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    Air Sickness, Token Appeal, and Cooling Down

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    February 2, 2024

    Editor’s Note: Hat tip to the Creditors Rights Coalition for reaching out after last week’s blog to inform yours truly that the “judge shopping” concerns of creditor advocates extend beyond just the S.D. of Texas, and that a uniform rule providing for the random assignment of cases would, in their view, protect against other jurisdictions (such as the recently popular District of the Garden State) implementing Houston-like panels in the future. Thus, the scope of their proposed rule is more expansive than my commentary suggested. Always happy to receive reader feedback and point well taken! On to this week’s news!

    Below is our initial take on recent bankruptcy-related developments:

    JetBlue, Spirit seek expedited appeal of ruling blocking merger | Reuters

    In a joint court filing, JetBlue Airways and Spirit Airlines are seeking an expedited appeal aimed at getting the First U.S. Circuit Court of Appeals to reverse a lower court ruling that blocked their $3.8 billion merger. The airlines stated if the appeal is not expedited, the appeal could be moot because the merger agreement involves an outside closing date of July 2024.

    Gol airline receives court approval to borrow $350 million in bankruptcy | Reuters

    On Monday, U.S. bankruptcy judge Martin Glenn allowed Gol, a Brazilian airline, to borrow the first $350 million of its bankruptcy financing, which an attorney for the company stated was “desperately” needed to continue standard operations. Judge Glenn permitted the initial funding at a court hearing in New York City, even with his concerns about the large cost over the total $950 million loan.

    S&K Take: Back to the friendly skies this week. The last time we checked in, Spirit was exploring options with respect to 2025 maturities on the heels of the merger rejection and Gol was rumored to be exploring bankruptcy. Spirit is now seeking an appeal of the merger decision on an expedited basis, noting that the agreement has an outside date of July 2024. The DOJ’s response was (and I am paraphrasing) “well, amend the agreement.” The First Circuit split the baby, agreeing to hear the appeal in June. Query whether they would render a decision by July. Seems unlikely, but I am far from an antitrust expert.

    A lot to report in Gol. The airline got approval for its DIP on an interim basis ($350 million) even though Judge Glenn bristled at the size of the DIP and the fees. Per the Debtor, assuming a 15-month case, the DIP lenders would reap about 25.5% in fees on the $950 million facility. That is some real cash to be sure ($242.25 million). The Debtors argued that the DIP was in line with other foreign airline cases, including LATAM and Aeromexico, although apparently Avianca got a deal. The Debtors, per the DIP milestones, are required to have a plan on file by October 11. The Debtors noted that the case turns on negotiations with lessors of their aircraft. In a somewhat ironic move, former Debtor LATAM allegedly reached out to Gol’s lessors offering to take on some of Gol’s leases. Obviously, Debtors’ counsel decried this as an automatic stay no-no. Judge Glenn also warned professionals to mind the fees, noting that the Debtors have seven law firms on the matter.  

    Terraform Labs says bankruptcy will enable appeal of SEC lawsuit | Reuters

    On Tuesday, Terraform Labs stated that its bankruptcy filing will authorize it to seek a “do-or-die” appeal in a securities fraud case conducted by the U.S. Securities & Exchange Commission. In a bankruptcy court filing, Terraform’s statement cites a ruling in December by a federal judge that discovered the blockchain company and its founder Do Kwon breached U.S. law by not registering two digital currencies.

    S&K Take: This case is finally “taking form” (alternative title for this entry—you might see it later so pretend I didn’t say that) with the Debtor providing the rationale for filing and addressing some issues raised by the SEC and the UST. The Debtor intends to self-fund its case with (apparently) plenty of assets on hand, including $35 million in BTC and other crypto (although 80% BTC), $87 million in Luna 2.0 (which the SEC also argues is a security), and a $57 million escrow in Singapore which the Debtor has reserved for litigation (but which the Debtor believes will at least partially be returned to the company). So why are we here? That is a question the UST and the SEC raised, noting the lack of financial distress (think LTL). Query whether we see a motion to dismiss the case based on that theory. Otherwise, the Debtor noted that the filing was to stay certain litigation with the SEC, which won summary judgment on the “security” issue in December. Another hearing is scheduled for March. The UST noted a lack of creditors, making a committee seem unlikely. We will see. The SEC promises to be fun no matter what.  

    Celsius exits bankruptcy, commences return of over $3B to creditors | Cointelegraph

    Cryptocurrency lender Celsius has emerged from Chapter 11 and is set to begin allocating $3 billion worth of crypto and fiat to creditors, as well as establishing Ionic Digital, a new Bitcoin mining firm. Notably, Celsius increased the amount of crypto for distribution by $250 million. Celsius stated in a court filing that it will wind down operations and terminate its mobile and web applications by February 28.

    S&K Take: This may be our last temperature-related title for the Celsius case. The Celsius plan is effective, and the company has commenced $3 billion in distributions of crypto (57.9% of claims per Bank to the Future’s Simon Dixon on X). Ionic Digital, a BTC miner has been created and is owned by creditors. The debtors’ independent directors took a deserved victory lap citing a successful case based on a team effort. The case was very acrimonious at times and included some extremely active pro se creditors throughout. Kudos to them as well, an impressive effort in steering the case. Founder and former CEO Alex Mashinsky will face his comeuppance at trial beginning in September.  

    The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

    November 18, 2022

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