Below is our initial take on recent bankruptcy-related developments:
Bed Bath & Beyond has been warning of a potential bankruptcy since early January. It finally filed for bankruptcy protection and has asked the courts for permission to auction its assets.
S&K Take: We now have the details of the BBBY cases, where the debtors intend to run concurrent going-out-of-business sales and a broader section 363 sale process for some or all of its assets. If the larger sale process doesn’t pan out, recoveries are not pretty for most creditors. The debtors estimate $718 million of net proceeds from the GOB process, which would not even cover the secured debt. Unsecured creditors, including over $1 billion in bonds, would be left hoping that litigation claims have some value so that they can wring out a recovery. One of the more interesting aspects of the case, which some commentators have already noted, is what happened in the lead up to this bankruptcy. The company basically sold what are now worthless shares of stock into the marketplace, to the tune of hundreds of millions of dollars, the vast majority of which went to pay down the debtors’ secured lenders. Almost bizarre that shareholders were willing to take the risk given that the debtors did this in broad daylight under what looks to be like full disclosure. I wouldn’t be surprised to see some actions come out of the equity dealings, but those currently look like an uphill battle. Everyone had eyes wide open. Meme stocks strike again!
Celsius creditors claim that some FTX users were involved in suspicious trades that may have manipulated the price of the Celsius token in 2022. The creditors are seeking the help of a bankruptcy judge to identify the users.
S&K Take: Celsius is in the middle of an auction, but there was some other news this week, with claims coming out that some creditors may have been seeking to manipulate the value of the CEL token around the time of the pause which froze Celsius’ assets prior to the bankruptcy. The unsecured creditors’ committee is seeking to look into the transactions pursuant to Rule 2004. These cases continue to be enormously interesting, with a different twist coming out on a weekly basis. This one further shows the interrelated nature of all of the crypto bankruptcy cases.
On Wednesday, Voyager Digital told a New York bankruptcy judge that it will be pivoting to liquidation of its $1 billion in cryptocurrency assets after crypto exchange Binance.US terminated its agreement to purchase it.
S&K Take: Binance is out, so Voyager is pivoting to a liquidation, which looks like it will be the end of the road for customers that have been on an absolute roller coaster throughout these cases. Debtors’ counsel has stated that customers can expect a 40% to 65% recovery, with the delta determined by the outcome of litigation with Alameda over a $446 million loan that was made to Voyager on the doorstep of bankruptcy. The numbers are interesting, since crypto has seen significant value appreciate since Voyager was the first of the big cases to file last July. A lot of lessons coming out of this case, and there are still more to be learned. Let’s not forget that the government has appealed the plan, or at least the exculpations, which are a discrete aspect of the plan. That appeal remains a wildcard here.
Silicon Valley Bank's attorney said that its former owner may need to take out a bankruptcy loan amid uncertainty about the U.S. Federal Deposit Insurance Company's seizure of $2 billion in cash from the company. The FDIC has not yet said whether it will return any of the $2 billion seized at the time of the bank failure. The bank failure was the largest collapse since Washington Mutual went bust during the financial crisis of 2008.
S&K Take: There is some tension between the FDIC and the bankruptcy of Silicon Valley Bank’s parent company. The FDIC seized $2 billion in cash and has yet to disclose what it intends to do with that money. The Judge presiding over the case has given the FDIC a week to make that determination. In other SVB news (hot off the presses this morning), the Fed released a report on the SVB debacle, citing the failures of management and government supervisors in the collapse. Interesting to see some government accountability.