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

Bishop: Diocese of Sacramento to seek bankruptcy protection after over 250 lawsuits claim sexual abuse| CBS News Sacramento

After receiving more than 250 lawsuits alleging sexual abuse by clergy and other staff, the Diocese of Sacramento intends to seek Chapter 11 bankruptcy protection by March 2024. Under Chapter 11 bankruptcy protection, a court would supervise how assets would be allocated to claims against the diocese.

S&K Take: Another Diocese case, this time in Sacramento, with approximately 250 claims filed. We have detailed some of these cases on this blog. There have been about 35 of these filings dating back to the early 2000s, with most coming in the last several years with legislation allowing survivors to file claims irrespective of prior statutes of limitation. These cases are never easy, with central issues being victim access to assets, which are frequently located in non-debtor entities (either intentionally or not) as well as insurance coverage and allocation. Survivors will be watching the Diocese with great interest over the next few months, as they should be.   

WeWork resolves landlord objections to bankruptcy financing| Reuters

On Monday, WeWork settled a number of landlord objections to its DIP financing by reserving a portion of future loans to pay rent. The DIP as revised also garnered unsecured creditors’ committee support.

S&K Take: The WeWork cases took a step forward this week, with approval of its DIP Financing proposal. The UCC was on board, and the Debtor was also able to resolve landlord issues shortly before the hearing. The compromise with landlords will see a stub rent reserve among other things. The case has a long way to go, and the Debtors and their advisors have a lot of landlords to negotiate with, but this was a solid start. s will be resolved in the near term, and it has been going on since 2020, amassing some significant professional fees.  

Mall owner PREIT plans to slash $880 mln debt in second bankruptcy| Reuters

Philadelphia-based mall owner Pennsylvania Real Estate Investment Trust (PREIT) filed for Chapter 11 bankruptcy protection for the second time since 2020, focusing on becoming a privately owned company and eliminating $880 million in debt. According to PREIT’s filings, decreases in U.S. retail sales, elevated inflation rates and increasing interest rates made it difficult for the company to handle its $1.1 billion in debt. 

S&K Take: PREIT is back for more in bankruptcy court. The commercial real estate space, particularly malls, has not fared well since PREIT’s first dance in 2020. This time around, lenders will be swapping debt for equity, unsecureds will functionally pass through, and current equity will get a tip. Honestly, not bad for a chapter 22. The company has exit financing lined up to the tune of $125 million. Hopefully they can service that debt.  

Coffee trader Mercon runs out of credit, files for bankruptcy| Reuters

One of the world’s largest coffee traders, Mercon Coffee Group, has filed for bankruptcy protection in the United States attributable to “exceptionally challenging operating environment.” The Coffee Group stated in a letter to its clients that issues in the past few years such as logistical disruption during the pandemic, frost and drought in Brazil, price volatility, and increasing interest rates all combined to hurt the company's financial situation. 

S&K Take: This article doesn’t necessarily cover it, but there was a fascinating development in this one at the first day hearing. Judge Wiles, basically sua sponte, denied the requested DIP because it favored the lender almost exclusively. It isn’t unusual to see terms pared back by the court, but this one was a wholesale “no way.” While a bit anecdotal, this seems to be a more frequent occurrence in New York and Delaware, where we have seen some creditor-favorable decisions (at least in light of those made in Texas pre-resignation). Is this a trend? Talk amongst yourselves.