%1

Kennedy Lewis Investment Management LLC is suing the lenders that took control of the New York Sports Clubs and Lucille Roberts gym chains out of bankruptcy, saying the chapter 11 sale they orchestrated left the company in a precarious state, WSJ Pro Bankruptcy reported. Kennedy Lewis, formerly the largest single lender to the chains’ parent company, Town Sports International Holdings Inc., said the company’s other lenders put together a flawed deal that fell apart, forcing the investment firm to accept shares in a “virtually worthless” company. The lawsuit, filed Tuesday in New York federal court, alleged that lenders including Abry Partners LLC, Apex Credit Partners LLC and CIFC Asset Management LLC breached their credit agreements during the Town Sports chapter 11 case. The Kennedy Lewis lawsuit “is factually wrong, legally meritless, and jurisdictionally improper,” lawyers at Gibson, Dunn & Crutcher LLP representing lenders targeted by the lawsuit said in an emailed statement. The lenders named in the lawsuit intend to seek damages against Kennedy Lewis, possibly in the Delaware bankruptcy court where the case belongs, or in federal court in New York, the lawyers said. Abry, Apex, CIFC and others engineered a proposed deal to buy out Town Sports’s assets in bankruptcy, along with private-equity firm Tacit Capital LLC. But Tacit later backed out of a promise to put $47.5 million in capital into the company. Tacit’s commitment wasn’t binding, according to the lawsuit.

Texas lawmakers are poised to pass several measures designed to help pay for the billions of dollars of energy costs stemming from catastrophic blackouts during the severe winter storm that hit the state this year, Bloomberg News reported. The Texas House of Representatives approved a bill on Tuesday that would allow electric co-operatives including bankrupt Brazos Electric Power Cooperative to cover unpaid power expenses from the disaster by selling debt that can be paid back over 30 years through charges on customer bills, a process known as securitization. The measure, which needs final Senate approval before heading to the Governor’s desk, would offer financial relief to electric co-ops that make up the bulk of the nearly $3 billion in payments owed to the Electric Reliability Council of Texas, the state’s main grid operator. Brazos filed for bankruptcy in March, citing about $2 billion in debts to Ercot.

Western Community Energy, a local government agency that sells electricity to six small towns in Southern California, has filed for bankruptcy, blaming its financial woes in part on an inability to shut off service to customers who quit paying during the pandemic, Bloomberg News reported. Western Community owed creditors as much as $100 million, but had less than $50 million of available assets, according to court papers filed on Monday in the U.S. Bankruptcy Court in Riverside, Calif.. The agency buys power wholesale and resells it to residents of Eastvale, Hemet, Jurupa Valley, Norco, Perris and Wildomar, which are cities in Riverside County on the edge of the desert. “The ongoing impacts of COVID-19 severely limited the organization’s options moving forward and forced today’s action,” said Todd Rigby, chair of Western Community and a city council member for Eastvale, a former dairy farm turned suburb. The agency said that it has been unable to shut off customers for not paying their bills under an emergency order issued by California Gov. Gavin Newsom. Late bills have averaged ten times higher than before the pandemic and have cost the agency millions of dollars, Western Community said in an emailed statement.

For Purdue Pharma LP, the rationale behind a proposed $4.3 billion settlement with the members of the billionaire Sackler family that own the company comes down to uncertainty. The bankrupt OxyContin maker -- as well as creditors seeking to hold Purdue and its owners accountable for the opioid crisis -- could use wide-ranging legal theories to try to extract billions of dollars from members of the Sackler family. But the endeavor would be convoluted, expensive, and could fail entirely, Purdue’s lawyers argue in new bankruptcy court papers, Bloomberg News reported. Their argument comes as Purdue is seeking approval to collect creditor votes on its bankruptcy plan at a hearing scheduled for this week. Certain details of the settlement with its owners aren’t yet finalized, and more than 20 U.S. states still don’t support the plan. The Sackler family is large, fragmented, and scattered across the globe. Its wealth -- recently estimated at $11 billion -- is concentrated in “dozens” of trusts in the U.S. and abroad, including islands off the coast of France, according to court papers. To get to the money, the company and others would “have to separately sue, prevail, and collect against each of these individuals, and expend considerable resources in the process without any guarantee of success,” Purdue’s attorneys wrote.

A bankruptcy judge overseeing Sears Holdings Corp.’s case rejected the company’s request to increase compensation for three advisers hired to recover money by filing lawsuits against the retailer’s vendors and other parties, WSJ Pro Bankruptcy reported. Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., said that he needs to see more information on why Sears needs to raise the advisers’ contingency fees to pursue claims against any third parties who received payment from Sears within three months before its bankruptcy filing. Sears hired law firms ASK LLP and Katten Muchin Rosenman LLP and financial adviser Stretto to pursue so-called preference lawsuits. While such lawsuits typically play a minor role in obtaining recoveries for creditors, they have become a critical avenue to potentially collect money in the Sears case, because the Sears bankruptcy case remains open more than two years after all of its stores and operations were sold, and more than a year after Judge Drain confirmed its restructuring plan, because there wasn’t enough money left to pay top-ranking creditors—including suppliers who sold merchandise to the retailer during the bankruptcy case.

