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    Third-Party Releases and the “Texas Two-Step” Refuse to Give up the Spotlight

    What's News
    February 11, 2022

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

    Bankruptcy Watchdog Challenges Legal Shield in Boy Scouts Abuse Deal | Reuters

    Boy Scouts of America’s proposed bankruptcy reorganization plan was rejected by the U.S. Department of Justice’s bankruptcy watchdog citing the plan provides non-debtor releases to insurers and others in the settlement.

    S&K Take: For those keeping score at home, judges in the Second and Fourth Circuit have recently rejected non-consensual third-party releases, while Judge Dorsey, in the Third Circuit, issued a decision permitting them (in an extraordinary circumstance). Next up is Judge Silverstein, as the UST has challenged the releases in Boy Scouts. We will see if she views releases as permissible under Third Circuit precedent or if she thinks a course change is required based on Purdue and Ascena.

    Senators Knock ‘Texas Two-Step’ Bankruptcy Tactic Used by J&J in Talc Cases | The National Law Journal

    Please note that membership to The National Law Journal is required to access the full summary of this article.

    Lawmakers criticized Johnson & Johnson’s use of the ‘Texas Two-Step’ strategy to resolve thousands of talc-related lawsuits in a Senate Judiciary subcommittee hearing.

    S&K Take: Prospective bankruptcy reform continues to be a hot topic in Congress. It is good to see that the Senate brought in some real bankruptcy knowledge to educate themselves on the issues, although based on some of the questions posed, it seems an open question if Congress understands the nuances enough to avoid unexpected pitfalls in any prospective legislation.

    Purdue Pharma Bankruptcy Mediator Says Sacklers, US States Closer to Deal Over Opioid Claims | Reuters

    A mediator announced the negotiations between members of the Sackler family and U.S. states over the Purdue Pharma bankruptcy plan are getting closer to a settlement related to the claims of the company’s involvement in the U.S. opioid epidemic.

    S&K Take: While a settlement would be welcome news to most case constituents who thought they already had a deal to emerge from bankruptcy months ago, it would likely moot the appeal involving non-consensual third party releases that is currently teed up for the Second Circuit. Obviously, it is paramount that this case be resolved so that opioid abatement begin in earnest (and that is what we are rooting for), but as a practitioner, one has to think it would be interesting to get a decision from the Second Circuit on releases.

    Norwegian Cruise Selling $2 Billion of Debt to Refinance | Bloomberg Law

    Please note that Bloomberg Law membership is required to access the full summary of this article.

    Norwegian Cruise Line Holdings Ltd. is working to refinance the expensive debt it took on at the start of the global pandemic.

    S&K Take: Norwegian Cruises had to issue $2 billion in notes to repay the debt they shouldered in 2020 at the height of the pandemic, highlighting a burgeoning issue. All of the cruise lines took on unreal amounts of debt to try to get through the pandemic and burned through cash since operations were non-existent. Will the bounce back (if that actually happens) be big enough to sustain the new debt levels? Or will they ultimately catch up with these companies when credit markets tighten and debt gets more expensive? Certainly bears watching.

    The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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