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A federal bankruptcy court has frozen the assets of Three Arrows Capital, the once-prominent crypto hedge fund that managed as much as $10 billion in assets until it fell into liquidation last month, the Washington Post reported. In an emergency hearing Tuesday, Judge Martin Glenn of the Southern District of New York granted a motion allowing liquidators to “transfer, encumber, or otherwise dispose” of any Three Arrows Capital assets located in the United States. In addition, the court authorized subpoenas for the founders, whose whereabouts are unknown. The Singapore-based company, also known as 3AC, was founded a decade ago by Su Zhu and Kyle Davies, who both studied at Columbia University in New York City and worked for the same investment bank before making their names as crypto influencers and managers of a multibillion-dollar fund. It did not, however, survive the broader crypto market meltdown that has erased hundreds of billions in value this year. Bitcoin, the most valuable digital currency, is trading below $20,000, having shed more than 70 percent of its value since last fall. On June 27, crypto broker Voyager Digital said that Three Arrows Capital had not made payments on a loan worth more than $665 million. The same day, a court in the British Virgin Islands ordered the fund into liquidation. Four days later, 3AC filed for bankruptcy under chapter 15 of the U.S. bankruptcy code, which allows a foreign debtor to deal with their U.S. assets. The court-appointed liquidators — Russell Crumpler and Christopher Farmer of the global advisory firm Teneo — cited a “lack of cooperation to date” by Zhu and Davies in a July 8 filing, whose whereabouts they say are unknown. Though the fund’s lawyer, Christopher Anand Daniel of Singapore-based Advocatus Law, has been in contact, liquidators say, the co-founders have not begun to cooperate “in any meaningful manner.”

A group of Revlon Inc. stockholders says shares of Ron Perelman’s bankrupt beauty supply company are in the money and that minority owners deserve a greater voice in its chapter 11 case, WSJ Pro Bankruptcy reported. Shareholders asked government lawyers on Tuesday to appoint an official committee to represent equity holders’ interests in Revlon’s chapter 11 case, pointing to the unexpected rally in its stock price after it filed for bankruptcy last month. The elevated stock price suggests that shareholders “are poised to retain material value at the conclusion of Revlon’s bankruptcy,” according to the group’s letter, sent on Tuesday to the Office of the U.S. Trustee, the Justice Department’s bankruptcy division. Mr. Perelman, who bought Revlon in 1985, owns roughly 85% of the company. Individual investors have been piling into the remaining shares, betting they won’t be wiped out, as usually happens in corporate bankruptcies. The minority shareholder group, represented by law firm White & Case LLP, filed its request for official-committee status ahead of a court hearing next week at which it hopes to participate, the letter said.

SAS said today that a pilot strike now in its 11th day threatened the airline's ability to access bridge financing without which it may be forced to radically downsize or could collapse, Reuters reported. SAS and unions were locked in more talks on Thursday to end a strike among most of its pilots at the peak of the holiday travel season, over conditions related to the Scandinavian carrier's rescue plan. "The strikes ... threaten the company's ability to ultimately successfully raise critically needed near-term and long-term capital to fund the company's successful reorganisation," SAS said in a statement. "In such an event, the company will need to consider selling valuable strategic assets under duress while also radically downsizing SAS's operations and fleet." Talks between SAS and pilot unions on Thursday were due to run until 2000 GMT at the latest, mediator Jan Sjolin said. "We really hope that we will reach an agreement today. These are constructive talks," he said. The parties resumed collective bargaining talks on Wednesday after negotiations broke down on July 4. SAS' chief negotiator Marianne Hernaes around midday told reporters outside the venue it was hard to tell whether a deal would be reached on Thursday. The carrier, whose main owners are the governments of Sweden and Denmark, cancelled 201 flights on Thursday, or 64% of those scheduled, according to FlightAware.

COVID-19–related issues are squeezing storage conglomerate StorCentric as it seeks to reorganize the company and look for a buyer for its business, TechTarget.com reported. On June 20, StorCentric filed for chapter 11 bankruptcy protection, according to a petition filed in northern California's U.S. Bankruptcy Court. In a separate petition filed the same day, Drobo, the external storage company that is part of StorCentric, also filed for chapter 11 bankruptcy protection. The extent of the reorganization is unclear, but in a statement StorCentric said that it plans to continue providing service to customers. He added that StorCentric acquired several companies before the COVID-19 pandemic. When supply chain issues hit, the company didn't have time to effectively cobble its acquisitions together. The supply chain issues appear to have affected StorCentric early in the pandemic. In a March 2020 blog post by CEO Mihir Shah, StorCentric leadership suggested the pandemic and its effects on the supply chain were negatively affecting its business. By July 2021, the pandemic had taken "a devastating impact on the company's business," shutting down its assembly and integration facility, according to the Chapter 11 first-day declaration statement. In the first quarter of 2022, several special purpose acquisition companies approached StorCentric for a potential acquisition, going so far as signing a letter of intent before the funding fell through.

