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Lenders to bankrupt firms are increasingly demanding the use of a controversial contract clause that bolsters their investments in exchange for giving companies a chance at survival, Bloomberg News reported. Known as a roll-up, the provision moves existing debt to the front of the repayment line in lockstep with newly lent money. Senior lenders often require the maneuver when no one else is willing or able to give a bankrupt company turnaround financing. The structure is divisive because it frequently soaks up the scraps an insolvent company hasn’t yet put up as collateral, and which could have helped repay lower-ranking creditors. Rolled-up debt also has to be repaid in cash, limiting the restructuring options available to the borrower. But more and more, bankrupt firms and the judges overseeing them are being forced to accept roll-ups because without new cash, they risk shuttering entirely. The trend is a sign that lenders are amassing more leverage over failed companies as the rates of corporate default and bankruptcies climb. “I hate those things,” said Bruce Markell, a former bankruptcy judge who is now a professor at Northwestern Pritzker School of Law. “It’s a great strategy, you know — if you’re the lender. It’s a game of chicken in the sense that the debtor says, ‘we’re going down unless this happens.’” Although the provision has been around for years, roll-ups are becoming bigger and more prevalent, according to figures compiled by BankruptcyData. The proportion of chapter 11 cases that involve the maneuver has steadily increased since 2021, according to the research.

Timber Pharmaceuticals filed for chapter 11 bankruptcy protection on a day when LEO Pharma terminated a merger agreement that didn’t receive a sufficient stockholder vote at a Friday meeting, WSJ Pro Bankruptcy reported. Timber signed a stalking-horse asset-sale agreement with LEO Pharma. Timber, which focuses on treatments for rare and orphan dermatologic diseases, previously warned that there was substantial doubt about its ability to continue as a going concern and said it would “likely need to seek the protection of the bankruptcy courts” if the merger wasn’t completed. The company adjourned its stockholder meeting on Oct. 16 and again on Oct. 30. Before a trading halt earlier on Friday, Timber shares were up 17%, to $1.46. On the day the LEO Pharma deal was announced in August, Timber shares closed at $2.99, up from $1.42 in the previous session.

Johnson & Johnson said on Thursday that it has settled two lawsuits claiming its talc products caused cancer, the first such cases to go to trial since a federal court rejected the company's plan to move its talc liabilities into bankruptcy court, Reuters reported. The settlements resolved lawsuits brought by two men, Rosalino Reyes and Marlin Eagles, who said they developed mesothelioma related to asbestos in J&J talc powder, and was part of a broader deal to settle all talc cases brought by the law firm representing them, Kazan, McClain, Satterley & Greenwood, the company said. Reyes' family continued his lawsuit after he died in 2020. The company faces more than 50,000 lawsuits over talc, most by women with ovarian cancer. It has said that its talc products are safe and do not contain asbestos. J&J and the plaintiffs' lawyers did not disclose any terms of the settlement, or how many cases it covered. Reyes' trial had begun last week, while Eagles' was about to begin, with a jury chosen. "The Eagles and the Reyes families express thanks to the jurors and courtroom personnel who participated in the trial," Joseph Satterley and Denyse Clancy, attorneys for the plaintiffs, said in a joint statement.
https://www.reuters.com/legal/jj-settles-first-talc-cases-go-trial-afte….

Brigade Capital Management, Capital Research and Management Co. and Sculptor Capital are among now-bankrupt WeWork Inc.’s biggest creditors, court papers show, Bloomberg News reported. The firms are part of a group of seven asset managers and hedge funds that have banded together to negotiate with the the failed co-working firm. Together, they hold more than $1.1 billion of WeWork’s secured notes, according to a Thursday bankruptcy court disclosure. Other members include King Street Capital Management, Aristeia Capital, Silver Point Capital and BlackRock Financial Management, Inc., according to the court filing. By joining forces and sharing the cost of attorneys, such groups can hold significant sway in major corporate bankruptcies. Hashing out deals can take months, which can quickly rack up big professional fees.

