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

First Brands CEO James resigns amid bankruptcy process; turnaround expert in charge | Reuters

Newly instated Chief Restructuring Officer Charles Moore has been positioned at the company since September.

S&K Take: The restructuring landscape has felt quiet recently, at least in-court. The major exception to that sentiment has been the First Brands case (and, to a lesser extent, the Tricolor chapter 7). First Brands has been busy setting the table for what looks like a long and convoluted process of rooting out and addressing pervasive fraud. The cast of characters is distinguished. Since we last covered the case a few weeks ago, Raistone Capital (owed $172 million), one of the debtors’ factors, filed an emergency request for the appointment of an examiner who would investigate the alleged disappearance of $2.3 billion (among other things). Raistone criticized the debtors’ proposed use of the company advisors to guide the special committee in its investigation. The UST followed suit just under a week later, arguing that the scope and gravity of the purported malfeasance (while noting that a commentator called First Brands the “Enron of car parts”) is too great for an internal investigation, and that alleged wrongdoers remain on the board of managers. The US Attorney for the SDNY joined in, launching their own investigation. A creditors’ committee has also been appointed. I would venture to guess that they will want to investigate as well. Cue the Oprah gif where everyone gets an investigation. Jefferies, a meaningful financial institution, came out with a statement, asserting that any impact of the First Brands disaster is “meaningfully overdone.” Lenders are getting restricted until the second day hearing (pricing on the DIP is unusual, with new money at 106 and the roll-up at 45ish), and a critical vendor has moved to lift the stay so it can assert its maritime lien rights in certain collateral. The second day hearing is scheduled for October 29, and the examiner motions are slated to be heard on November 17. Nothing in life is guaranteed, but I am pretty sure we will discuss this case again.

Bankruptcy judge sinks KY distiller’s plan to pay off debt with barrels of whiskey | Lexington Herald-Leader

A depressed bourbon market has drowned out Kentucky Owl/Stoli’s plan to cover $78 million in debt with 35,000 barrels of whiskey.

S&K Take: As we noted above, there hasn’t been a whole lot to talk about in the restructuring space. We could go back to Tricolor, or maybe quickly cover the Spirit DIP approval, but there was a decision in the Stoli Group (USA) confirmation hearing that caught our attention. Stoli had proposed a plan which sought to pay off secured lender Fifth Third Bank by turning over 35,000 barrels of whiskey, proceeds from the sale of certain other inventory, providing a springing lien on certain real estate, and issuing a promissory note for any deficiency. Judge Everett (ND Tex) found that this was insufficient, ruling that the plan was not fair and equitable as to Fifth Third and also not feasible. Judge Everett focused (at least in part) on the value of the whiskey inventory. In case you haven’t noticed, people are drinking a lot less post-pandemic. Inventory of both spirits and wine which was produced in response to the surge of drinking that happened during the pandemic has become extremely hard to move (see Vintage Wine Estates, Spring Mountain Vineyard, Meier’s Wine Cellars, among others). This is particularly true of younger inventory (0 to 3 years in bourbon). The Judge noted with approval Fifth Third’s expert’s view that the market for such inventory is essentially “frozen” and that it is “darn near impossible” to sell, particularly when you are trying to move 35,000 barrels. The Judge sent the parties back to the drawing board. Fifth Third has since agreed to extend usage of cash collateral to Oct. 24th, and it seems like the parties are making progress. Keep an eye on the spirit/wine market though, as it appears massive distress is in the offing.