%1

The U.S. Supreme Court yesterday heard oral arguments yesterday in the case of Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC on whether the federal government should refund additional fees collected from bankrupt companies under a fee-hike law that was later deemed unconstitutional, WSJ Pro Bankruptcy reported. In 2017, Congress passed a law raising the fees charged in bankruptcy cases overseen by the Justice Department’s U.S. Trustee Program, which covers 48 states. Two states — Alabama and North Carolina — fund their own bankruptcy administrators through the courts’ own budgets. The Supreme Court ruled in 2022 that the fee-increase law was unconstitutional because it applied to bankruptcy cases filed in only 48 states. By that time, Congress had already amended the law, making the higher fees applicable in Alabama and North Carolina as well. But the question remained as to whether the fees that had already been collected should be returned or not. John Q. Hammons Hotels & Resorts, a privately owned Missouri-based hotel company that filed for bankruptcy protection in 2016 in Kansas City, Kan., challenged the fees it had paid while in chapter 11, arguing that the higher amount that came into effect under the 2017 law should be refunded because the statute was unconstitutional. In 2022, the U.S. Court of Appeals for the Tenth Circuit ruled that the company and its affiliates should get a refund of $2.5 million from the federal government. The Justice Department challenged that ruling. In arguments before the Supreme Court on Tuesday, Masha Hansford, a Justice Department attorney, said Congress raised the fees to fund the U.S. Trustee Program under its belief that the bankruptcy system should be self-funded at no cost to taxpayers. Forcing the government to refund fees to companies that used the bankruptcy system goes against the intent of Congress, she said. If the high court sides with the hotel company, the decision is likely to put taxpayers on the hook for returning about $326 million in fees paid in roughly 2,100 bankruptcy cases, according to a DOJ court filing. Daniel Geyser, a lawyer representing the hotel group, told the justices that his client, along with thousands of other debtors, is entitled to receive a refund for the fees collected by the government during the time the original law was in effect. Read more.

Click here to read the transcript from yesterday's oral argument in Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC.

SVB Financial Group, the former parent company of Silicon Valley Bank, has struck a deal with key creditors in a step toward resolving its bankruptcy case, Bloomberg News reported. SVB Financial and a crucial bloc of senior bondholders agreed to a deal centered on forming a new company that would hold valuable assets like the firm’s venture capital arm — SVB Capital — and tax attributes potentially worth billions of dollars, according to court papers. The proposal is tentative and still needs court approval. The company explored selling the venture capital unit, but determined it’s likely worth more than what two leading bidders offered, according to court papers filed yesterday. Advisers pegged the present value of the VC business at as much as $572 million, some $55 million higher than their assessment of the best bid, the court papers show. The deal puts Wall Street heavyweights in a position to own stakes in the new entity. The bondholders that negotiated with the company include the likes of Davidson Kempner Capital Management, Pacific Investment Management Co. and King Street Capital Management, according to a July court filing, the group’s most recent disclosure. The restructuring deal calls for other assets, like cash and securities, to be placed in a trust for the benefit of creditors. The restructuring proposal must be worked into a bankruptcy-exit plan on which creditors can vote. Still, the biggest obstacle remaining for creditors is a fight with federal regulators about what should happen with nearly $2 billion in cash SVB Financial had on deposit at its own bank at the time of its failure. The Federal Deposit Insurance Corp. argued that SVB must go through a formal process controlled by the agency to get the money back. But last week, the agency formally denied the company’s claims for the deposits in a “mere two sentences,” according to court papers. A U.S. district judge decided in December that the question of who legally owns the nearly $2 billion goes beyond bankruptcy law and should be handled in district court.

Rite Aid is selling its Elixir pharmacy benefit management (PBM) company to another PBM, MedImpact Healthcare Systems for $575 million, the drugstore chain said yesterday, Forbes.com reported. Rite Aid, which filed for bankruptcy protection in October, said the U.S. Bankruptcy Court for the District of New Jersey approved the sale of the drugstore chain’s Elixir Solutions Business, which Rite Aid executives once described as the company’s “crown jewel.” MedImpact was the apparent winning bidder in an auction for Elixir, according to earlier reports. It’s the latest effort by Rite Aid to restructure the drugstore chain, which has already closed about 200 stores since its filing for chapter 11 protection with potentially more retail locations to close in coming weeks and months. The deal could move MedImpact into the nation’s top five PBMs, according to market share. In 2022, MedImpact was the sixth-largest PBM in the U.S. with 4% market share, according to Drug Channels.

