Chesapeake Energy Corp’s value has soared since its June bankruptcy filing, the U.S. judge overseeing the natural gas producer’s trial indicated, and is worth $5.13 billion, far above the shale gas pioneer’s estimate, Reuters reported. Creditors have offered sharply different estimates of the firm’s enterprise value during its trial in U.S. bankruptcy court in Houston. Judge David Jones’s figure was $1 billion higher than the mid-point of the range recently offered by the Oklahoma company.
The COVID-19 outbreak has skewed everything from revenues and expenses to cash flows and net income, making it harder than usual to create a believable model of what a company might be worth. Estimates by bankrupt companies and their bondholders or shareholders differ wildly — half a billion dollars, in one case, according to a Bloomberg News commentary. This matters for junior creditors, because it determines whether they’ll get some recovery, or perhaps nothing at all, on their busted holdings. That’s setting off battles among investors, armed with spreadsheets as their weapon of choice. The brawls are playing out in court cases from hospital operators like Quorum Health Corp. to tobacco companies like Pyxus International Inc., and there are likely more on the way. “Right now we’re in a particularly volatile phase in terms of what value is going to look like,” said Peter Friedman, head of the bankruptcy litigation practice at the law firm O’Melveny & Myers. “There are often huge amounts of money at stake — I would expect parties that can’t consensually resolve outcomes will be ready to litigate valuation.” 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.
The New York Attorney General’s Office yesterday sued the Trump Organization, President Donald Trump’s son Eric Trump and two lawyers who have worked with the Trump Organization, asking a New York County Supreme Court judge to compel the defendants to comply with subpoenas, the National Law Journal reported. Attorney General Letitia James is investigating “whether the Trump Organization and Donald J. Trump … improperly inflated the value of Mr. Trump’s assets on annual financial statements in order to secure loans and obtain economic and tax benefits,” according to court documents. Land-use attorney Charles Martabano, tax attorney Sheri Dillon and Dillon’s firm Morgan, Lewis & Bockius are also named as defendants in the suit. Martabano and Dillon each worked on matters related to Seven Springs, a Westchester County estate. One focus of the investigation is whether the Trump Organization and its agents improperly inflated the value of Seven Springs, according to court documents. “Valuations of Seven Springs were used to claim an apparent $21.1 million tax deduction for donating a conservation easement on the property in tax year 2015, and in submissions to financial institutions as a component of Mr. Trump’s net worth,” wrote Matthew Colangelo, chief counsel for federal initiatives in the AG’s office. A number of other Trump properties, including Trump National Golf Club – Los Angeles, Trump International Hotel and Tower Chicago and the Manhattan office tower at 40 Wall Street are also part of the investigation, according to court filings.
While companies large and small are already succumbing to the economic effects of the coronavirus, experts say the wave of bankruptcies is going to get bigger, the New York Times reported. Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis. Even a meaningful rebound in economic activity over the coming months won’t stop it, Altman said. More than 6,800 companies filed for chapter 11 bankruptcy protection last year, and this year will almost certainly have more. The flood of petitions from the worst economic downturn since the Great Depression could swamp the system, making it harder to save the companies that can be rescued, bankruptcy experts said. Without reform in the system, “we anticipate that a significant fraction of viable small businesses will be forced to liquidate, causing high and irreversible economic losses,” a group of academics said in a letter to Congress in May. Robert J. Keach, co-chair of ABI's Chapter 11 Reform Commission, said that many companies had so far managed to put off bankruptcy by amassing cash and conserving it as best they can: drawing down existing credit lines, furloughing workers, delaying projects and taking advantage of federal and state pandemic-relief programs. But when those programs expire, the companies will start burning through their cash. That’s when bankruptcy filings are likely to soar and stay elevated, Keach said. Expect “a Covid-19 cliff” in the next 30 to 60 days, he said.
