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Some bankrupt companies are turning to a strategy to help them restructure their debt without losing the attractive terms on legacy loans as interest rates rise, often to lenders’ chagrin, WSJ Pro Bankruptcy reported. Outpost Pines, a property owner on New York’s Fire Island that sought protection from creditors in February, is asking a bankruptcy judge to approve a plan for it to keep 3% interest on mortgage debt it took out in 2015 so it can avoid paying a 16% default rate on the loan. Others, such as the owners of a 50-story Holiday Inn in Manhattan’s Financial District and of a 41-unit apartment building in New Jersey, in recent months also have sought to keep their legacy rates in bankruptcy. Businesses regularly file for chapter 11 protection to lessen their debt load, usually by retiring old loans and making new ones. As interest rates have climbed, more businesses in financial distress are looking for ways to retain legacy borrowing rates put in place well before the Federal Reserve raised its benchmark rate to between 5% and 5.25%, a 16-year high. The Fed on Wednesday announced a quarter-percentage-point rate increase to reach that level, marking the central bank’s 10th consecutive rate rise aimed at battling inflation.

Bankrupt crypto exchange FTX wants to claw back nearly $4 billion in funds from similarly bankrupt Genesis Global Capital, the company said in a court filing yesterday, CoinDesk.com reported. Genesis was "largely repaid" the nearly $8 billion in loans made to Alameda Research, an FTX-affiliated entity, in the weeks leading up to FTX's bankruptcy in November, the motion said. Genesis is a subsidiary of Digital Currency Group, CoinDesk's parent company. Genesis filed for bankruptcy itself in January. According to yesterday's filing, Alameda repaid $1.8 billion in loans to Genesis and pledged $273 million to Genesis in the 90 days before the various FTX companies filed for bankruptcy. Genesis also withdrew another $1.6 billion from FTX, while Genesis Global Capital International withdrew another $213 million in that same period. "The Avoidance Actions will seek to claw back funds received by Genesis and nondebtor affiliates so that these funds can be shared with all other creditors of the FTX Debtors in the FTX Chapter 11 Cases. These creditors include several million customers owed over $11 billion as of the time of filing of FTX Chapter 11 Cases," the filing said. There will be a hearing on May 25 to discuss the motion.

Johnson & Johnson should not be allowed to use a small unit’s bankruptcy case to end tens of thousands of cancer lawsuits because the strategy is rooted in bad faith, the U.S. Trustee said in a court filing, Bloomberg News reported. The health care products maker is trying for the second time to get itself “out of a jam as cheaply as possible,” using the chapter 11 filing of LTL Management, said the agency, which is an arm of the U.S. Justice Department. J&J created LTL in 2021 and made it responsible for resolving claims that tainted baby powder and similar products caused cancer. In a Monday court filing, the U.S. Trustee joined a group of advocates for cancer victims who have asked a federal judge in New Jersey to dismiss the LTL bankruptcy case. J&J put LTL back into bankruptcy last month about two hours after the first LTL case was dismissed. “In the weeks leading up to its second bankruptcy filing, LTL and its ultimate parent, Johnson & Johnson, engaged in a series of transactions that LTL admits were designed for no purpose other than creating artificial ‘financial distress,’” the U.S. Trustee said in the filing. J&J has an $8.9 billion settlement agreement with the “vast majority” of the law firms representing talc claimants, the company’s head of litigation, Erik Haas, said in an emailed statement. Should the bankruptcy survive and 75% of claimants vote in favor of the deal, all current and future talc suits would be settled.

Bankrupt cryptocurrency lender Genesis Global Holdco and a key creditor group have agreed to meet with a mediator in an effort to save a proposed bankruptcy exit plan backed by the company’s parent, Digital Currency Group, Bloomberg News reported. Genesis lawyer Sean O’Neal said on Friday that the crypto lender has agreed to a 30-day mediation period including its committee of unsecured creditors, which has opposed the proposed restructuring deal. Genesis is hoping to hold two “substantive” mediation sessions before May 8, O’Neal said. Final terms of the deal will also be made public when mediation is terminated, he said. Genesis and the committee still need to pick a mediator who will oversee the discussions. O’Neal told Judge Sean Lane that they have started reaching out to a list of mediators and will submit an order to the court outlining the process once a mediator is picked. The creditors’ committee is opposed to Genesis’s current restructuring proposal and is seeking better terms, Bloomberg News has reported. Philip Abelson, a lawyer representing the creditors’ committee, said his client’s position hasn’t changed “and we do not want our participation in the mediation to be misconstrued.”

A federal judge overseeing the New Orleans Roman Catholic bankruptcy recused himself in a late-night reversal that came a week after an Associated Press report showed he donated tens of thousands of dollars to the archdiocese and consistently ruled in favor of the church in the case involving nearly 500 clergy sex abuse victims, NPR.org reported. U.S. District Judge Greg Guidry initially announced hours after the AP report that he would stay on the case, citing the opinion of fellow federal judges that no “reasonable person” could question his impartiality. But amid mounting pressure and persistent questions, he changed course late Friday in a terse, one-page filing. “I have decided to recuse myself from this matter in order to avoid any possible appearance of personal bias or prejudice,” Guidry wrote. The 62-year-old jurist has overseen the 3-year-old bankruptcy in an appellate role, and his recusal is likely to throw the case into disarray and trigger new hearings and appeals of every consequential ruling he’s made. But legal experts say it was the only action to take under the circumstances, citing federal law that calls on judges to step aside in any proceeding in which their “impartiality might reasonably be questioned.”

To resolve a split of circuits, the Supreme Court heard oral argument in Tyler v. Hennepin County to decide whether a real estate tax foreclosure violates the Takings Clause of the Fifth Amendment when a municipality takes title but doesn’t give the owner the difference between the unpaid taxes and the value of the property. Oral argument on April 26 was the last argument of the term that began in October. Given the significance of the case in terms of constitutional law, the Court allowed almost two hours for argument. The Court will hand down a decision before the term ends in late June. The decision in Tyler may (or may not) resolve a long-standing circuit split on the question of whether a tax foreclosure can be attacked in bankruptcy as a fraudulent transfer.​​​​

To resolve a split of circuits and decide whether Section 106(a) waives sovereign immunity as to Native American tribes, the Supreme Court heard oral argument on April 24 in Lac du Flambeau Band of Lake Superior Chippewa Indians v. Coughlin, 22-227 (Sup. Ct.), according to an analysis in Rochelle's Daily Wire. To this writer’s way of thinking, the statute is opaque. Notably, the arguments by counsel on both sides and every question or comment from the justices were about textualism. There wasn’t a single statement or question exploring policy, asking what the better answer would be from the point of view of creditors, debtors or tribes, or finding the answer in the objectives of the Bankruptcy Code and federal law regarding tribes.