Drug manufacturer Endo International Plc won bankruptcy court permission to poll its creditors on a plan that would hand control of the business to lenders and settle opioid liabilities in deals valued at more than $600 million, Bloomberg News reported. Judge James L. Garrity Jr. said during a court hearing yesterday in New York that he’ll allow Endo creditors to vote on its restructuring plan weeks after the company announced opioid-related settlements. The judge’s approval keeps Endo on pace to emerge from chapter 11 protection in the second quarter of 2024. Endo filed for bankruptcy in August 2022 to deal with more than $8 billion in long-term debt and lawsuits alleging the company helped fuel the nation’s addiction crisis. Opioid lawsuits also drove fellow drugmakers Mallinckrodt Plc and OxyContin maker Purdue Pharma LP into chapter 11. Endo’s restructuring plan includes settlements with state and federal authorities, and is expected to pay individual opioid victims between $89.7 million and $119.7 million, according to court documents. The company has also agreed to pay $273 million to more than 40 states and as much as $365 million to the U.S. Justice Department. The exact amount of the payments depends on whether Endo opts to pay some settlements in full when the company leaves bankruptcy or over time, the documents show.

The owner of mixed-use building Bloom on 45th in Manhattan has filed for bankruptcy, saying fallout from the COVID-19 pandemic as well as interest-rate hikes have made it unable to meet its debt obligations, WSJ Pro Bankruptcy reported. Hudson 888 sought protection from creditors Sunday in the U.S. Bankruptcy Court in Manhattan after it failed last Friday to reach a debt-restructuring settlement with a secured lender owed a total of $79.8 million. The property, at 500 W. 45th St., was built in 2020. Roughly 60 residential units of the 92-unit luxury condo property in Hell’s Kitchen are unsold. “As a result of the pandemic restrictions in place for more than two years, residential sales of the project did not meet the projections” of the owner and original lenders, Hudson 888 Chief Executive Sheng Zhang said in a filing. When pandemic restrictions started easing in 2022, the Federal Reserve began successive interest rate hikes to combat inflation. “Those increases in interest rates caused mortgage rates to increase, which put downward pressure on the condominium sales market,” the CEO said in the filing. Hudson began defaulting on its debt in late 2022.

The U.S. Supreme Court declined to hear a case over whether a bankruptcy judge can certify a nationwide class of individuals who allege Citigroup Inc. willfully violated their bankruptcy discharges, Bloomberg Law reported. The high court’s order yesterday leaves in place an August ruling by the U.S. Court of Appeals for the Second Circuit that freed Citi from facing a nationwide class action claim for allegedly refusing to correct the tradelines for consumers whose credit card debts were discharged in bankruptcy. The Second Circuit held that a bankruptcy court lacks the authority to hold a creditor in contempt for violating a debt discharge injunction issued by another bankruptcy court, and thus can’t grant broad relief to a nationwide class. Petitioner Kimberly Bruce said that the justices should hear the dispute because there’s nothing in the Bankruptcy Code that prohibits certification of a nationwide class of debtors or imposes the jurisdictional limitation outlined by the Second Circuit. Moreover, the August ruling stands in conflict with First Circuit precedent, she said. Bruce, who was initially permitted by the U.S. Bankruptcy Court for the Southern District of New York to bring a civil contempt claim against Citi on behalf of a nationwide class, said there’s no need to make thousands of class members return to hundreds of bankruptcy judges “to obtain the same relief against the same defendant.” Read more.

The Supreme Court will hill oral argument today in Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC to determine whether the appropriate remedy for the constitutional uniformity violation found by this court in Siegel v. Fitzgerald is to require the United States Trustee to grant retrospective refunds of the increased fees paid by debtors in U.S. Trustee districts during the period of disuniformity, or is instead either to deem sufficient the prospective remedy adopted by Congress or to require the collection of additional fees from a much smaller number of debtors in Bankruptcy Administrator districts. Click here to listen to the argument today at 10 a.m. ET.

