Below is our initial take on recent bankruptcy-related developments:
The Chapter 11 filing comes after the golf legend won a $50 million defamation lawsuit against his namesake former company.
S&K Take: Took a minute to figure this one out, with Nicklaus filing bankruptcy after a judgment was obtained by Nicklaus. To summarize in a somewhat haphazard fashion, it turns out that the one and only Golden Bear sold his NIL rights and golf course design services to The Nicklaus Company, co-owned by billionaire Howard Milstein, in 2007. That company, now the debtor, built 440 golf courses worldwide and sold merchandise bearing Jack Nickalus’ name and likeness. The relationship between Jack and the company devolved over time. In 2017 Jack terminated his employment agreement with the company, and in 2022 he completely backed away, essentially saying that he would no longer be affiliated with the company. The debtors sued Jack, alleging that he was improperly using the debtors’ IP and damaging the brand. Like the ’86 Masters, Jack eventually came out on top, with a NY court granting Jack summary judgment and dismissing the debtors’ complaint. Jack sued the debtors in 2023 alleging that Milstein and the debtors’ president had made defamatory statements about Nicklaus relating to his desire to be involved in LIV (now LXXII I believe) golf. Like many a skins event, Jack cashed in, obtaining a $50 million judgment against the company. Jack also won in an arbitration in Florida. For those keeping score, that is 18 majors and 3 litigation wins. He is now going for 4. Jack objected to the DIP motion (the DIP was being provide by a Milstein affiliate), arguing that the crux of the case is the characterization of $462 million prepetition debt claim held by Milstein entities. If that is characterized as preferred equity (Jack’s position), Jack wants to buy the company. If that is debt ($462 million in debt against $17 million in revenue seems a little odd), one has to assume Jack’s judgment gets wiped. The parties alluded to mediation, so there is a potential for settlement? Maybe, or maybe just a good, old-fashioned recharacterization fight.
The retailer filed for Chapter 11 last Sunday, months after the CEO and co-founder resigned in light of financial “irregularities.”
S&K Take: We have another significant fraud case on the docket, this time in Delaware. Lugano is a Newport, CA based designer, manufacturer and retailer of high-end jewelry (named after a Swiss lake, nothing screams high-end like Swiss lakes). Lugano employed an appointment-only sales strategy at its retail locations and apparently dominated the horse-related high-end jewelry market through its equestrian division launched in 2008. Lugano also operates “Lugano Privé,” and exclusive private social club for clients. Anyway, fast forward to this past summer when Compass Diversified Holdings LLC filed an 8-K with the SEC disclosing that it had commenced an internal investigation into Lugamo (Compass had acquired the majority of the equity in 2021 and was Lugano’s largest lender to the tune of about $700 million). Within weeks 60 counterparties came out of the woodwork noting that they had been involved in questionable transactions with Lugano’s founder, Mordechai Ferder (about a dozen of those parties commenced litigation). The company appointed independent directors, commenced a sale process, and here we are. The bankruptcy is procedurally interesting—Compass is putting up the DIP as one would expect, but the company is running a two-tier sale process. Essentially, the company has found an agent that will backstop the sale of the debtors’ inventory but is also marketing the right for third parties to step in and act as that agent. Sale process intrigue aside, we will keep an eye out for salacious details about Mordechai’s fraud over the coming weeks.
Last Wednesday, a U.S. bankruptcy judge allocated a $7 million budget to investigate allegations involving the use of third-party financing for customer invoices.
S&K Take: Following up on our prior coverage of First Brands, Judge Lopez entered an order approving the appointment of an examiner, although he seemed focused on facilitating an agreement among the parties as to scope and budget. The debtors, the UCC and the ad hoc group of first lien cross-holders had consented to the appointment. Those parties, along with the US Trustee and movant Raistone, negotiated an order which was entered by Judge Lopez with some minor changes. That provided for a $7 million budget for the examiner, who is tasked with investigating “the facts and circumstances, including general corporate practices, concerning the Debtors’ prepetition factoring processes and factoring transactions” and the facts and circumstances of the debtors’ “off-balance sheet financing transactions”. The examiner is to come back before the Court with a work plan, which will undoubtedly be subject to scrutiny and revision. The UST, which had said an examiner could be appointed as soon as this week, backed off of that statement in a notice filed Nov. 20. The UST changed tack, noting that they had received 50 nominations and recommendations of candidates, and were intending to conduct in-person interviews. The UST indicated that he would file a status report updating progress on Dec. 1.