Fashion-brands owner the Collected Group won court approval for a bankruptcy exit plan that will keep its largest shareholder, KKR & Co., in charge after a deal with unsecured creditors, WSJ Pro Bankruptcy reported. Chino, Calif.-based Collected Group is the design and distribution force behind the Joie, Current/Elliott and Equipment apparel labels, which are sold through department stores and, before the pandemic, in some of its own retail stores and online. Online sales once accounted for roughly 19% of the group’s sales, but in 2020, with shoppers in quarantine, some 50% of Collected Group’s sales were sold online, court papers say. Private-equity giant KKR, which is Collected Group’s largest equity stakeholder and secured lender, will swap secured debt for equity in a reorganization that will leave the company with $155 million less in secured debt. Junior creditors will get a chance to share between $1 million to $2 million under the plan confirmed yesterday by Judge Laurie Selber Silverstein. Junior creditors also won other concessions as part of a settlement that enlisted their support for a restructuring that will keep Collected Group in operation. 

The group representing individuals and government entities with opioid-related claims against Mallinckrodt Plc say the pharmaceutical company needs to provide more information and time for them to determine whether they will vote in support of its proposed restructuring plan, Reuters reported. A virtual hearing on the matter is scheduled for Wednesday before U.S. Bankruptcy Judge John Dorsey in Wilmington, Del. The official committee of opioid claimants on Friday filed objections to Mallinckrodt’s disclosure materials and motion to begin soliciting plan votes. Mallinckrodt filed for bankruptcy in October with $5.3 billion in funded debt to resolve widespread litigation brought by states, local governments and private individuals accusing it of deceptively marketing opioids. The company is now pursuing a reorganization plan that would set up a $1.6 billion trust to resolve opioid-related claims. The plan would put unsecured noteholders in control of the company and eliminate $1.3 billion in debt. General unsecured creditors would split $150 million in cash. In court papers filed on Friday, the committee took issue with the provisions of the plan that would restrict opioid claimants’ ability to bring future claims against certain parties, including current and former officers and directors of the company. At the same time, the committee said, the disclosure materials don’t adequately explain opioid claimants’ recoveries. The committee argued that they need more details beyond the $1.6 billion figure attached to the trust. Additionally, the committee contends that claimants are not being given enough time or adequate notice of their rights. The U.S. departments of Health & Human Services and Veterans Affairs also filed an objection to the disclosure materials, saying that Mallinckrodt needs to explain how the opioid trust funds will be allocated. Mallinckrodt’s unsecured creditors’ committee and the U.S. Department of Justice’s bankruptcy watchdog, among others, have filed objections as well. The unsecured creditors' committee and trustee demanded more information about estimated creditor recoveries and challenged the plan's proposed releases for officers and directors.

Bankrupt hotel chain Eagle Hospitality Real Estate Investment Trust alleged in a court filing that two of its big investors received $2.4 million in federal coronavirus aid on behalf of its Queen Mary operations, but used the money for their own benefit, WSJ Pro Bankruptcy reported. In a filing Friday in the U.S. Bankruptcy Court in Wilmington, Del., Eagle Hospitality said Taylor Woods and Howard Wu defrauded the unit, Urban Commons Queensway LLC, last year by getting a Paycheck Protection Program loan in that business’s name, even though they lacked the authority to do so, and then took the money. Woods said yesterday that the allegations are unfair and incorrect. Wu said that there was never any intention to do anything inappropriate involving the PPP loan. Urban Commons Queensway said it asked Woods and Wu to return the loan proceeds by last Thursday, but the request has gone unmet. The company said the loan proceeds have been rapidly depleted in ways that the U.S. Small Business Administration didn’t intend. The loans are eligible for forgiveness if they are mostly used to avoid layoffs. Urban Commons Queensway said it is concerned that if it doesn’t get a preliminary injunction, the assets could be diverted to “unreachable locations.” Eagle Hospitality has said it worries it could be on the hook for repaying a loan that it never received. More than two dozen U.S. units of Singapore-based Eagle Hospitality Real Estate Investment Trust filed for bankruptcy in January. Days later, Eagle Hospitality also filed for bankruptcy in the U.S.

An urgent fundraising appeal late last year had appeared to save Judson College, but declining enrollment and wary creditors sealed the historic school’s fate. After 183 years of operation, the Baptist-affiliated college will file for bankruptcy protection and will not reopen for the fall semester, BaptistNews.com reported. College trustees made what they called a “heartbreaking” decision May 6, two days after one of the school’s creditors called the note on a loan that could not be repaid. Additionally, only 12 new students had enrolled for the fall 2021 semester, officials said, adding to the woes of declining enrollment for the all-female school located in Marion, Ala. In April, trustees had approved a 2021-2022 budget, based on confidence the board and administration had in support of “new significant donors to help close the college’s operating deficit,” a school news release explained. In December 2020, Judson officials issued an urgent appeal to donors, explaining the school needed to raise $1.5 million in gifts and pledges to remain open for the spring 2021 semester. President Mark Tew wrote a one-page letter outlining the school’s dire financial situation. He said the school must obtain $500,000 in donations by Dec. 31 and another $1 million in unrestricted pledges to be fulfilled between Jan. 1 and May 31, 2021. By the start of 2021, that appeal appeared to have been successful. The college reported that donors gave $27,665 more than the $500,000 required by year-end and made $584,065 in pledges toward the $1 million needed by May 31. Plans were laid for a full academic year beginning in fall 2021. Inside Higher Education reported that the college raised more than $2.53 million in the academic year just ended.