Following a three-week trial, a Delaware judge began hearing closing arguments Wednesday in the Boy Scouts of America bankruptcy case, the Associated Press reported. Judge Laura Selber Silverstein must decide whether to approve a reorganization plan the BSA negotiated over the past two years. It would compensate tens of thousands of men who say they were sexually abused as children in Scouting, while allowing the Boy Scouts to continue as an ongoing enterprise. The Boy Scouts, based in Irving, Texas, petitioned for bankruptcy protection in February 2020 in an effort to halt hundreds of individual lawsuits and create a settlement trust for abuse victims. Although the organization faced 275 lawsuits at the time, more than 82,000 sexual abuse claims have been filed in the bankruptcy case. The reorganization plan calls for the Boys Scouts, its 250 local councils, and certain insurance companies and troop sponsoring organizations to contribute some $2.6 billion in cash and property into a compensation fund for abuse victims.
Film studio STX Entertainment expects to file for chapter 11 within weeks if it can’t close its sale to private-investment firm Najafi Cos., an STX lawyer said yesterday, WSJ Pro Bankruptcy reported. The movie business hopes to close its proposed $157 million sale, including debt, next week, but would need to seek bankruptcy “very soon thereafter” if the process stalls, STX lawyer Chad Husnick said in a hearing in the U.S. Bankruptcy Court in New Orleans. “We understand the path forward, we understand our obligations, and we understand the need to close this transaction with alacrity,” Mr. Husnick said. Burbank, Calif.-based STX has already used chapter 11 to protect its rights under a pair of film-distribution deals as it tries to close the sale to Najafi. In February, the company was at risk of losing its distribution rights for the forthcoming sequel to 2020 disaster thriller “Greenland” and elected to shift the contract rights to a corporate subsidiary, which then swiftly filed for bankruptcy. The chapter 11 filing shielded the distribution deal from termination, which was possible after STX failed to meet a contractual deadline to refinance a $150 million credit facility. Then last month, STX moved into bankruptcy its distribution rights to “The Contractor,” a new action film starring Chris Pine, Ben Foster and Kiefer Sutherland that made its debut in theaters last week.
The derivatives market is flashing signals that the tit-for-tat between the U.S. Treasury and the Kremlin is increasing the likelihood of a Russian government default after Russia’s Ministry of Finance announced Wednesday it will restrict the ability of some foreign investors to convert their payments into dollars, the WSJ Pro Bankruptcy reported. The cost of buying a five-year derivatives contract for protection against a Russian government default, also called a credit-default swap, jumped on Wednesday to around 75% of the total value of the debt insured, according to data from ICE Data Services. That compares with around 40% around the beginning of March and 5% at the beginning of February, according to Intercontinental Exchange Inc., the main clearinghouse for European credit-default swaps.
China Evergrande Group and some of its biggest offshore creditors have reached agreement on moving restructuring talks forward, helping stave off their threats of taking over the company’s offshore businesses after $2 billion in offshore cash was seized by banks, WSJ Pro Bankruptcy reported. Evergrande agreed in principle late last week to pay bondholders’ advisory fees, provide additional due diligence on the company’s financial health, and give creditors a formal role in the restructuring process. The fee- and information-sharing agreement is seen as a moderate step in the right direction rather than substantial progress to restructure Evergrande’s debt. Bondholders appear to be changing tack after they threatened to sue Evergrande in January for allegedly stonewalling discussions with them. Tensions simmered again after Evergrande disclosed in March that banks had taken control of more than $2 billion held by one of its key subsidiaries. Evergrande reached out to an organized committee of foreign bondholders soon after the beginning of the Chinese Lunar New Year to move talks along. The discussions first focused on reaching an agreement over paying creditors’ advisory fees, until Evergrande disclosed the $2 billion cash seizure at its Hong Kong-registered property management arm.
Enovational Corp., a D.C. technology firm that counts the state of Maryland as a major client, filed for chapter 11 protection March 26 in the U.S. Bankruptcy Court for the District of Columbia, the Washington Business Journal reported. This week saw the company lay off dozens and earn court approval to erase a major downtown D.C. office lease it had signed just last year. Founded in 2011, Enovational builds web portals and mobile apps for Apple and Android phones, among other services, and lists the Maryland Department of Transportation and the Maryland Department of Information Technology as clients, according to the company's website. The company has several ongoing contracts with Maryland's IT department, health department and cannabis commission, according to court filings. The company states in court filings that it believes it "may be able to continue in its business if relieved of certain contractual obligations and permitted to devote resources to collecting upon certain debts owed by its customers." The company reported in court filings $11.8 million in 2020 gross revenue, $22.3 million in 2021 and $2.8 million in 2022 from Jan. 1 through the date of the bankruptcy filing. In a hearing Tuesday before Judge Elizabeth Gunn, VerStandig and Enache said the company's financial problems "escalated quickly" and are tied to work orders with Maryland for which it has yet to be paid. The company is in the process of appealing with the state but in the meantime has a "very delicate" cash situation, VerStandig said.
