Below is our initial take on recent bankruptcy-related developments:
U.S. Court Rejects J&J Bankruptcy Strategy for Thousands of Talc Lawsuits | Reuters
This week, the U.S. Court of Appeals for the Third Circuit dismissed a Chapter 11 filing by a recently created J&J subsidiary to address more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and talc products caused cancer. This ruling represents the first major denial of an emerging legal strategy to avoid massive lawsuit exposure known as the Texas two-step.
S&K Take: The clear headline in restructuring this week, as the Third Circuit deals a blow to the “Texas Two-Step” strategy. It is something short of a death knell though, as the decision focuses more on the quantum of financial distress, and not so much on the corporate machinations that precede any Texas Two-Step filing. Regardless, this decision, along with 3M, will make most prospective steppers wary of implementing the strategy.
Bitcoin Miner Core Scientific Borrows $70 Million to Replace Bankruptcy Lender | Reuters
Bitcoin miner Core Scientific Inc. received approval from a bankruptcy court to end its current financing agreement with a group of creditors and can now move forward with a new $70 million loan from its largest junior creditor.
S&K Take: The volatile nature of crypto was always going to make related bankruptcies interesting. In this instance, it is a boon for Core Scientific. The debtor had obtained DIP financing at the outset of the case, although that financing was at least somewhat onerous. The rise in crypto (BTC went from approximately $16k to $23k during the pendency of the bankruptcy case) has allowed the debtor to source new financing which pays down the prior facility. One point of contention is a $6 million prepayment fee, which certain parties are seeking to undo. It doesn’t seem like Judge Jones is having that, however—he did begrudgingly approve that aspect of the financing at the outset of the cases.
Bed Bath & Beyond Closing 87 More Stores As It Looks Toward Bankruptcy | NBC News
Bed Bath & Beyond is reportedly on the verge of filing for bankruptcy as soon as this week, according to sources familiar with the matter. As the retailer contemplates its next steps, the company announced that it would close 87 more stores, in addition to all its Harmon health and beauty store locations.
S&K Take: The 800-pound gorilla continues to loom in the background, although it looks like a filing is truly imminent. Rumors are that buyers for the business, even Buy Buy Baby, have been few and far between. There may not be many real options for BBBY, so this one could be ugly.
New York Diocese, Abuse Victims File Competing Bankruptcy Plans | Reuters
The Roman Catholic Diocese of Rockville Centre, New York, one of the largest in the U.S., proposed a bankruptcy plan last week, in an effort to gain leverage for its Chapter 11 case after a committee representing sexual abuse victims filed a parallel restructuring proposal last week.
S&K Take: It’s a walk off! I make entirely too many Zoolander references in this forum, but it felt appropriate as the debtor and the victims committee have cast the gauntlet here. Competing plans are not a common event, and even less common is seeing competing plans go through solicitation. It will be interesting to see how far this one goes.