A Delaware bankruptcy judge on Wednesday denied a request by the U.S. Justice Department for an additional independent investigation into FTX’s collapse, saying it would needlessly suck up funds that could go to customers, WSJ Pro Bankruptcy reported. Bankruptcy Judge John Dorsey said existing probes by the cryptocurrency exchange’s new management and government authorities were sufficient. The judge praised the qualifications of FTX’s new chief executive, John J. Ray III, who was brought on to succeed FTX founder Sam Bankman-Fried as CEO just before the company filed for chapter 11 in November. “There is no question that Mr. Ray is completely independent of prior management,” Judge Dorsey said. Ray and his team are investigating FTX’s collapse, while federal and state agencies are doing their own probes, making additional review unnecessary, the judge said. Judge Dorsey said that a new investigation by an outside examiner would need to bring in a team of experts, a move that could lead to more than $100 million in extra costs—counter to the bankruptcy’s purpose to recover as much money as possible for FTX customers and creditors.
Debtors of bankrupt crypto lender Celsius Network have presented a sale plan to the U.S. Bankruptcy Court of the Southern District of New York, Coindesk.com reported. The plan is as part of the overall reorganization plan for Celsius' retail platform and mining business and has the support of the official committee of unsecured creditors. At the center of the plan is an in-principle agreement with NovaWulf Digital Management, a digital asset investment firm, making it the plan sponsor. The debtors chose NovaWulf as it "provides the best method to distribute the debtors’ liquid crypto assets and maximize the value of the Debtors’ illiquid assets through a new company run by experienced asset managers," the filing said. The plan is the product of the debtors’ court-approved sales process which Celsius Network lawyers had outlined in January 2023. They had said that the bankrupt crypto lender is planning to reinvent itself as a new, publicly traded “recovery corporation” in order to exit the bankruptcy process. The "comprehensive" sale process involved debtors’ advisors contacting over 130 parties and executing non-disclosure agreements with 40 potential bidders. This was whittled down to six bids for the retail platform, and three bids for the mining operation. The next step will be to finalize a binding agreement to designate NovaWulf as the successful bidder. According to the plan, NovaWulf will make a direct cash contribution of $45 million to $55 million to NewCo, a term used a describe a corporate spin-off before it is assigned a final name. Read more.
Revlon Inc. scored a legal victory against a lenders group when a bankruptcy judge dismissed a lawsuit against the company over a 2020 debt deal that stripped their collateral and sent it to a different creditor group, WSJ Pro Bankruptcy reported. Judge David Jones of the U.S. Bankruptcy Court in New York dismissed the lenders’ lawsuit against Revlon, though not against the rival creditor group that benefited from the transfer of collateral in return for providing the cosmetics company a lifeline. The judge has yet to issue a decision concerning the rival creditor consortium being sued along with Revlon, including Ares Management LLC, Angelo Gordon & Co. and Deutsche Bank AG. But he said that claims brought by HPS Investment Partners, Symphony Asset Management and others had wrongly attempted to sidestep the automatic stay that bars legal actions against Revlon in bankruptcy. Judge Jones said it was “difficult to conceive of a viable way to unwind” years-old deals that have been relied on by market participants in subsequent transactions and financial calculations. He also said that lenders targeted in the lawsuit have provided bankruptcy financing to Revlon expecting that deals made before the chapter 11 case would hold up.