Swissbakers, a bakery and cafe chain with locations in Allston and Reading, Mass., has filed for chapter 11 protection, with plans to reorganize and continue operations, the Boston Business Journal reported. The company opened its first retail store next to the Reading commuter-rail station in 2009, and in 2013 it opened a second location at the site of a former Volkswagen dealership on Western Avenue, near the Harvard Business School, in Allston. Swissbakers is still up and running, with business largely back to what it was before the pandemic, according to CEO Nicolas Stohr, the son of husband-and-wife founders Helene and Thomas Stohr. The Reading location sees less commuter traffic these days but about the same level of overall business as before, he said, and the same goes for Allston, where the location relies heavily on Harvard for customers and foot traffic. The company plans to file a reorganization plan this month, according to attorney Joseph Bodoff of Boston law firm Rubin and Rudman LLP.
Ruby Pipeline LLC, backed by Kinder Morgan Inc., filed for chapter 11 protection yesterday to restructure its debt, the Wall Street Journal reported. The Houston-based natural-gas pipeline company filed for bankruptcy voluntarily in the U.S. Bankruptcy Court in Wilmington, Del. Ruby, directly owned by Ruby Investment Company LLC, listed assets and liabilities of as much as $1 billion each, according to the court filing. U.S. pipelines have been challenged by cheap Canadian gas recently. Ruby had about $90 million in cash at the end of last year and wasn’t expected to repay roughly $475 million of the senior notes due on April 1, 2022, according to Fitch Ratings. Ruby Pipeline listed at least 200 creditors. Its 6% senior bonds are due in April 2022, court papers showed. PJT Partners Inc. and Richards, Layton & Finger PA are advisers to the company. Read more.
A group of investors bought this small city’s only hospital in late 2019. To pay for the deal, its buildings and land were sold to one of the country’s largest owners of medical properties. Two years later the hospital went bankrupt, the Wall Street Journal reported. The Watsonville Community Hospital has served the largely Latino farming region of strawberry fields and apple orchards for more than a century. Now, the community is trying to raise as much as $70 million to buy the hospital and save it from closure. “It would be a disaster,” said John Martinelli, chairman of S. Martinelli & Co., a family-owned producer of apple juice and sparkling cider, based in Watsonville. Across the U.S., hospital real estate deals like the one in Watsonville have surged, leaving the facilities paying rent on property they once owned. Many such buyouts are being financed by Medical Properties Trust Inc. Even before these deals, called sale-leasebacks, some hospitals in small cities were struggling financially because they often served relatively poor populations. The deals have made Birmingham, Ala.-based MPT one of the biggest owners of U.S. hospital real estate, with hundreds of properties around the country and more than $20 billion of assets. Its strategy attracted many investors, who fueled MPT’s growth by buying its stock and bonds. The deals at times also have enabled private-equity giants to fund large payouts to their investors by tapping hospitals’ real estate equity. In other situations, the hefty financing that MPT offered drew in lesser-known investors like the group that bought the Watsonville hospital. By acquiring hospitals with MPT’s money, some investors have been able to avoid putting up much of their own cash. If the deal goes bad, the losses fall on the hospital and MPT.
A Bermuda fund linked to billionaire Robert Brockman has landed in U.S. bankruptcy court after the Internal Revenue Service said it may seize some of the fund’s assets at Vista Equity Partners to satisfy tax debts owed by Brockman, Bloomberg News reported. The bankruptcy filing by Point Investments Ltd. may frustrate IRS efforts to quickly collect $1.46 billion in taxes it’s seeking from Brockman, 80. Prosecutors separately charged him in the largest U.S. criminal tax-evasion case against an individual, alleging he dodged taxes on $2 billion in income.
Bankruptcy Judge Michael Kaplan said that a federal appeals court should weigh in as soon as possible on his ruling permitting Johnson & Johnson to move mass talc litigation to chapter 11, as the company and plaintiffs’ lawyers prepare for mediated settlement talks, WSJ Pro Bankruptcy reported. Judge Kaplan yesterday granted requests from talc injury claimants for an immediate appeal of his February ruling keeping their lawsuits against J&J frozen in chapter 11 proceedings. The judge allowed a J&J subsidiary to remain in chapter 11, likely aiding the company’s efforts to settle current and future claims linking its talc-based baby powder to cancer. Injury claimants argued that J&J’s strategy isn’t permitted by the bankruptcy code and have sought to overturn Judge Kaplan’s ruling. In it, he found the talc claimants as a whole were better off in chapter 11 than suing J&J the tort system. “The question of the proper venue to litigate mass tort cases has been brought to the forefront and has generated the interest…of policy makers, media, a few very nasty people on Twitter and the like,” Judge Kaplan said. At stake are the roughly 38,000 lawsuits as well as potential future liability tied to J&J’s talc-based products, which the company stopped selling in the U.S. and Canada in 2020. The company has denied that its talc caused cancer and said a bankruptcy filing is the best way to get compensation to the most claimants quickly. Judge Kaplan said that J&J’s strategy not only involves tens of thousands of injury claimants and “billions upon billions of dollars” but raises novel legal questions which have broader implications on how future mass torts are litigated and resolved. An appellate court could weigh in on the judge’s analysis of the benefits of the bankruptcy process over the civil trial system, a factor in his conclusion that J&J had a valid purpose in moving its talc liability into chapter 11, Judge Kaplan said. Read more.
Don't miss an expert panel at ABI's Annual Spring Meeting examining a full range of issues related to the “Texas Two-Step” strategy to separate tort liabilities from core assets and resolve them through the chapter 11 process. Learn more about this session and register today!
