Below is our initial take on recent bankruptcy-related developments:
Terraform Labs Pte., the embattled Singapore crypto firm, has filed for a voluntary petition in Delaware for Chapter 11 bankruptcy. Terraform’s bankruptcy comes less than two years after the collapse of the firm’s failed stablecoin TerraUSD, which destroyed billions of dollars in investor wealth. The crypto firm stated in its bankruptcy filing that both its estimated assets and liabilities are between $100 million to $500 million.
S&K Take: A lot of great stories this week. We start with an oldie but a goodie―the domino that started the crypto winter. It all started with the Terra/Luna collapse, which crushed 3AC, which in turn exposed basically all of the crypto platforms as fugazi. The debtor asserts that bankruptcy will allow it to implement its business plan—wait, what? There is a business to be saved? Interesting. We look forward to seeing precisely what that means when the company files its pleadings.
On Tuesday, Johnson & Johnson stated that is has reached a tentative statement to settle an investigation by over 40 states into allegations that the company deceived patients about the safety of its talc baby power and other talc-based products.
S&K Take: In between LTL 2.0 and 3.0 it appears as though J&J is picking off potential objectors to a resolution of its talc-related liability. Per the company, J&J has settled with 40 state AGs for $700 million. This resolves consumer protection claims of the AGs, but it leaves tens of thousands of consumer lawsuits outstanding. Our hunch is that J&J takes a third crack at filing bankruptcy to resolve those liabilities at some point in the future.
On Friday, creditor groups and various law professors called to put an end to “judge shopping” in a Houston, Texas, bankruptcy court that administers all large cases to a hand full of judges, stating that the practice generates “the perception of a two-tiered justice system.” The creditor groups and law professors have asked the federal judiciary to put a nationwide rule change in place that would make new “mega” bankruptcy cases with over $100 million in debt to be randomly allocated among all judges within the district where they are filed.
S&K Take: More pushback on case assignments in Houston amid all of the wrangling over Judge Jones’ resignation and the related fallout. In case you have been living under a bankruptcy rock, SD Tex was one of only a few jurisdictions that had complex case panels, where large bankruptcy cases are assigned to one or two judges that are perceived as debtor-friendly. The SDNY and ED Va had similar set ups, although they both capitulated to external pressure and moved away from that construct. This letter aims to undo the last bastion of “judge shopping.” It seems to be much ado about relatively little in this author’s humble estimation—if we are looking for venue reform (which someone does at least once every year or so) we should be shooting higher than eliminating the complex case panel in the SD Tex.
On Monday, Careismatic Brands, a medical apparel company, filed for Chapter 11 bankruptcy protection with an agreement to yield control to its lenders and wipe out its debt of $833 million. More than 70 percent of the company’s lenders support the proposed restructuring plan and the agreement should permit the company to emerge from bankruptcy quickly and last as a leader in the medical apparel market.
S&K Take: Wanted to include a quick take on this one, as it seems to be a bit of a throwback to the classic LBO cases. At first blush this looks like a company that may have benefited disproportionately from a pandemic push while the underlying business isn’t actually that terrible. It just got LBO’d and had unreal amounts of leverage put on the company, presumably paired with traditional sponsor dividends and the like. Definitely more fun than the deSPAC zombie cases that have been out there recently. I would note that the above analysis is relatively unburdened by deep research, so take it with a grain of salt. In any case, we will keep an eye on this, expecting any UCC to come out guns blazing.
