Silverstein found that Wolfson, an often un- or underemployed and chronically ill man, met the three-prong “Brunner test” and proved that repayment of his student loans would result in “undue hardship” under Section 523(a)(8) of the Bankruptcy Code. Declaring most interpretations of Brunner “unmoored from the original test and the plain language of ‘undue burden,’” Judge Silverstein held that, under the Brunner test, a debtor need only show an inability to maintain “a minimal standard of living” while repaying his or her student loans, not a total incapacity to ever repay them. In discharging the nearly six-figure debt, Judge Silverstein’s opinion found that allowing lifelong student loan debts to escape discharge absent an onerous standard of undue hardship conflicted with the promise of a “fresh start” that the Bankruptcy Code offers.

Continue Reading Opinion of Interest – In re Wolfson: A Potential Re-Evaluation of the “Undue Hardship” Test for Student Loan Borrowers

According to Reuters, businesses are contending with increased costs as supply chain issues continue to disrupt the economy. Companies have struggled to keep up with demand for consumer goods, which soared during the pandemic. Costs include rising prices for raw materials due to halted factory production and backlogs of ships waiting to unload cargo in American ports. Furthermore, employers must also factor in wage increases to attract and retain talent in an attempt to ensure that goods are produced and delivered as quickly as possible as labor shortages further compound the supply chain crisis. [Reuters; Feb. 25, 2022]

Yahoo Finance reports that the Federal Reserve has suggested raising interest rates in its semi-annual report to Congress, which was released on Friday. Citing a “strong” U.S. labor market, the Fed plans to raise rates at its March 15 meeting to counter high inflation. The Fed’s report also noted that lowering interest rates to nearly zero early in the pandemic contributed to elevated prices in riskier securities. [Yahoo Finance; Feb. 25, 2022]

Per Law360, Disney is once again battling a copyright infringement lawsuit from writer Jeffrey Scott, who claims the entertainment company stole his idea for a “Muppet Babies” spinoff in its 2018 reboot of the popular 1980s children show. Scott previously sued Disney in October 2020, alleging that Disney, which acquired Marvel Productions, failed to uphold his production deal with Marvel and Muppets’ creator Jim Henson by failing to pay him royalties and fees while employing his ideas for the reboot. The federal district judge in that case dismissed the complaint, ruling that Scott lacked standing because the claims were an asset of his bankruptcy estate. The Chapter 7 Trustee in Scott’s bankruptcy case revived the copyright infringement suit, filing a complaint on behalf of the bankruptcy estate in California federal court last Friday. [Law360; Feb. 22, 2022]

As reported by Bloomberg, hearings began on Monday to decide whether to dismiss Johnson & Johnson’s District of New Jersey bankruptcy case. Employing the so-called “Texas Two-Step” strategy, J&J used Texas law to create the subsidiary LTL Management to hold its talc-related liabilities. LTL then filed for bankruptcy, with a pledge from J&J to fund a $2 billion trust, as part of a confirmed Chapter 11 plan, which would be used to pay out on talc claimants’ claims. J&J’s use of Texas Two-Step, along with other companies’ pursuit of a similar strategy in recent years, has led to some in Congress considering whether legislation may be necessary to curtail the strategy. [Bloomberg; Feb. 13, 2022]

CNBC reports that the consumer price index rose 7.5% in January, surpassing expert estimates and reflecting the highest reading since February 1982. Rising inflation has had a ripple effect on Wall Street in recent months, leading to declines in futures, especially for rate-sensitive tech stocks, and the benchmark 10-year U.S. Treasury note reaching 2%, the highest it has been since August 2019. Consumers have also been greatly impacted with housing, vehicle, and food costs up significantly over the past 12 months. [CNBC; Feb. 10, 2022]

Per CNN Business, the Dow, S&P 500, and Nasdaq surged on February 15 after Russia announced its withdrawal of some troops near Ukraine suggesting a potential de-escalation in the region. Sources have suggested that armed conflict between Russia and Ukraine could lead to global disruption in energy supplies and further price hikes given that Russia is a major natural gas and oil exporter. Prior to Russia’s announcement, the Dow and S&P 500 had declined three days in a row, and more volatility is expected as the situation continues to develop. [CNN Business; Feb. 15, 2022]

