Below is our initial take on recent bankruptcy-related developments:
J&J’s First Attempt to Escape Cancer Claims With Bankruptcy Failed. Now It’s Trying Again | Bloomberg
After Johnson & Johnson’s failed first attempt to use bankruptcy to avoid claims being brought against it, the company has once again filed for Chapter 11 protection. This time, J&J has included a plan that would involve paying $8.9B to resolve all talc-cancer lawsuits. This figure is significantly higher than the initial settlement proposed in the initial filing, and J&J says that they have the support of many claimants.
S&K Take: No financial distress? Hold my beer and watch this. LTL re-enters bankruptcy with a revised funding agreement from J&J. This one provides for $8.9 billion in funding for claimants, an increase of $6.9 billion over the last go-round, but funding is limited there. LTL asserts that because it no longer has access to J&J’s full balance sheet, it satisfies the financial distress requirement articulated by the Third Circuit. LTL also purports to have 60,000 claimants on board. LTL has filed a full slate of first day motions and a TRO request in front of Judge Kaplan, just like last time. It will be fun to see where this one goes.
In its latest attempt to avoid bankruptcy, retail chain Bed, Bath & Beyond has announced a new deal with ReStore Capital, who has agreed to purchase up to $120 million of merchandise from the store. This will enable BBB to supplement stock at its store locations, many of which currently have near empty shelves. While the deal will help the retailer increase their inventory position, this has not changed its plans to continue to close most of its stores around the country.
S&K Take: In BBBY news this week, the retailer lined up a consignment arrangement to alleviate some of the issues it is having in obtaining inventory, inking a $120 million deal with ReStore. ReStore would be well served to remember the Sports Authority consignment debacle—file your UCC’s and send notices to any secured lenders! In any case, this might be window dressing, as BBBY by all accounts still needs to raise capital from its $300 million offering to avoid bankruptcy. No new word on that front.
Virgin Orbit Holdings Inc filed for Chapter 11 bankruptcy protection this week. The satellite launching company founded by Richard Branson has struggled to secure funding after a failed launch this January. The filing comes days after the company announced it would be laying off an estimated 85% of its employees.
S&K Take: Virgin Orbit has entered bankruptcy as another failed de-SPAC transaction. The deal failed to raise as much capital as promised (where have we heard that before). The company’s liquidity issues were exacerbated by a failed launch in January of this year, which directly led to its filing. The company laid off a significant number of employees, and already faces a WARN act complaint.
As a result of the collapse of the FTX exchange, the company’s philanthropic arm, FTX Future Fund, was shut down as well. The Fund, which was sponsored by former CEO Sam Bankman-Fried, had promised $1B to multiple research and academic programs across the country. Many of these grant recipients are now in limbo, as some have been forced to abandon their programs while others who did receive initial submissions are faced with the decision of using the funds or returning them.
S&K Take: This is a true conundrum. Pop quiz hotshot. You’re a non-profit that received support from FTX Future Fund. You need the funds provided, but they could very well be subject to a claw back action at some point. What do you do? Hopefully you have the wherewithal to pay the amounts back in any circumstance, but it is a little more difficult if you run lean. Is the potential incurrence of legal fees in defending an action worth the risk? Very tough question for what may be worthwhile causes caught up in the SBF morass.