Below is our initial take on recent bankruptcy-related developments:
On Monday, a New York federal judge stopped bankrupt Voyager Digital from completing a proposed $1.3 billion sale to crypto exchange Binance.US, allowing the U.S. government more time to appeal a federal bankruptcy judge's confirmation of the plan.
S&K Take: Crypto bankruptcy cases continue to be fertile blogging ground. The big news this week came on Monday, as the District Court granted the US government’s request for a stay pending their appeal of the order confirming Voyager’s plan. The government is appealing the approval of the exculpation provisions of the plan—ubiquitous provisions that are fairly uniform. The government functionally seeks to reserve its rights to prosecute parties that take actions to implement the terms of the plan if the government ultimately determines that those transactions are illegal. The stay prohibits Voyager from closing on its sale to Binance (who was the subject of a CFTC complaint this week as well) and further delays the return of customer assets. The debtors and the unsecured creditors’ committee opposed the request for a stay and have indicated an intent to appeal the stay to the Second Circuit. We live in interesting times. As of this writing, we don’t have an opinion, although the District Court has promised one this week. Stay tuned folks!
Federal bankruptcy judge David Jones dismissed arguments by Apollo Global Management and Angelo Gordon that they had been unfairly frozen out of a $875mn loan refinancing that Serta Simmons executed in 2020. The slim majority of lenders that participated in the deal were able to swap their debt into more senior loans, giving them higher standing in the bankruptcy, while Apollo and Angelo Gordon were not. Judge Jones said that the excluded lenders knew, or should have been aware, that they could be on the wrong side of such a deal by reviewing the loan contract.
S&K Take: Big win for uptier exchanges in Serta. Judge Jones ruled that the Serta transaction in question fit within the relevant credit agreement’s definition of “open-market purchase” and was thus permissible under the documents. This will have some pretty big implications in the credit markets, and not in a good way for minority lenders. The article headline implies that big debt investors took the brunt of this, which is true in this particular case. But the decision could mean that smaller players in the credit space will have to be even more cautious going forward—bigger players that have existing relationships can utilize this kind of structure to pick who gets to participate in an exchange and freeze out those that they choose to exclude. Some recent documentation has included “anti-Serta” provisions prohibiting non-pro rata transactions, although it is certainly not in every agreement, so this style of transaction could remain in play.
A $2.4 billion bankruptcy plan for the Boy Scouts of America has been upheld by a federal judge. The plan would let the Texas-based organization continue operating while it compensates tens of thousands of men who say they were sexually abused as children while involved in Boy Scouts.
S&K Take: Looks like the end of a very long battle to gain approval of the “largest sexual abuse compensation fund in the history of the United States.” Non-settling insurers had challenged the plan, and more specifically the releases included in the plan as impermissible third-party releases. The Delaware District Court notably affirmed the approval of those releases, stating that square with existing Third Circuit precedent, and that bankruptcy courts are authorized to issue nonconsensual third-party releases under appropriate circumstances. The Court declined to expand the reach of the District Court’s decision in the Purdue case, noting that decision was on appeal and that it departed from Second Circuit precedent. All in all, this may allow the Boy Scouts plan to move to consummation, which is significant in and of itself. The important legal precedent included is just icing on the cake.
Indicted FTX cryptocurrency exchange founder Sam Bankman-Fried pleaded not guilty on Thursday to new U.S. charges of conspiring to violate campaign finance laws and bribe Chinese authorities. Bankman-Fried entered the plea to the new, 13-count indictment at a hearing before US district judge Lewis Kaplan in Manhattan federal court.
S&K Take: The rabbit hole gets deeper and deeper with SBF. The most recent accusation is that he tried to pay Chinese officials $40 million so that he could regain access to frozen Alameda accounts. This jibes with his alleged conduct in the Bahamas immediately prior to the bankruptcy filing, where he was trying to obtain support from the Bahamian government in exchange for allowing Bahamians to access their accounts and take out crypto. This trial is going to be must watch TV.
Bed Bath & Beyond will sell up to $300 million of its stock to pay back creditors and fund its business while it struggles to avoid bankruptcy. It is likely to file for bankruptcy if it’s not able to raise sufficient money from the offering.
S&K Take: BBBY is back in the equity markets again after the failure of its preferred stock offering, this time seeking to raise $300 million in an at the market offering of common stock. Most notably for bankruptcy professionals, BBBY noted that if this raise fails, it expects that it would likely file for bankruptcy protection. Imagine that we will be covering this one in these pages again in the near future.