Mayer Brown partners Adam C. Paul, Sean T. Scott, Louis S. Chiappetta, Aaron Gavant, and Tyler R. Ferguson recently published an article for Mayer Brown’s Perspectives & Events portal on the December 16, 2021, decision in which Judge Colleen McMahon of the US District Court for the Southern District of New York reversed the bankruptcy court order confirming the Chapter 11 plan of Purdue Pharma, L.P. and its affiliated debtors, holding that the Bankruptcy Code did not authorize the plan’s non-consensual third-party releases. Judge McMahon’s decision is now the subject of an expedited appeals process whose outcome has the potential to substantially affect the ability of shareholders and other third parties to obtain releases in a Chapter 11 case.

The full article is available here.

On January 20, 2022, Mayer Brown Restructuring lawyers Louis Chiappetta (Partner), Lucy Kweskin (Partner), and Samuel Rabuck (Associate) published an article in Law360 on a recent ruling from an adversary proceeding in the In re The Hertz Corp. bankruptcy case by the Delaware Bankruptcy Court on the enforceability of make-whole premiums in bankruptcy.

Given the uncertainty of their enforceability in bankruptcy proceedings, make-whole provisions have long been a source of contention for debtors and creditors alike.  The article highlights the importance of careful drafting to avoid common pitfalls with make-whole provisions.

The complete article can be viewed by following this link.

Reuters reports that a district court judge has deferred to the bankruptcy court on whether Johnson & Johnson is entitled to the continuing protection of the Bankruptcy Code’s automatic stay from mass tort lawsuits that it would otherwise face relating to its talc products while its subsidiary, LTL Management, proceeds through bankruptcy.  A committee of talc claimants appointed in LTL Management’s case had moved to “withdraw the reference” of that decision from the bankruptcy court, arguing that the matter would be more appropriately decided by the district court.  The district court disagreed, finding that the reach of the automatic stay was a matter within the core jurisdiction of a bankruptcy court.  [Reuters; Jan. 12, 2022].

The Financial Times reports that the Houston Division of the Southern District of Texas has become a magnet for mega chapter 11 bankruptcy cases, challenging more traditional jurisdictions like Delaware and the Southern District of New York.  In 2021, a third of all U.S. bankruptcy filings where the debtor’s liabilities exceeded $500 million were filed in Houston.  Major cases filed in Houston include JC Penney, Neiman Marcus, and Chesapeake Energy.  [Financial Times ; Jan. 11, 2022]

Reporting from the Wall Street Journal indicates that the Federal Reserve has concerns about rising inflation in the U.S.  Federal Reserve Chair Jerome Powell called high inflation a “severe threat” to full economic recovery and said that the central bank plans to raise interest rates because the economy no longer needs emergency support.  However, Powell also stated he is optimistic that supply-chain bottlenecks will ease, helping to lower inflation.  [WSJ; Jan. 11, 2022]

The Bankruptcy Court for the Southern District of New York (the “SDNY”) has been a longstanding epicenter of Chapter 11 filings. Historically seen as one of the more pro-debtor forums in the country, large companies often filed in the SDNY to take advantage of that stance. Some debtors appear to have attempted to direct their cases to specific judges within the district who were seen as particularly pro-debtor. One recent example was the bankruptcy filing by OxyContin producer, Purdue Pharma. Facing a historic indictment by the Department of Justice, along with mounting tort claims relating to the marketing of its drugs, Purdue—a company headquartered in Connecticut—changed the mailing address of one of its units from Albany to White Plains six months before filing for bankruptcy.[1] As a result, Purdue was able to file its petition in the bankruptcy court in Westchester (within the Southern District) so that it could be heard by Judge Robert Drain, a longtime judge with extensive experience over cases for large-chapter 11 debtors and the only commercial bankruptcy judge in Westchester.[2] Purdue rationalized its decision by stating that “White Plains is about 15 miles from our corporate headquarters and is the closest federal Bankruptcy courthouse,” yet many took issue with this supposed rationale.[3] Purdue was also not an isolated case. Nationwide, a subset of three judges (including Judge Drain)—out of the total three hundred and seventy-five bankruptcy court judges—heard 57% of all large public company Chapter 11 filings in 2020.[4]

