Below is our initial take on recent bankruptcy-related developments:
The 4th U.S. Circuit Court of Appeals recently ruled to extend Georgia-Pacific’s protection against lawsuits while its subsidiary Bestwall remains in bankruptcy.
S&K Take: The latest in a wave of rulings, one way or the other, on the validity of the Texas Two-Step. The Fourth Circuit considered the bankruptcy courts jurisdiction to issue an injunction staying lawsuits against a non-debtor, in this case new Georgia-Pacific, the “goodco” in GP’s Texas Two-Step (with Bestwall playing the role of the “badco”). The Fourth Circuit upheld the bankruptcy court’s 1334 “related to” jurisdiction 2-1. The dissent was issued by Judge King, who sided with some of the rationale in the recent LTL and 3M decisions, noting that the Texas Two-Step was an attempt to manufacture jurisdiction in the bankruptcy court for entities that are not truly in financial distress. So we now have another data point on this issue, and courts are pretty split on the concept.
After originally filing for bankruptcy in December 2022, Core Scientific has filed its Chapter 11 plan. Since filing for bankruptcy, the company has seen an increase in liquidity and hopes to make a full comeback.
S&K Take: This has been an interesting case, and definitely an example of a rising tide lifting all boats. The price of BTC (now near $30k) has increased the profitability of Core Scientific, a crytpo miner, exponentially during the course of the case. This has turned what was a bleak situation into a plan that seeks to pay creditors in full and make a distribution to equity. That is all fine and good, but a big chunk of the consideration will be equity in a crypto miner. So what happens in 6 months if the price of BTC tanks? The equity could be worthless. Claims are still trading in the 30/40 context (though that might be a bit stale) so no one has a great handle on plan valuation. One of those circumstances where the volatility of crypto makes bankruptcy really hard. Not all creditors are on board, and there is a dissenting ad hoc group, so we will see what they have to say about this plan.
Bed Bath & Beyond has accepted Overstock.com’s $21.5 million bid for their assets. The online retailer will receive Bed Bath & Beyond’s intellectual property, business data, rights to mobile apps and certain contracts.
S&K Take: Overstock was the stalking horse here, so this has to be a disappointing result for BBBY creditors. We covered the situation in last week’s post, and to say the least it is gloomy. Sadly nothing here to change that outlook.
Just a little over a month after filing for bankruptcy, Vice Media has agreed to sell to Fortress Investment Group. If the sale is approved by a federal judge, this will bring the company out of Chapter 11 bankruptcy.
S&K Take: Fortress, Soros and Monroe credit bid $350 million in debt for the company (their bid was initially $225 million). GoDigital Media was the other bidder here putting up a $300 million bid (although it looks like the debtors declined to qualify that bid). Not a surprising result given the valuation in comparison to the debt level. Remains to be seen what this outcome means to creditors, although a secured lender credit bid does not typically bode well for unsecureds. We will be watching this one and report on that in the coming weeks.