Below is our initial take on recent bankruptcy-related developments:
Serta Simmons Bedding’s recent Chapter 11 reorganization plan was recently approved by a U.S. bankruptcy court, supporting the company’s goal of reducing their $1.9 billion debt.
S&K Take: Judge Jones approved Serta’s plan of reorganization on Tuesday, and that approval was immediately appealed by Citadel on Wednesday. Citadel subsequently asked that the Court certify the confirmation order for direct appeal to the Fifth Circuit, so this looks to be far from over. At the center of plan confirmation was a decision by the Court that the 2020 Serta “Uptier” transaction complied with the relevant loan documents, and was done in good faith (Judge Jones had previously granted partial summary judgment upholding the transaction in an adversary proceeding). This ruling on a “position enhancing transaction,” or PET supports what has been aggressive behavior in various similar transactions across industries. Judge Jones will certainly tell you what he thinks, so I will let him do exactly that on PETs:
“PETs may or may not be a good thing. Lender exposure to these types of transactions can be easily minimized with careful drafting of lending documents. While the result may seem harsh, there is no equity to achieve in this case. Sophisticated financial titans engaged in a winner-take-all battle. There was a winner and a loser. Such an outcome was not only foreseeable, it is the only correct result. The risk of loss is a check on unrestrained behavior.”
Crypto lender, Genesis has now been granted an extended mediation period as tensions rise between the lender and its creditors. The initial mediation period was slated to end last month but has now been extended to end on June 16th.
S&K Take: Disputes between Genesis and its creditors continue, and Judge Lane has now extended the mediation until the middle of June in an attempt to facilitate resolution. Gemini, through counsel, suggested that the mediation would cause further delay in reuniting customers with their assets, although Judge Lane did not share that view. One interesting sidebar is that the FTX avoidance actions (nominally for $3.9 billion) will not be pulled into the mediation, and those are subject to separate legal sparring.
The U.S. Department of Justice has objected to Bittrex’s motion to allow customers to withdraw their crypto and fiat claiming that the motion is premature and “improperly applies the standard that would allow it to pay some creditors ahead of others”.
S&K Take: This is an interesting position to say the least and will be a notable hearing. Maybe “interesting” isn’t the word. Maybe it is “confusing.” So the DOJ filed suit against a crypto bank for dealing in unregistered securities. At bottom, that suit should be about protecting the public. Now the DOJ has sought to delay payments to be made to customers, which, presumably, benefit and protect the folks they are concerned about. The justification for the objection is that the DOJ’s $5 million claim (based on protecting the public) shouldn’t be prejudiced. Your tax dollars at work.
Although Bed Bath & Beyond has been going under, buybuy Baby has been garnering interest from possible buyers. Buybuy Baby is one of the U.S.’s largest baby-product retailers and is likely to survive its parent company’s demise.
S&K Take: The BBBY case is shrouded in mystery for the moment. The UCC cut a deal that, at least to my knowledge, is not yet public. On top of that, there is apparently interest in the buybuy Baby assets, although the identity of those interested has not been revealed. There are reports that Go Global Retail and Overstock.com are in the mix, although as of this writing those are not confirmed. We will dutifully report as details surface.
Diamond Sports, has been ordered to make full media rights payments to four Major League Baseball teams by a bankruptcy judge. Currently, Diamond has paid the Arizona Diamondbacks, Cleveland Guardians, Texas Rangers and Minnesota Twins up to 75% of their debt. However, if the remainder of the payments are not made, those teams are allowed to walk away from their contract.
S&K Take: Judge Lopez ordered that Diamond Sports fully pay its MLB club partners under broadcasting agreements pending assumption or rejection. The loss may impact Diamond’s leverage in negotiations. The debtors subsequently sought clarification with respect to advance payments on contracts that it may reject. The result came after a two-day evidentiary hearing, which will surely not be the last in this case.
