%1

The Supreme Court justices seemed divided yesterday over a fiercely contested bankruptcy settlement for Purdue Pharma that would funnel billions of dollars into addressing the opioid epidemic in exchange for shielding members of the wealthy Sackler family from related civil lawsuits, the New York Times reported. The U.S. Trustee Program, an office in the Justice Department, had challenged the deal, saying that it violated federal law by guaranteeing such wide-ranging legal immunity for the Sacklers even as they themselves had not declared bankruptcy. Questions from the justices reflected why the agreement, which pits money against principle, has drawn intense scrutiny to start. Under debate was the practical effect of unraveling the settlement, painstakingly negotiated for years, and broader concerns over whether releasing the Sacklers from liability should be allowed. “The opioid victims and their families overwhelmingly approve this plan because they think it will ensure prompt payment,” Justice Brett M. Kavanaugh said. He asked why the government was pushing to end a tactic, known as third-party nonconsensual releases, that has figured in settlements approved over “30 years of bankruptcy court practice.” The lawyer for the government, Curtis E. Gannon, acknowledged the tension, but he argued that the U.S. trustee “has been given this watchdog role” and that a ruling for the government would not foreclose an opioid deal with the Sacklers. Although the question before the court was a narrow one — whether the Bankruptcy Code allowed such nonconsensual third-party waivers — the deal’s effect on a public health crisis that has left tens of thousands of people dead was on full display. While Justice Kavanaugh and others repeatedly questioned what any ruling would mean for victims of the opioid crisis and their families, others asked what consequences there would be for other settlements, including sexual abuse lawsuits against the Boy Scouts of America and the Catholic Church, that have included this release of liability.

The bankruptcy filing by WeWork, Inc. in November propelled November commercial chapter 11 filings to 842, an increase of 141 percent over the 349 filings registered in November 2022, according to data provided by Epiq Bankruptcy, the leading provider of U.S. bankruptcy filing data. The case filed by WeWork, Inc. on Nov. 6 included 517 related filings, according to an ABI analysis, representing the third-most related filings in a case since the Bankruptcy Code became effective in 1979. Overall commercial filings increased 21 percent to 2,252 in November 2023, up from the 1,864 commercial filings registered in November 2022. Small business filings, captured as subchapter V elections within chapter 11, increased 79 percent to 181 in November 2023, up from 101 in November 2022. Total bankruptcy filings were 37,860 in November 2023, a 21 percent increase from the November 2022 total of 31,187. Individual bankruptcy filings also registered a 21 percent year-over-year increase, as the 35,608 in November 2023 represented an increase over the 29,323 filings in November 2022. There were 20,250 individual chapter 7 filings in November 2023, a 23 percent increase over the 16,421 filings recorded in November 2022, and there were 15,280 individual chapter 13 filings in November 2023, a 19 percent increase over the 12,862 filings the previous November.

Recycled glass supplier Strategic Materials Inc. has filed for bankruptcy after being squeezed by higher interest rates and increased competition, Bloomberg News reported. The Houston-based company, which is backed by private equity firm Littlejohn & Co., has around $433 million of funded debt liabilities, according to court papers. During the restructuring, the company said it plans to operate without disruption. Strategic Materials’ funded debt became “significantly more expensive” following the rapid increase in central bank interest rates, squeezing liquidity, Chief Financial Officer Paul Garris said in a court filing. At the same time, new entrants to the market and post-pandemic shifts in consumer habits have challenged company operations. Under the restructuring plan, the company will be handed over to certain creditors in a debt-for-equity swap which will see the balance sheet delevered by over $300 million. The decision to file for chapter 11 followed a failed out-of-court sales process. Existing lenders plan to provide $23 million to allow Strategic Materials to continue to meet obligations while restructuring the business, subject to court approval. “We play a critical role for the customers and communities we serve,” Chief Executive Officer Chris Dods said in a statement. “The past several years presented significant operational and financial challenges, requiring a comprehensive restructuring of the balance sheet.” The company noted that its Canadian and Mexican based operating affiliates are not part of the chapter 11 bankruptcy process.

Yellow is set to raise more than $2 billion after a bankruptcy auction that will disperse much of its national network of truck terminals among rivals, casting deeper doubt on a long shot bid to revive the trucker, WSJ Pro Bankruptcy reported. About a dozen trucking companies bought properties at a court-supervised auction that unloaded 75% of Yellow’s properties for a total of just under $1.9 billion, according to a filing Monday evening in the U.S. Bankruptcy Court in Delaware. The bids must be approved by the court, which is scheduled to hold a hearing Dec. 12. The remaining properties are expected to fetch hundreds of millions more and to be sold over the coming months, according to a person familiar with the process. The sales pushed further out of reach a trucking group’s bid to revive Yellow as a smaller, leaner carrier and to rehire thousands of employees. The bid includes $1.1 billion in financing and asks creditors, including the federal government, to push back repayment of some debts and to accept equity in the new business.

Johnson & Johnson is making a push to resolve lawsuits claiming its talc-based Baby Powder causes cancer linked to asbestos exposure to avoid facing some jury trials next year, Bloomberg News reported. A trio of law firms have reached agreements for settlements covering about 100 cases, said the people, who declined to be identified because they weren’t authorized to speak publicly. The financial size of the accords are being kept private, the people added. The deals may be mentioned Tuesday as part of J&J’s investor presentation at the New York Stock Exchange if company officials update shareholders about the plan for corralling the decade-long talc litigation, the people said. The session’s main focus is the company’s long-term growth outlook and product pipeline. The company is striving to find a way to resolve all current and future baby powder cases after a judge nixed its attempt to settle them for $9 billion as part of a unit’s bankruptcy filing. The deals are part of the manufacturer’s multi-pronged strategy to deal with the lawsuits, which have created a drag on its shares.