Continue Reading Attempting to Close the Shops: New York and Virginia Adopt Random Case Assignment to Discourage Forum Shopping

Recapping 2021, Bloomberg reported that last year saw the fewest annual bankruptcy filings in nearly four decades, falling 24% from 2020. A total of 3,596 chapter 11 cases were filed in 2021, about 3,000 fewer than the year before. The stimulus funds and easy access to liquidity combined with debt forbearance were pointed as the driving forces behind the drop in bankruptcy filing. As a result, distressed investors found themselves looking at increasingly unusual opportunities for returns, a trend that is set to continue in 2022. The year 2022 started with just $62 billion of distressed bonds and loans outstanding, down substantially from nearly $150 billion at the end of 2020.

According to WSJ, Puerto Rico’s bankruptcy plan, which analysts expect to be approved in the next several weeks, would end defined-benefit retirement programs covering tens of thousands of active teachers and judges in Puerto Rico. Retirement ages would be increased, delaying when pensions can be tapped. Spiraling pension obligations are not unique to Puerto Rico, with burdens having ballooned for many other U.S. cities and states in the last two decades. For example, Chicago has $11 billion in bond debt and net pension liabilities of $53 billion.

Per Reuters, the Sackler family has until January 14 to make a deal with nine states and the District of Columbia and to negotiate changes to the Purdue bankruptcy plan after the settlement was rejected by the U.S. District Court in December. The short-term mediation efforts, with Judge Shelley C. Chapman as mediator, come after Purdue and the Sacklers filed challenges to the district court decision reversing the bankruptcy court approval.

On Tuesday, December 21, Bloomberg Economics reported that the latest strain of COVID-19, Omicron, is set to halve fourth quarter global economic growth. According to Bloomberg, the global economy is expanding at just 0.7% in the final three months, which is half the pace of the third quarter. The European economy is on pace for a 0.8% expansion this quarter while the United States is on track to register a 1.2% growth. Experts are warning that as the year closes, this variant—which is said to be far more transmissible than its predecessors—has the potential to throw off gains enjoyed by the global economy earlier in the year due to the efficacy of vaccines and available treatments in particular as it is coupled with accelerating inflation worldwide. [Bloomberg; Dec. 21, 2021]

Also on Tuesday, Yahoo! Finance reported that Credit Suisse has downgraded its views on the U.S. equities market from “overweight” to “neutral”, citing the near-term risks associated with the Omicron variant. Credit Suisse’s investment committee noted that the market could face a situation “in which the growth prospects are waning while central banks are forced to tighten liquidity at the same time” in light of rising inflation. The investment bank also cut UK stocks to “neutral” citing a deterioration of earnings. [Yahoo! Finance; Dec. 21, 2021]

On Sunday, December 19, Bloomberg Economics reported salary increases in several professions, most notably occupational recruiters—which experienced a 14% increase in salaries this year. Other professions that had salary increases when adjusted for inflation include: educators and corporate trainers, public relations experts, restaurant managers, cleaners, and coordinators. On the whole these professions appear to be white collar or managerial, with the biggest gains being in sectors that suffered large exits in the workforce due to the pandemic. This phenomena occurred despite the nationwide fall in wages overall when adjusting for inflation. The salary increases of professional recruiters seem to suggest the high demand for different jobs and that “job switchers and new hires” in sought-after industries are getting raises that outpace the recent surge in consumer prices. Furthermore, such data spotlights the contrast between new hires and existing workers at this time of high inflation, an issue predicted to linger for some time. [Bloomberg; Dec. 19, 2021]