Below is our initial take on recent bankruptcy-related developments:
Apollo Global Management and other affiliated lenders have exited a $500 million loan with now bankrupt trucking company, Yellow. The loan was sold to investment firm Citadel while Yellow negotiates with other lenders to fund its bankruptcy proceedings.
S&K Take: This news is a little stale at this point. Citadel bought Apollo’s debt and has since made a bid for the DIP alongside MFN. As of this writing, it looks like the company has agreed to that proposal. There was a lot of competition for the DIP, which was originally proposed by Apollo, but included some significant economics and a roll-up. Multiple competing bidders came in, and now Yellow has settled on a deal. Perhaps more significantly, there is apparently a stalking horse bid for Yellow’s real estate, which could cover the prepetition secured debt. Would make a great trade for Citadel. All of this is a bit speculative at this point, but things seem to be trending in the right direction for Yellow’s stakeholders.
Christmas Tree Shops’ bankruptcy has now been converted to a Chapter 7 liquidation amid growing concerns over unpaid employees and their failure to reach revenue goals. A Chapter 7 trustee will soon be appointed to address wage claims filed by 250 former workers who were laid off when the company first went bankrupt.
S&K Take: On the other side of the spectrum, we have another cautionary retail story, where CTS has been forced to convert to chapter 7. Even that has not been without acrimony, as Judge Horan urged the parties at a hearing earlier this week to get employees that had helped in the liquidation paid. When I say “urged” that may be a bit misleading, as the Judge said no professionals would get a dime until employees were paid. The parties ultimately came up with a solution. CTS is emblematic of a lot of other cases out there, where recoveries are extremely hard to come by.
This week, Lordstown Motors has reached a $40 million settlement with Karma Automotive for allegedly stealing their technology and poaching employees. The settlement has yet to be approved by bankruptcy court, but if approved the settlement includes a $5 million royalty payment to Karma for use of their intellectual property.
S&K Take: Flip flopping again, we have what looks like another success story. Lordstown, enmeshed in a dispute with Karma that was covered in these pages previously, has settled that $900 million dispute for a $40 million payment. Not everything is hunky dory (yes I looked up how to spell that) however, as Foxconn, another litigation counterparty, asserts that there is no real financial distress, particularly with the Karma issue resolved (LTL3.0?), and the Debtor is sitting on a pile of cash with no purpose in bankruptcy. The UCC, for its part, seems pleased with the settlement but not so pleased to see $40 million in cash go out the door while its constituents are not sure of a full recovery.
On Tuesday, the drugmaker Mallinckrodt announced that it is preparing to seek bankruptcy protection for the second time in three years. The statement comes after extending a required $200 million settlement payment to opioid victims.
S&K Take: This is a difficult situation. Mallinckrodt cut a deal in MNK I which promised over a billion dollars in payments to opioid claimants. Fast forward a year or so and the manufacturer is contemplating a chapter 22. Rumors had been about a prospective prepack, but the latest looks like it will be an RSA. Presumably the 1Ls would be on board, sparring with unsecureds comprised of opioid and other litigation claimants, much like the original chapter 11.