The U.S. Securities and Exchange Commission said that Mallinckrodt failed to tell investors it had potentially overcharged Medicaid for its flagship drug, but the regulator waived a $40 million civil penalty partly because the pharmaceutical company agreed to hire a compliance consultant, the Wall Street Journal reported. The SEC said in an administrative proceeding Thursday that the Centers for Medicare and Medicaid Services informed Mallinckrodt as early as 2016 that the company was using an incorrect rebate rate for its sales of Acthar Gel, a drug used to treat several rare autoimmune diseases, which meant it was overcharging state Medicaid programs for the drug. Mallinckrodt, which didn’t admit or deny the SEC’s findings, agreed to hire a compliance consultant to conduct a comprehensive review of the company’s disclosure and internal accounting controls, as well as implement the consultant’s recommendations. The SEC said that it wouldn’t impose the $40 million penalty because of Mallinckrodt’s financial position and because it had committed to retain a consultant. The company in November announced it had completed its financial restructuring and emerged from chapter 11 bankruptcy.

The rapid rise of funds that make loans directly to buyout deals and other highly indebted companies — known as private credit — is among the hottest topics in finance. The sector has minted fresh billionaires, while being called a bubble by traditional financiers like UBS Group AG Chairman Colm Kelleher and attracting warnings about the dangers it could pose. Investors need to be sharp-eyed about what private credit managers are doing with their money. This is, after all, high-yield, high-risk debt. The mad scramble for new business could easily lead to many bad lending decisions, as it always has in the history of banking. But fears that private credit could threaten the financial system should be more soberly assessed, according to the commentary. The structure of most private credit funds answers many of the questions about panics and runs posed by the 2008 meltdown because they typically fund their lending with long-term liabilities that can’t easily take flight. Interest in private credit managers has ballooned as the money has flooded in, while their lending approach brought advantages over traditional buyout funding, particularly this year. Total assets under management in the sector have nearly doubled since 2019 to more than $1.6 trillion, according to Preqin Pro, a data provider. Scale has led to ever-larger individual loans, like this month’s record $4.9 billion for online classifieds company Adevinta ASA. This year, private equity dealmakers have struggled to raise debt through leveraged loans arranged by banks or junkbonds, opening more doors for private credit fund managers. Bond investors lost appetite for high-yield debt, while big banks have demanded extra pricing flexibility when underwriting buyout loans to protect against getting stuck with unsellable debt, like the $13 billion that helped fund Elon Musk’s purchase of Twitter, now named X, last year.
Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The Supreme Court today will delve into the intricacies of bankruptcy law when it hears oral arguments about the controversial deal regarding Purdue Pharma, the former manufacturer of prescription painkiller OxyContin, The Hill reported. The company filed for bankruptcy in 2019 as it faced thousands of lawsuits in connection with the opioid crisis, as it was accused of downplaying the risks of Oxycontin and illegally marketing the drug. Under the bankruptcy reorganization plan, members of the wealthy Sackler family, who controlled Purdue Pharma, would contribute up to $6 billion to the settlement in exchange for being released from civil liability. But the Sacklers involved in the company did not personally file for bankruptcy themselves. They divested themselves of ownership of the company, and Purdue reorganized into a public-benefit company, with profits going to fighting the opioid crisis. The $6 billion would be contributed over the course of a decade, and the family admitted no wrongdoing. Under the so-called “third party release,” neither the Sacklers nor their associates could ever be sued in relation to Purdue and Oxycontin. The liability release has been a major sticking point, though about 95 percent of creditors — which include personal injury victims, states and various governmental entities, among others — voted to approve the plan, court filings show. The settlement was approved by a bankruptcy judge, but the U.S. Trustee Program, a component of the Justice Department that serves as a watchdog in bankruptcy cases, objected. The possibility that none of the Sackler family members involved in the company could face any liability for the opioid crisis has generated public outrage. The Justice Department argued that the bankruptcy court did not have the authority to release the Sackler family members from the claim. In August, the Supreme Court paused the bankruptcy settlement on an emergency basis as the justices agreed to take up the case in full. Read more.

To listen to the live oral argument today starting at 10 a.m. ET, please click here.

Chinese property giant Evergrande and its biggest foreign creditors are negotiating an 11th-hour deal to prevent a liquidation of the company’s offshore businesses on Monday, WSJ Pro Bankruptcy reported. Evergrande and a group of its bondholders have been negotiating to restructure the financially troubled company after Chinese regulators vetoed a previous version of their plan. In a recent proposal, Evergrande has offered to give control of around 20% of its Guangdong-based parent company, China Evergrande Group, to its creditors. To comply with Chinese regulators’ demands, Evergrande wouldn’t issue new debt as part of the restructuring. Additionally, Evergrande is in discussions with NWTN, a Dubai-based electric-vehicle company, to invest new money in Evergrande’s EV unit, the people said. NWTN had agreed to invest $500 million for a 28% stake in Evergrande Auto, which would have helped Evergrande Auto’s expansion, but NWTN temporarily suspended its commitment to invest the funds when Evergrande’s earlier restructuring plan fell apart, according to securities filings.