Below is our initial take on recent bankruptcy-related developments:
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As Revlon prepares for restructuring negotiations following its bankruptcy filing last week, it faces complications with identifying its creditors due to a colossal mistake by Citigroup when it mistakenly used its own money to repay a $900 million loan to multiple asset managers on behalf of Revlon.
S&K Take: The Citi litigation was one of the biggest stories of the last few years in the restructuring space. Interesting to see how it fits into this massive bankruptcy, which, as billion-dollar bankruptcies go, was more of a “free fall” than most. Stay tuned, we will be watching this as it unfolds.
The U.S. Bankruptcy Court for the Southern District of New York approved LATAM Airlines restructuring plan, which will provide about $8 billion through capital increase, convertible bonds, and new debt to help the airline emerge from bankruptcy protection later this year.
S&K Take: One of the more significant restructurings of the pandemic is cleared to be consummated. Congrats to the Cleary team that ushered this through to confirmation!
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President Biden signed the Bankruptcy Threshold Adjustment and Technical Corrections Act into law this week which will more than double the debt limit for Subchapter V proceedings for the next two years to help small business reorganize with reduced costs and diminished legal and procedural hurdles than a traditional Chapter 11 bankruptcy plan.
S&K Take: Some big subchapter V news, with the debt limit being signed into law. For those that aren’t aware, a company can continue to qualify to file under subchapter v of chapter 11 (with some relaxed requirements from traditional chapter 11) if it’s non-contingent obligations are less than $7.5 million. The limit was previously $2.5 million, although that has been increased to the current number for most of the pandemic. It has been a popular tool, and it will be interesting to see how the process continues to evolve.
Citing increasing prices which affect demand for goods, large inventory levels, and a potential recession on the horizon, experts say there could be an increase in bankruptcy filings among retailers in the next several months.
S&K Take: The uptick in restructuring activity is almost palpable at this point (or is it just wishful thinking – we hope not). There are a number of macroeconomic factors contributing to what looks like an impending increase, especially in industries that were looking at rough times before and during the pandemic, like retail. Many businesses survived through the utilization of government aid and readily available liquidity with market participants fighting for yield. The question is whether those businesses can withstand the new market conditions. Time will certainly tell.
Gold Standard Baking LLC, a supplier to restaurants and grocery stores across the U.S., filed for bankruptcy protection this week, citing worker shortages and rising debt and costs.
S&K Take: This one might be prescient of cases to come -- a company sporting a significant debt load with a stalking horse making a credit bid of a fraction of the loan value. Could be the product of overlevering to keep the lights on when things looked bleak. And there may be many more on the heels of this case.