Below is our initial take on recent bankruptcy-related developments:
40 U.S. states recently tried to join mediation stemming from claims that J&J talc products cause cancer. A federal bankruptcy judge asserted that U.S. states should not mediate their dispute with J&J’s subsidiary that was formed to resolve the talc-related lawsuits against J&J.
S&K Take: Not a surprising result given the complexity of the issues at hand. Judge Kaplan is separating the states’ claims, which are based on consumer protection laws, from claims of individuals asserting that J&J baby powder caused cancer. Judge Kaplan has stated that he will appoint a separate mediator for the states’ claims by May 24.
A group of junior creditors filed an objection to LATAM Airlines’ proposed reorganization plan, claiming that the plan would unjustly benefit existing shareholders, including Delta Airlines.
S&K Take: LATAM is gearing up for a confirmation fight with the unsecured creditors’ committee. The committee argues that shareholders, including Delta and Qatar Airways, are being provided preferential treatment to that of unsecured creditors that are senior in the capital structure. Basically, Delta and Qatar are receiving more equity than they should. This is a fairly common paradigm in cases involving the redistribution of equity and should be interesting to watch. The UST is, as usual, also challenging third-party releases.
The Federal Reserve is poised this week to accelerate its most drastic steps in three decades to attack inflation by making it costlier to borrow — for a car, a home, a business deal, a credit card purchase.
S&K Take: Restructuring professionals are closely watching the markets and waiting for the tide to turn. Restructuring activity has been at an all-time low. From a macro perspective, we are now facing rising inflation as well as an accompanying rise in interest rates. Both are complicated by uncertainty relating to the Ukraine situation. While these market forces tend to drive restructuring activity, it’s possible that financial institutions are gun shy to fund bankruptcy processes in such a climate – if the company gets the restructuring wrong (clearly possible given market volatility) and a chapter 22 is necessary, those stakeholders would be back at square one having already funded a prior bankruptcy, which is certainly not cheap. Regardless, time will tell if all of these elements conspire to create more bankruptcies in the US.
Armstrong Flooring Inc. stock tumbled more than 50% in premarket trading Monday after the company warned it has yet to reach a deal to sell itself and the company will likely seek bankruptcy protection.
S&K Take: Armstrong Flooring is apparently a candidate for a significant filing per this report. We will keep our eye peeled for this one in the coming week.