Court-appointed liquidators for cryptocurrency hedge fund Three Arrows Capital Ltd. said its founders can’t be located and aren’t cooperating in the investigation of its assets, allegations that the founders denied, WSJ Pro Bankruptcy reported. Liquidators installed to take charge of Three Arrows and protect its assets said in court filings last week that founders Su Zhu and Kyle Davies haven’t offered any meaningful cooperation with their investigation. Since then, the founders turned over only a “pro forma” disclosure of corporate assets that lacked bank account and other key information, the liquidators’ lawyer, Adam Goldberg, said in a court hearing Tuesday. “We don’t know where they’re located, today,” Mr. Goldberg said. In a statement to the Wall Street Journal, Zhu and Davies denied the allegation that they haven’t cooperated, given that they applied for the liquidation of the hedge fund themselves in the British Virgin Islands. Zhu and Davies said they have cooperated through Three Arrows’ former lawyers at Solitaire LLP and now through their personal lawyers at Advocatus Law LLP. Three Arrows’ collapse during the recent rout in cryptocurrencies has rippled out, causing problems for crypto firms that lent to it. Voyager Digital Ltd., a crypto lender that extended roughly $650 million in credit to Three Arrows, filed for chapter 11 protection last week when the uncollateralized loan went bad. A BVI court ordered the liquidation of Three Arrows and appointed the liquidators, who then petitioned for bankruptcy protection in New York to stay any collection efforts by creditors in the U.S. Other crypto firms also have exposure to Three Arrows, Mr. Goldberg said Tuesday. Read more. 

In related news, liquidators for crypto hedge fund Three Arrows Capital (3AC) obtained U.S. court permission on Tuesday to issue subpoenas and lay claim to the bankrupt Singapore-based company's assets, noting that 3AC's missing-in-action founders no longer control its accounts, Reuters reported. U.S. Bankruptcy Judge Martin Glenn in Manhattan gave the liquidators authority to claim 3AC's U.S.-based assets and issue subpoenas to its founders and about two dozen banks and cryptocurrency exchanges that may have information about its assets and transfers. Adam Goldberg, a lawyer for the liquidators, said at an emergency hearing yesterday before Judge Glenn that the whereabouts of company founders Zhu Su and Kyle Livingstone Davies remain unknown. Without the founders' cooperation, the liquidators have been unable to get a complete view of 3AC's assets and their location, Goldberg said. The assets' digital nature creates a real risk that the founders or other parties will whisk them away unless stopped by a court order, he said. Zhu and Davies did not appear in bankruptcy court and did not oppose the liquidators' request for subpoena authority. Zhu tweeted for the first time in almost a month on Tuesday, saying the liquidators had rebuffed their good faith offer to cooperate. Read more. Read more.

Endo International PLC is moving toward a bankruptcy filing, potentially setting off intense conflicts with state and local governments that have sued the pharmaceuticals company for its alleged role in fueling the opioid crisis, WSJ Pro Bankruptcy reported. Without a deal with opioid plaintiffs after years of negotiations, Endo is considering filing for bankruptcy as a means to restructure its more than $8 billion of debt and thousands of outstanding lawsuits. The company has been in negotiations with a group of secured creditors since it failed to make interest payments owed to its junior bondholders last month, said the people. Endo is aiming to reach a deal with the secured creditors before it enters a near-term chapter 11 process, though is unlikely to file for bankruptcy with an agreement also in place with its junior bondholders and opioid plaintiffs, the people said, cautioning that the situation is fluid and circumstances may change. Other pharmaceutical companies, including Purdue Pharma LP and Mallinckrodt PLC, have sought bankruptcy protection to resolve opioid liabilities, filing for chapter 11 with settlements in place with most U.S. states.

