In its recent decision in Matter of First River Energy, LLC,1 the Fifth Circuit resolved a priority dispute between lienholders regarding their competing claims to cash held by the debtor, First River Energy, LLC. The cash at issue was the proceeds of a pre-bankruptcy sale of crude oil that the debtor purchased from certain producers (located in Texas and in Oklahoma) and then sold on to certain downstream purchasers. Following the debtor’s filing, each of the producers asserted a first-priority lien on the cash proceeds, as did the administrative agent for certain of First River Energy’s secured lenders. The administrative agent subsequently filed an adversary proceeding seeking to confirm its first priority status (senior to the producers), based on its perfection by the filing of a first-in-time UCC-1 financing statement with the Delaware Secretary of State in 2015. The two issues before the Bankruptcy Court were what law applied to the priority dispute (as between Delaware, First River’s state of organization, or Texas or Oklahoma, the locations of the producers and the oil sold) and, based on such choice of law, the priority of the parties’ liens. The Bankruptcy Court ruled that Delaware law applied and found that, under Delaware law, the administrative agent’s lien had priority over the lien of the Texas producers, but that the administrative agent’s lien did not have priority over the Oklahoma producers’ lien. The Fifth Circuit took an interlocutory appeal of the decision.
Reporting from the Wall Street Journal details an independent monitor’s conclusion that Texas’ Public Utility Commission overcharged market participants by approximately $16 billion dollars during Texas’ recent energy crisis by electing to keep wholesale prices raised for 33 hours longer than the monitor deemed necessary. Although the monitor urged the Public Utility Commission of Texas to retroactively reprice the wholesale power market for that period, the Wall Street Journal subsequently reported that the Public Utility Commission of Texas has signaled that it does not intend to reprice power markets due to the potential for unintended consequences with the commission chairman noting that “it is impossible to unscramble this sort of egg.” [WSJ; Mar. 4, 2021; WSJ; Mar. 5, 2021]
The Wall Street Journal reports that optimism about economic recovery has triggered a selloff in US treasury securities and resulted in some fixed income investors pursuing riskier investments, such as below investment grade debt, equity-linked bonds, and certain stocks. [WSJ; Mar. 5, 2021]
Bloomberg reports that a group of Hertz Global Holdings Inc.’s unsecured lenders have proposed an alternative restructuring option to the currently contemplated sale of Hertz’s assets to two investment funds for up to $4.2 billion. Under the unsecured lenders’ proposal, Hertz’s restructuring would be centered around a debt-for-equity swap. The proposal also contemplates that shares in the reorganized debtors will be publicly traded. [Bloomberg; Mar. 4, 2021]
Marketwatch reports that Austin, TX based dine-in movie theater chain Alamo Drafthouse filed for chapter 11 bankruptcy protection on March 3, 2021, with plans for a sale to two investment firms. Alamo was subsequently authorized to access $7 million in DIP financing on March 4, 2021. [Marketwatch; Mar. 3, 2021]
In a recent opinion issued in the Cinemex theater bankruptcy cases, In re Cinemex USA Real Estate Holdings, Inc., Case No. 20-14695-BKC-LMI, 2021 WL 564486 (Bankr. S.D. Fla. Jan. 27, 2021), Judge Laurel M. Isicoff of the U.S. Bankruptcy Court for the Southern District of Florida ruled that while Cinemex was excused from paying rent under a lease for one of its Florida theaters for the time period during which Cinemex, and other non-essential businesses, were barred entirely from opening under Florida’s COVID shutdown orders, Cinemex’s obligation to pay rent was not excused, and the lessors were entitled to payment of rent as an administrative priority expense, once Florida’s shutdown orders were lifted and Cinemex was allowed to reopen, even if only at partial capacity.
Reuters reports that the involuntary bankruptcy proceeding filed against Navient by three student loan borrowers on February 8, 2021 was dismissed on February 25, 2021. In dismissing the case, Judge Martin Glenn of the U.S. Bankruptcy Court for the Southern District of New York noted that there was no evidence Navient was not paying its debts as they came due and that the borrowers did not hold claims that were not subject to a bona fide dispute. For more information on the involuntary bankruptcy case filed against Navient, see our previous post on the filing. [Reuters; Feb. 25, 2020]
The Wall Street Journal reports that 96 Wythe Acquisition LLC, which is the owner of the Williamsburg Hotel in Brooklyn, filed for bankruptcy on February 23, 2021. The filing comes after an approximately $68 million adverse judgment was rendered against the Debtor in New York state court arising out defaults under a loan agreement, the proceeds of which were used to complete construction on the hotel. The reporting notes that filings such as this may be indicative of significant strain placed on the New York hospitality industry as a result of the COVID-19 pandemic. [WSJ; Feb. 23, 2021]
Reporting from Bloomberg indicates that fast food chain Steak ‘n Shake recently retired the remaining balance of its $220 million term loan that was set to mature in March 2021, which will reportedly allow it to avoid a chapter 11 bankruptcy filing. Subsequent reporting indicates that Steak ‘n Shake sued one of its lenders, in Indiana state court arguing that the lender improperly used information that it received while negotiating a purchase of certain real estate assets from Steak ‘n Shake to purchase Steak ‘n Shake debt on the secondary market, and ultimately increase the cost to Steak ‘n Shake of retiring its outstanding debt. [Bloomberg; Feb. 22, 2021]
Puerto Rico has reportedly reached a deal with its creditors to reduce the country’s approximately $18.8 billion in debt to approximately $7.4 billion and exit its nearly 4 year long bankruptcy case, reports Yahoo Finance. Puerto Rico’s oversight board is expected to seek bankruptcy court approval of this deal in the third quarter of 2021 and exit bankruptcy by the end of the year. [Yahoo Finance; Feb. 24, 2021]
Perhaps not unexpectedly, on February 25, 2021, a New York bankruptcy court dismissed the involuntary bankruptcy petition brought earlier in the month by three student loan borrowers against Navient Solutions (see our prior post on the borrowers’ petition here). Navient is the student loan servicing arm of Navient Corporation, one of the world’s largest student loan-originators.
Continue Reading Navient Case Dismissed Confirming High Bar to Involuntary Bankruptcy Petitions
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]