Below is our initial take on recent bankruptcy-related developments:
On Tuesday, at-home exercise equipment company BowFlex filed for Chapter 11 protection. BowFlex stated that Taiwan-based company Johnson Health Tech will act as stalking horse in a potential acquisition of the company for $37.5 million in cash and a $25 million debtor-in-possession financing will allow it to continue operations and pay its employees.
S&K Take: BowFlex/Nautilus is a pretty decent size name in the retail space which hit the NJ docket this week (it’s a Washington state-based company for you venue junkies out there). The case contemplates a lightning-quick sale timeline with bids due April 5, less than a month from today. The debtors justify that by noting that the company has been on the auction block since 2021. Fair point, I suppose. As far as sale cases go, this case is unique in the sense that you have a stalking horse putting up cash which would actually exceed the secured debt (as opposed to the ubiquitous first lien/DIP lender only-show-in-town credit bid). Back of the envelope you have $25 million in prepetition plus DIP, with a $37.5 million cash bid providing $12.5 million for unsecureds (assuming admins are spot on in the DIP budget). Not a bad place to start, although there are $60 million in GUC claims. The debtors state that there is interest, so maybe you even get some robust auction action here to bump the price.
During a court hearing in Wilmington, Delaware on Tuesday, bankrupt cryptocurrency company Terraform Labs’ attorneys stated that a newly designated creditors’ committee in its bankruptcy case is incentivized to see that the SEC succeed in its litigation against the company. Terraform is seeking to get U.S. Bankruptcy Judge Brendan Shannon to approve its decision to hire Dentons, a U.S. law firm, and pay a large deposit for its defense in an upcoming SEC trial.
S&K Take: Shots fired! I am sure we will learn more as this unfolds, but this one got off to a fast start. As we mentioned last week, the debtor seeks to retain Dentons as special litigation counsel disclosing that they had paid them $166 million in a retainer. That isn’t as crazy as it came across, as Dentons has paid other counsel with those funds. But still a nice chunk of change. Anyway, a committee was formed and committee counsel asked for an adjournment of the retention hearing. The debtor declined, and the committee put that request in writing, along with some other allegations that you’d expect in an early committee pleading. Judge Shannon granted the adjournment. The plot thickened when debtor said that the creditors sitting on the committee were illegitimate (i.e. not on their creditor list) and were aligned with the destruction of the company. Huh. UCC counsel and the UST essentially said that this accusation was an ambush. Judge Shannon calmed things down from there, but I expect we will see some future fireworks.