Even though stock markets have been retreating all year, financial conditions have only tightened markedly of late. The result is that several companies facing a cash or supply chain crunch have not so easily been able to raise fresh rescue capital, money that would have flowed easily at most any point in the last decade, according to a commentary in yesterday's Financial Times. Lacking liquidity, the likes of Revlon, Scandinavian Airlines and Voyager Digital have been recently forced to hastily file for chapter 11 bankruptcy. Their court papers have described just how quickly distress overwhelmed them, providing evidence on how quickly a recession may be approaching. As for the bankruptcy cases themselves, expect many of them to be intrinsically compelling. Years of low interest rates after the financial crisis inspired all sorts of financial engineering and, in the case of cryptocurrency, a new financial paradigm all together. Much of that innovation was not fully understood at the time but will have to be untangled now with lawyers and judges, according to the commentary. At the end of May, a distressed debt ratio calculated by S&P showed that under 3 per cent of the corporate credit securities it tracked were trading with yields greater than 10 percentage points above US Treasuries, indicating elevated default risk. By the first week of July, the ratio was at nearly 9 percent. The effective yield for the lowest-rated category of junk bonds tracked by Intercontinental Exchange and Bank of America is now 15 percent, more than double a year ago. The higher cost of debt is indicative of just how scarce capital has become. Multiple investors pointed to Avaya, the telecom hardware company that recently borrowed $350mn in the form of a senior secured loan at an annual whopping 15 percent cost. One hedge fund executive said that with the broad sell-off in risk assets recently, there was enough dislocation in the debt of high-quality companies, there was little need to take a chance on the dregs. The Swedish air carrier SAS found this out the hard way. The company, in the midst of a labour stoppage, filed for bankruptcy in New York without agreeing to subsequent financing or a revised deal with aircraft lessors. Companies that do file for bankruptcy often prefer to have a deal with creditors in place in order to quickly exit the process. Similarly, the cosmetics maker Revlon filed for bankruptcy when negotiations with creditors for an out-of-court deal fell short just as its suppliers increasingly were hesitant to deal with the troubled company. The company had raised $880mn of cash in 2020 to avoid going under in the midst of COVID-19. That new loan required pitting one group of hedge funds against each other in a transaction known as an “uptier exchange”. In such deals, a disfavoured group of once-senior lenders get their debt pushed down in seniority. That structure has increasingly become common among highly indebted companies even if it is also legally controversial. And sorting out the propriety of that maneuver is a barrier to resolving the Revlon bankruptcy. New bankruptcies will also put the overall increased complexity of capital markets under the microscope, according to the commentary. 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.

Embattled Scandinavian airline SAS and unions representing pilots will resume negotiations on Wednesday to try and agree a new labour deal to end a one-week strike, Reuters reported. SAS has canceled more than 1,200 flights since July 4 when talks with many of its pilots over a new collective bargaining agreement collapsed and they launched the crippling strike. "What has now happened is that we have asked the parties to gather in Stockholm from Wednesday," Swedish mediator Jan Sjolin said. Henrik Thyregod, head of the Danish pilots union told Reuters he was certain an outcome would be reached but was unsure of how long the negotiations would take. Spokespeople for SAS and the Norwegian and Swedish pilot unions also confirmed that the talks will resume but declined to elaborate on the content or expected outcome. The airline said on Monday it had informed mediators that it wishes to resume negotiations with the aim of "reaching a new collective agreement." The loss-making carrier has estimated the strike, now in its ninth day, is costing $10 million to $13 million a day.

Asbestos-injury plaintiffs have made a plausible case that French multinational Saint-Gobain’s CertainTeed unit defrauded them when it pushed its mass asbestos liabilities into chapter 11, a bankruptcy judge ruled, WSJ Pro Bankruptcy reported. Judge Craig Whitley of the U.S. Bankruptcy Court in Charlotte, N.C., said on Thursday that personal-injury lawyers had made sufficient allegations to support a claim that Compagnie de Saint-Gobain SA and its CertainTeed LLC materials division hindered the rights of asbestos victims. A CertainTeed spokesman said it believes the allegations have no merit and will defend its position vigorously. CertainTeed and several other large, profitable companies have used a Texas corporate law in recent years to move mass asbestos liabilities into bankruptcy, isolated within corporate subsidiaries that have no other business operation. Plaintiffs’ lawyers have challenged the tactic, known as the Texas Two-Step, saying that it lets companies access the protections of chapter 11 without placing business assets in a value-destroying bankruptcy. Judge Whitley on Thursday declined to dismiss a challenge to CertainTeed’s prebankruptcy reorganization, saying the allegations from plaintiffs’ lawyers put forth a plausible claim for relief.

Cryptocurrency exchange Blockchain.com could lose $270 million on its loans to bankrupt crypto hedge fund Three Arrows Capital (3AC), Reuters reported. The development comes days after 3AC filed for chapter 15 bankruptcy, seeking protection from creditors in the United States after one of the most high-profile blow-ups of the crypto crash this year. "Three Arrows is rapidly becoming insolvent and the default impact is approximately $270 million worth of cryptocurrency and U.S. dollar loans from Blockchain.com," Blockchain.com's Chief Executive Officer Peter Smith said in a letter to shareholders, according to a company spokesperson. Earlier this week, digital asset exchange Genesis Trading also said it had been exposed to 3AC, but had mitigated its losses after the hedge fund failed to meet a margin call. Aggressive rate hikes by the U.S. Federal Reserve and recession fears have led to a turmoil in equities and sparked a selloff in cryptocurrencies. The crypto winter has hit several companies in the sector including lending platform Celsius Network and Voyager Digital.