Joyride Brewing in Denver said on Friday that it plans to file for bankruptcy protection, the Denver Post reported. Brewery co-founder Dave Bergen said in a video on Facebook that he is making a very public announcement as a way to remain open and honest with customers. “Joyride will be filing for Chapter 11 reorganization due to suspected financial malfeasance from a former manager,” Joyride said in its statement. “This filing has nothing to do with Joyride’s ability to run a successful and profitable business but rather, has everything to do with the improper and unauthorized spending as well as financial mismanagement from the former manager. “During this time, Joyride will be reorganizing the brewery, and Dave Bergen has stepped in as president of the company, and he will also continue his role as director of marketing and brewing. “Joyride will not be closing and everyone will still have their jobs,” the brewery added. Bergen and Grant Babb opened Joyride in 2014 at 2501 Sheridan, in Edgewater, and added a rooftop patio several years later with views of Sloan’s Lake. Bergen has served as president of the Colorado Brewers Guild and is a very active member of the local brewery community.

Rite Aid yesterday sued the U.S. Department of Justice, seeking to block a lawsuit alleging that the bankrupt pharmacy chain ignored red flags and illegally filled hundreds of thousands of prescriptions for addictive opioid medication, Reuters reported. The DOJ, which sued Rite Aid in March, agreed only to a "brief pause" of its lawsuit after Rite Aid went bankrupt last month, a position that threatens to undermine the company's restructuring efforts, Rite Aid said in a complaint filed yesterday in New Jersey bankruptcy court. Rite Aid asked U.S. Bankruptcy Judge Michael Kaplan to rule that the DOJ lawsuit cannot proceed while Rite Aid is bankrupt, which would put the government on equal footing with other opioid plaintiffs whose lawsuits were automatically stopped by the company's bankruptcy filing. The DOJ has argued that U.S. bankruptcy law does not stop it from exercising its "police powers" through its lawsuit. Rite Aid would not concede that point, and said Kaplan, who is overseeing the company's chapter 11 proceedings, should rule on that dispute rather than the judge overseeing the DOJ's lawsuit in Cleveland federal court.

Thrasio, a startup that raised billions of dollars to buy up consumer brands sold on Amazon, is preparing to file for bankruptcy as it contends with a postpandemic slump in online spending, WSJ Pro Bankruptcy reported. Consulting firm AlixPartners has advised Thrasio in recent years, and Holly Etlin, a veteran retail turnaround professional at the firm, is currently working with the company, the people said. Etlin has often served as a chief restructuring officer at bankrupt retailers, including most recently at Bed Bath & Beyond. The company has been working with law firm Kirkland & Ellis to explore restructuring options. Thrasio in 2021 said it had raised $3.4 billion in total in financing from private-equity sponsors Advent International and Silver Lake and other private-equity and venture-capital firms. At that time, the company said it was on an acquisition tear, snapping up 1.5 business a week. Thrasio was valued at $5 billion to $10 billion as of 2021. But online sellers like Thrasio, known as Amazon aggregators, have been pressured as shoppers have curtailed their online purchases since the height of the COVID-19 pandemic.

A federal judge on Tuesday tentatively approved a portion of the newest plan to restructure $10 billion of debt owed by Puerto Rico’s power company amid heated negotiations between creditors and the U.S. territory’s government, the Associated Press reported. The overall debt restructuring plan has been amended four times this year by a federal control board that oversees Puerto Rico’s finances. A confirmation hearing is set for March 2024 as various bondholders continue to oppose the plan. The board did not have immediate comment on the judge’s decision regarding the plan’s disclosure statement, which requires modifications before bondholders vote on it. The decision was issued after an hours-long hearing that drew protesters to the courthouse who are opposed to electric bill increases outlined in the plan. The bankruptcy of Puerto Rico’s Electric Power Authority has dragged on for years amid intense debate on how to restructure its debt — the largest of any government agency in the U.S. territory. Numerous restructuring attempts have failed, with several creditors seeking to recuperate more money than what the plan currently offers. The plan was amended for a third time in August and a fourth time over the weekend. The newest proposal seeks to cut the power company’s debt by nearly 80%, to some $2.5 billion. If approved, it is expected to lead to increases in residential and commercial power bills that already are among the highest of any U.S. jurisdiction.