Lumen Technologies is in talks with its bank lenders to win support for a debt deal that would push out the telecommunications network operator’s maturities on billions of dollars in debt and raise fresh capital, WSJ Pro Bankruptcy reported. Louisiana-based Lumen late last year said it reached a debt swap agreement with a group of creditors. Lenders for its revolving credit line led by Bank of America weren’t part of the discussions that led to the restructuring deal. The signoff from its revolver lenders is likely the last hurdle Lumen faces before completing the debt restructuring transaction. Late last year, the company announced that it had pushed back the date of completion of the transaction to the end of January after earlier disclosing in a securities filing that the deal was set to expire if it wasn’t completed by the end of 2023. Large bondholders who negotiated the deal include Citadel Capital, Pacific Investment Management Co., Franklin Resources, Brigade Capital Management, BlackRock and Silver Point Capital. “We have made significant progress to date with our creditors,” Chris Stansbury, chief financial officer at Lumen, said in an emailed statement. “We have ample liquidity, and we are playing to win.” Formerly known as CenturyLink, Lumen grew bigger through several takeovers including a $25 billion merger with Level 3 Communications in 2017. The company is grappling with $20 billion in debt, much of which comes due in the next several years.

The presiding judge in the ongoing bankruptcy case of Reverse Mortgage Funding (RMF) has approved a stipulation that would resolve an administrative claim made against the company’s estate by reverse mortgage servicing company Celink, authorizing both companies to consummate the agreement, HousingWire.com reported. The agreement, stemming from a proof of claim filed against RMF by Celink in May 2023, originally sought $361,726 from the lender based on a subservicing agreement entered between both companies in late 2016. According to the court filing reviewed by RMD, both parties engaged in “good-faith negotiations” and settled on a figure of $78,195, or only 21.6% of the originally sought amount. The new figure is considered an “administrative expense claim,” according to the stipulation, and is expected to be paid by the RMF estate to Celink 10 calendar days following the approval of the revised figure. “No other amount or claim shall be allowed or payable to Celink as an administrative expense or allowed unsecured claim in these cases solely with respect to the [relevant claim],” the order said. “For the avoidance of doubt, nothing in this stipulation shall affect the allowance or payment of Celink’s remaining claims as an administrative expense or allowed unsecured claim.” Under the terms of the stipulation, Celink and RMF also agreed that this settles any and all related issues stemming from this specific claim, and that the newly-agreed payment “shall fully resolve and satisfy all claims that Celink has, has had, may have or may claim to have against [RMF], wind-down debtors, or the [RMF bankruptcy] plan administrator arising from or relating to [this specific claim].”

Detroit-based builder MiG Construction filed for bankruptcy last month, according to a court filing in U.S. Bankruptcy Court for the Eastern District of Michigan, following legal disputes at a $30 million job in the city and debt to its subcontractors, ConstructionDive.com reported. The firm faced issues on the Dreamtroit project, a $30 million affordable housing development that MiG is contracted on. MiG filed a lien against Dreamtroit’s developers, alleging they owed the builder $3.28 million, while subcontractors lined up to demand their own payments from MiG. All told, the construction company reported it had between 100 and 199 creditors, according to the Dec. 19 bankruptcy filing, with $6.28 million in total liabilities. However, MiG noted that funds would be available for distribution to unsecured creditors.

Audacy filed for bankruptcy Sunday, succumbing to a steep decline in radio advertising, WSJ Pro Bankruptcy reported. The Philadelphia-based broadcaster filed a chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of Texas after having reached an agreement with a majority of its creditors to hand over control of the business. As part of the deal, Audacy would reduce its nearly $2 billion debt load by roughly $1.6 billion, leaving $350 million of debt outstanding following the reorganization, according to a company statement. A group of lenders will provide roughly $57 million in debtor-in-possession financing for the proceedings. The Wall Street Journal reported last week that Audacy was preparing to make such a move after it missed interest payments on its senior loans in October. The company obtained consent from its lenders for a grace period so it could restructure its debt. Audacy operates hundreds of radio stations that broadcast music, news and sports, and provides streaming services through its mobile app. Founded in 1968 as Entercom Communications, the company merged with CBS Radio in 2017. It operated as Radio.com following the CBS merger before rebranding as Audacy in 2021.