Below is our initial take on recent bankruptcy-related developments:
On Tuesday, U.S. Senators introduced a bipartisan bill intended to discourage the Texas Two-Step. The bill aims to deter financially healthy companies from evading “responsibility for injuries they caused” through bankruptcy.
S&K Take: Senators Dick Durbin, Sheldon Whitehouse and Josh Hawley have proposed the “ending Corporate Bankruptcy Abuse Act of 2024” which would seek to limit the use of the ol’ Texas Two-Step. The bill would prohibit the granting of a stay against non-debtors for any Two-Step debtor and “instruct” judges to dismiss Two-Step cases unless the debtor can prove that the case was filed in good faith. These bills are always fun. They typically don’t get very far and are always chock full of unintended consequences. Though this author is currently unburdened by actual knowledge of what the bill says (the Senators released a summary) I would venture to guess that defining what constitutes a Two-Step debtor could be a tricky proposition. Litigation over “good faith” is already a thing as well, with J&J now on Two-Step numero tres. We will keep an eye on this as it develops. There is a sister house bill that will be presented as well.
BlockFi sold its FTX claims, a move that marks a significant step in the completion of its bankruptcy process. The sale was reported to the United States Bankruptcy Court for the District of New Jersey and concluded with a bid at a substantial premium to their face value. The sale enables a near-term final distribution of 100% of eligible customer and general unsecured creditor claims in fiat terms. BlockFi intends to commence the final customer distribution promptly.
S&K Take: Not very often that you see a debtor sell a bankruptcy claim against another debtor, but that is precisely what happened in BlockFi. It is a unique circumstance—the claim was huge and the claims market for FTX claims was/is frothy with the FTX plan offering recoveries of up to 143%. Last I heard some claims were trading in the 125 context. In any case, a good result for BlockFi with most claims catching at or near 100%. The massive rising tide in crypto value has lifted all customer claim boats (although most would’ve preferred their BTC or ETH back).
Red Lobster lenders are a step closer to gaining control of the seafood chain after no contending purchaser challenged their bid for the bankrupt business. According to court papers, Red Lobster called off an auction that was planned to start Tuesday because no outside buyers put forward offers by a specific deadline.
S&K Take: The credit bid strikes again—yet another bankruptcy sale without an overbid. Fortress is agent for the DIP/prepetition lenders who will become owners. There is a settlement in place that gives GUCs some litigation claims against equity and former Ds/Os (shared with lender deficiency claimants) and about $2.5 mil in cash. Confirmation is slated for Sept. 5, although the Court just let the Debtors know that any releases need to be opt-in (rejecting an opt-out structure). Query whether that slows things down (Purdue fallout alert!).
