Below is our initial take on recent bankruptcy-related developments:
This week Mallinckrodt said that they expect to file for their second bankruptcy in the coming days after coming to an agreement with its creditors to reduce opioid settlement payments by $1 billion. This settlement would leave Mallinckrodt with only a $250 million final payment before officially entering bankruptcy.
S&K Take: It has been a tough stretch for opioid claimants, first with the Supreme Court taking up the Purdue release issue, and now with Mallinckrodt previewing that they are on the precipice of a chapter 22. The prepack filing would see 1L lenders reduce their debt by about $1 billion in exchange for over 90% of the reorganized company’s equity, 2Ls get the remaining 8% of the equity. Opioid claimants would see their recovery reduced from $1.725 billion to $250 million. Not a great spot for anyone. There appears to be a dissenting 2L group in the works (or at least a “non-RSA” group forming), and the support for the RSA (72% of 1Ls and 71% of 2Ls) isn’t overwhelming (at least yet) so we will keep an eye on this. Clearly one of the bigger stories on the restructuring landscape.
In court documents filed this week by Lordstown Motors, details about Foxconn pushing Lordstown to enter a Chapter 11 selling process that Foxconn could control and potentially eliminate all other bidders, were disclosed. These details and more information were filed in defense of Foxconn’s motion to dismiss Lordtown’s Chapter 11 case or convert to liquidation.
S&K Take: Lordstown has been making progress in its cases. Last week we detailed a deal cut with one of its main litigation counterparties, Karma, which would see Karma paid $40 million in cash to resolve $900 million in claims. That deal now has the support of the unsecured creditors’ committee, who didn’t necessarily want to see cash going out the door to pay what would be general unsecured claims. The Debtor got the UCC comfortable that it would be able to pay unsecured creditors in full under a plan (although I don’t think that is in writing) and so they will support the Karma deal. Foxconn is now arguing that the case should be dismissed. In response to that, the Debtor has released information that Foxconn itself had suggested a bankruptcy filing in prepetition negotiations. Not dispositive of course, but interesting nonetheless. Headed for an MTD showdown on Monday which we will surely discuss in these hallowed pages next week.
On Wednesday, Juul Labs announced that they are cutting 250 jobs in an upcoming restructuring to support upcoming litigation settlements and to support cash-flow generation efforts.
S&K Take: There has been speculation over the last year or so regarding Juul and its ability to deal with allegations that it markets its products to minors. Juul has agreed to about $1.1 billion in settlements to date with 46 states, DC and Puerto Rico, although it isn’t out of the woods yet. As the headline indicates, Juul is trying to find ways to preserve liquidity in light of the settlements, so this remains a situation to monitor.
The Archdiocese of San Francisco has filed for bankruptcy amid over 500 lawsuits alleging child abuse. The archdiocese claims the filing “allows each claim to be evaluated on its merits, provides transparency into the proceedings and into (the archdiocese’s) finances, and gives claimants a voice in the outcome.” The archdiocese also plans to create a restructuring plan that will allow for assets and insurance coverage to be available to settle claims with survivors.
S&K Take: San Francisco is the latest in a long line of diocese cases, many of which are ongoing with various degrees of “success.” The Archdiocese faces 537 lawsuits, and would typically anticipate an initial demand in the $2 million range on settlement of those suits. Doing the math, that number exceeds the assets of the Archdiocese. We will keep an eye on this to see if there are any novel issues in the case and otherwise hope for a speedy resolution for those involved.
