Below is our initial take on recent bankruptcy-related developments:
The U.S. Trustee has objected to Spirit Airlines' rapid bankruptcy proceedings, arguing that the case is too complex for a rushed timeline. The trustee believes a more cautious approach is necessary, including the filing of financial statements before proceeding with a disclosure statement.
S&K Take: The UST opposed what has become normal practice in most bankruptcy cases, the combined DS and plan hearing. The debtors are attempting to get a hearing set for Jan. 29 with a Jan. 21 objection deadline. Which makes sense—the debtors have been saying that this case is a functional prepack since filing. The UST wants the debtors to chill a bit, noting that this case is a multi-billion dollar public company mega case, and that the details of the DS and the plan “will take time for parties to digest, obtain counsel if necessary, and then vote in a meaningful way.” The UST also stated that the combined DS/plan process was created for “smaller or mid-market cases.” I don’t believe there is any detail on where that precise line is drawn, but good to know. There may be an equity committee in the works, so maybe that slows things down a touch?
Nearly two years after Party City Holdco Inc. filed for bankruptcy, the company is planning a second as it runs out of cash to run operations.
S&K Take: A name familiar to restructuring pros is back making headlines. Party City originally filed in January of 2023, cutting its debt by approximately $1 billion to $513 million. The company purportedly had about $100 million in equity value when it exited. Well, we are back. The company is struggling based on a number of factors facing retailers, including inflation, real wage contraction, the cost of consumer credit and a reduction in consumer savings. Who has cash for balloons anymore? According to a source, the company could file this month (to liquidate this time). Alternatively, a filing could also be delayed, or the business may be sold. So basically anything can happen, but whatever it is is probably not good for existing stakeholders.
FTX is contesting a $1.5 billion claim filed against it by liquidators for Three Arrows Capital, a bankrupt crypto hedge fund. The dispute is unfolding in Delaware bankruptcy court.
S&K Take: Interesting dispute in the crypto world, with Three Arrows Capital seeking to amend its claim in the FTX cases from $120 million to a little over $1.5 billion. No big deal, just a quick 10x. 3AC alleges that the initial claim put the FTX debtors on notice of 3AC’s potentially massive claim, and that the debtors’ estates are not prejudiced by the amendment. 3AC also argues that it could not have known the size of its claim at the non-customer claims bar date, which was in June of 2023. The debtors argue the other side of that—3AC’s joint liquidators were in possession of the information required at the bar date and failed to file the appropriate claim. Moreover, the debtors’ creditors relied on the $120 million amount in casting their votes in favor of the plan, and not the new $1.5 billion number which will dilute the recoveries of other creditors. In sum, no do-overs. Judge Dorsey’s questioning felt a little skeptical of 3AC’s rationale for the amendment, although I won’t go out on a limb and make a prediction. We will keep a close eye on this one.