Below is our initial take on recent bankruptcy-related developments:
Drugmaker Mallinckrodt, who previously emerged from its initial Chapter 11 in June 2022, filed for its second bankruptcy this week. The company has attributed this latest move on high interest rates, upcoming settlement payments and reduced sales. Their second restructuring plan would reduce its debt by $1.9B. The plan currently has support from a large majority of its creditors, though the plan would result in a reduction of settlement funds for the upcoming opioid lawsuits.
S&K Take: Not an enviable position for opioid claimants, but one that unfortunately comes up in restructurings. MNK simply couldn’t fund the amount that was agreed upon—so how much of a haircut do you take? The answer was pretty significant for those claimants, agreeing on a payment that was reduced by a billion dollars. Not always easy to be realistic and make the best of the cards that you have been dealt. This concept is coming up in a number of bankruptcy cases and out of court restructurings, where things have gotten ugly. Have a sense that “ugly” case will abound for the foreseeable future.
Reports came in this week that pharmacy chain Rite Aid is preparing bankruptcy filings. The filing would allow the company to restructure its debt that totals approximately $3B, and help it address pending opioid lawsuits.
S&K Take: Another opioid-related case in the news, with the household name drug chain looking like bankruptcy is in the offing. The claims against Rite Aid allege that the pharmacy filled opioid prescriptions knowing that they did not meet legal requirements. Reports of a prospective bankruptcy have been floating since early July, but the Wall Street Journal reports that a filing could be imminent. The article focuses on the impact on shoppers (highly unlikely that there will be any) but the bigger question is the impact on $3 billion in funded debt. Seems like we will be covering this story again and soon.
3M has agreed to pay $6B to settle numerous lawsuits brought by U.S. veterans and service members that claim they suffered hearing loss from using the company’s earplug products. This development comes after 3M attempted to move the lawsuits into bankruptcy court, to try to limit its liability. The deal is not final yet, but if confirmed the funds would be paid out to approximately 240,000 claimants, between 2023-2029.
S&K Take: From one mass tort case to another, 3M has an agreement to settle its combat arms earplug litigation for a total of $6 billion, comprise of $5 billion in cash and $1 billion in stock. 3M subsidiary Aearo tried out the Texas Two-Step but was rebuffed by an Indianapolis bankruptcy court that dismissed the case in June. Aearo had proposed funding of $1 billion to settle the claims, so the gambit’s failure cost 3M a few bucks. The settlement isn’t final—outside of bankruptcy, approval thresholds for settlements like these are high. If more than 2% of veterans opt out of the settlement, the deal is off. So there remains wood to chop. 3M is concurrently seeking approval of a $12.5 billion settlement of PFAS litigation, which looks like the next frontier in mass tort bankruptcies.
In a recent filing, crypto exchange Gemini is arguing against Genesis’ proposed bankruptcy plan, stating that the plan does not include enough detail. Opponents of the plan also note that it would fail to secure all the debts it owes. Genesis had originally filed for bankruptcy in January 2023.
S&K Take: The Genesis debtors cut a deal with unsecured creditors (through the UCC) as well as their parent, Digital Currency Group after months of settlement discussions. While the terms of that deal have not been revealed in full (and may not currently exist?), they are not satisfactory to a Gemini and a group of lenders (the self-titled Fair Deal Group), which have objected to exclusivity. A group of lenders asserts that they have put an alternative deal on the table which would fund litigation against DCG and is superior to the proposed deal in every respect. Buckle in for this. Doesn’t look like this will be resolved any time soon.