Sue Gove wanted to keep Bed Bath & Beyond Inc. out of bankruptcy. Few believed it was possible. Alarmed by the retailer’s deteriorating finances, banks in January had cut off their credit lines and pushed for the company to start a liquidation, including selling off inventory, to repay their loans, according to a Wall Street Journal analysis. Gove, Bed Bath & Beyond’s chief executive, and her team sought a delay. They told the lenders they needed more time to set up bank accounts to make payroll in bankruptcy, the people said. They also were seeking a lifeline. Watching the drama from his home office in suburban Connecticut, George Antonopoulos, a managing partner at hedge fund Hudson Bay Capital Management, saw a troubled company that had at least one thing going for it: the passionate interest of individual investors who were keeping its stock price afloat despite an expected bankruptcy. Working with Hudson Bay’s co-founder, Yoav Roth, and others at the fund, Mr. Antonopoulos determined Bed Bath & Beyond’s shares could be an attractive investment — as long as the fund could get a guaranteed below-market price. Their thinking: Bed Bath & Beyond was a storied brand. If it somehow could turn around its fortunes, an investment at these levels would lead to big gains. But if the company’s prospects turned bleaker, the Hudson Bay team knew there was a good chance they could dump the retailer’s shares without losing too much money, thanks to the high investor interest in the stock. The unusual $1 billion financing arrangement — with $225 million upfront and installments paid over the rest of the year — will buy the unprofitable retailer more time to fix its business. The hedge fund stands to profit as long as the company can stay out of bankruptcy court this year and its stock stays above 72 cents.
The bankruptcy case filed by Johnson & Johnson's subsidiary shouldering talc-related lawsuits will soon be dismissed unless a U.S appeals court agrees to reconsider its decision to nix the company's attempt to offload the litigation into chapter 11 proceedings, a federal judge said yesterday, Reuters reported. Bankruptcy Judge Michael Kaplan said during a hearing in Trenton, New Jersey that he intends to toss the chapter 11 case once the Philadelphia-based 3rd U.S. Circuit Court of Appeals issues a formal mandate to carry out a Jan. 30 ruling by a three-judge panel to dismiss the matter. The 3rd Circuit panel ruled that the J&J subsidiary, called LTL Management, had no legitimate claim to chapter 11 protection because it did not face financial distress. The dismissal is on hold since LTL asked the full 3rd Circuit late on Monday to reconsider the panel's decision. Should the 3rd Circuit deny that request, Kaplan could dismiss the case within days. "It is my intent, when the mandate is issued, to issue an order dismissing the case," Judge Kaplan said during yesterday's hearing. Read more.
In related news, Johnson & Johnson is preparing to again defend thousands of lawsuits linking its talc-based products to cancer as the company attempts to revive a bankruptcy strategy that has kept the mass injury litigation on hold for more than 16 months, WSJ Pro Bankruptcy reported. Greg Gordon, a lawyer representing J&J’s bankrupt talc unit, LTL Management LLC, said yesterday the company is requesting that a federal appellate court revisit and reverse its recent ruling dismissing the chapter 11 case. LTL may pursue its appeal with the U.S. Supreme Court, if necessary, he said. In the interim, Mr. Gordon said the company is contingency planning and preparing to resume defending the talc litigation outside bankruptcy court. “It is a herculean effort to get the defense team back in place to manage cases around the country,” Mr. Gordon said during a hearing in the U.S. Bankruptcy Court in Trenton, N.J. Yesterday's hearing comes weeks after a three-judge panel of the U.S. Court of Appeals for the Third Circuit dismissed LTL’s chapter 11 case, which has kept the talc litigation on pause since October 2021. The appellate ruling found that LTL wasn’t eligible for bankruptcy because its parent, J&J, had agreed to fund its chapter 11 expenses and any potential settlement of claims that Johnson’s Baby Powder and Shower to Shower caused ovarian cancer and contained asbestos. Read more.
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Avaya Holdings Corp. on Tuesday filed for chapter 11 for the second time in six years as it struggles to transform itself from a traditional office telecommunications equipment business into a subscription-based software provider, WSJ Pro Bankruptcy reported. The company said that it filed in the U.S. Bankruptcy Court in Houston with a plan supported by most senior lenders to cut its debt by more than 75%, to roughly $800 million from $3.4 billion, and turn the page on an earnings miss last year that depressed the prices of its debt and stock. Avaya said that it has received commitments for $628 million in debtor-in-possession financing, including a new $500 million loan from an investor group led by Apollo Global Management Inc. and Brigade Capital Management LP, as well as a $128 million credit facility from a bank syndicate led by Citigroup Inc. Certain members of the investor group have also agreed to provide an additional $150 million in new money through a rights offering. The company said that it expects to complete the prepackaged bankruptcy process in 60 to 90 days.
