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    December 1, 2023

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

    Endo creditors seek to resolve U.S. government claims for $465 mln| Reuters

    According to court documents filed last week, Endo and a group of the company’s lenders are offering up to $465 million to settle U.S. government claims that have held up the company’s bankruptcy restructuring. The lender group would take over the company in exchange for eliminating $6 billion in company debt.

    S&K Take: Some sizable tax and opioid claims ($7 billion-ish) of the US Government have, up until this point, held up the Endo restructuring. The company had otherwise cut deals with case constituents, but the 800-pound gorilla in the room remained an obstacle. It seems like there may be a path forward now, which provides for a $365 million payment over 10 years, plus another potential $100 million if the company performs. Either the company or the US could opt for a one time payment of $200 million at confirmation. We will see if the company and the lenders can get this one over the finish line.   

    Long Island Diocese proposes $200 mln settlement of sex abuse claims| Reuters

    On Tuesday, the bankrupt Catholic Diocese of Rockville Centre, New York, presented a proposed $200 million settlement of sex abuse claims, but encountered instant pushback from a U.S. bankruptcy judge who requested additional financial information.

    S&K Take: The diocese cases have been brutal, lasting on average 2.5 years. There are 13 ongoing cases out of 30+ that have been filed based on sex abuse claims. The major issues revolve around the involvement of the individual parishes, which are typically non-debtors, and the resolution of claims against those entities. Insurance issues abound as well. The $200 million here breaks down into $50 mil from the diocese and $150 mil kicked in by 130 parishes. Judge Glenn called this proposal a non-starter, telling the debtor that financial information for each of the individual parishes was a prerequisite to an approvable DS/plan. The $200 mil proposed would be about $333k/claimant, which is on par with the average recovery in these cases of about $350k per claim. I hate to look strictly at the numbers given the seriousness of the underlying causes of action, but that is how the math has generally shaken out. Doesn’t look like this will be resolved in the near term, and it has been going on since 2020, amassing some significant professional fees.  

    US judge dismisses involuntary bankruptcy against Mexico's TV Azteca| Reuters

    Last Tuesday, U.S. Bankruptcy Judge Lisa G. Beckerman dismissed an involuntary bankruptcy case against Mexico TV’s Azteca coming from a petition filed by bondholders over failed payments. The decision granted the TV broadcaster’s motion to dismiss on grounds that the petitioning creditors’ claims are subject to a bona fide dispute as to amount.  

    S&K Take: Will cut to the chase, this one is a bit bizarre to me, although it is not necessarily out of line with other precedent. Bondholders are owed about $400 million in the case, and alleged a $13 million make whole was due as well. The alleged debtor challenged the entitlement to the make whole. Some of the bondholders filed an involuntary. They are indisputably creditors of the alleged debtor with claims that far exceed the statutory requirement to act as a petitioning creditor. Yet the court ruled that they were disqualified to serve as petitioning creditors because their claims were subject to a bona fide dispute as to the amount? 3.25% of their claim was disputed, leaving 96.75% valid. While the Code says that to qualify claims cannot be subject to a “bona fide dispute as to liability or amount”, so a strict reading could lead to that conclusion, it cannot be Congress’s intent that an otherwise qualified creditor should be excluded because some de minimis portion of its claim is challenged. These are legitimate creditors, clearly. It makes much more sense (at least to me) that they would be able to avail themselves of the rights conferred by section 303. Based on this, a creditor with an undisputed $50 million claim could be excluded if the debtor alleged in some proceeding that the claim was actually $49,999,999.  

    Celsius Network pivots to bitcoin mining after bankruptcy| Reuters

    Crypto lender Celsius Network has scaled back its post-bankruptcy business operations to center solely on bitcoin mining, recognizing U.S. regulators’ doubt of the legitimacy of its other planned business lines. The crypto lender’s restructuring plan had additionally contemplated that the company earning “staking” fees by authenticating blockchain transactions and directing its legacy portfolio of cryptocurrency loans, but it decided to change course after receiving feedback from the U.S. Securities and Exchange Commission.  

    S&K Take: This could fall into the “no duh” category. After the crackdown on Binance, operating in the crypto space is no easy feat. There will be a good amount of uncertainty as to what industry participants are able to do unless and until the regulatory regime in the US is set out in a coherent and clear manner. Good luck with that.  

    The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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