Below is our initial take on recent bankruptcy-related developments:
Reports from Bloomberg News had revealed that the company’s creditors were going unpaid for months.
S&K Take: PrimaLend filed in the ND Tex on Wednesday, continuing the run of consumer debt related bankruptcies (see, e.g., First Brands and Tricolor). PrimaLend provides financing to car dealerships serving subprime borrowers (“buy-here-pay-here”) and pinned their bankruptcy on rising consumer auto loan defaults, rapid inflation, reduced recovery values on repossessed vehicles and increased delinquency rates in the subprime market. This case is substantially smaller than FB and Tricolor, with $286 million in debt ($75 million of that is unsecured). The debtors propose to finance the case with a $16 million DIP from prepetition lenders (looks like 11 primarily local banks) consisting of $4 million in new money and a $12 million roll-up which would fund a continuation of a sale process that started prepetition. Approval of that DIP won’t be straightforward—an ad hoc group of noteholders from nondebtor PCAP Holdings (the parent) have chimed in as of this morning. Those noteholders argue that Holdings is an obligor on the debtors’ obligations and should be a debtor itself. They argue that Holdings is possibly being kept out of the case to protect insiders and some prepetition shadiness (and to purportedly suppress the possibility that a committee is formed). The ad hoc group has proposed its own DIP facility, with $10 million of new money, asserting that their facility is superior to the DIP on file. The first day hearing is today, so we will report back on how this all shakes out.
On Monday, the states of Maryland and Pennsylvania flagged that Heritage Coal’s liquidation plan failed to enforce environmental obligations.
S&K Take: In smaller case news, the Heritage Coal plan was approved by Judge Walrath on Thursday, but only after insider releases were stricken from the final product. The Judge on Monday had sustained an objection of the official committee of unsecured creditors which argued that the releases were being granted without supporting consideration. In connection with that objection, the committee argued that it did not have adequate time to evaluate claims against the relevant insiders. The debtors in turn argued that the committee had the opportunity to investigate but could not articulate any claims, and that the insiders would not support the liquidating trustee without releases. Judge Walrath ultimately ruled that the releases were not justified based on the evidence and that the parties needed to go back to the drawing board. The debtors came back on Thursday with a plan striking the releases, but also striking provisions providing that the insiders would (i) assist the liquidating trustee and (ii) waive certain administrative claims. Judge Walrath approved that version, so off the parties go. Interesting data point for future plan release litigation.
A trustee in Sanders’ bankruptcy case claims that the former college football star made unauthorized transfers totaling nearly a quarter million dollars.
S&K Take: On to the TMZ portion of today’s program and pseudo-celebrity news. For those that didn’t know (including yours truly), Shilo Sanders, the son of Deion and brother of Shadeur, had filed a personal chapter 7 bankruptcy in 2023 to duck a $12 million judgment rendered in 2022. The judgment relates to a 2015 incident where Sanders allegedly attacked a school security guard, causing the guard permanent and severe injury when he tried to confiscate Sanders’ phone (kids, right!). Sanders says he acted in self-defense but nonetheless failed to show up to trial and took on a default judgment. That brings us to today, where the chapter 7 trustee has filed a complaint. The complaint alleges that Sanders made unauthorized transfers from two entities he controlled, Big 21 LLC and Headache Gang LLC after the bankruptcy totaling approx. $250,000, which may or may not related to prepetition NIL deals. The worlds of bankruptcy and NIL have finally collided! The trustee throws in a stay violation for good measure. Doesn’t seem like Shilo is big on court procedure and being observant of legal restrictions, but the judge will be the judge of that. The plaintiff holding the judgment also asserts that his judgment can’t be discharged, so there are actually legit bankruptcy issues at hand.