Below is our initial take on recent bankruptcy-related developments:
J&J’s $8.9 billion talc settlement faces US bankruptcy test | Reuters
A U.S. bankruptcy judge has started to hear evidence and arguments on J&J subsidiary, LTL Management’s second bankruptcy filing. LTL’s bankruptcy proceedings have paused 38,000 lawsuits that were filed against J&J alleging that the company’s talc products cause cancer.
S&K Take: Judge Kaplan of the District of New Jersey is taking evidence on the motion to dismiss LTL bankruptcy 2.0, with closing arguments to be delivered today. Thursday saw a slate of professionals (including testimony from the “Queen of Toxic Torts,” a moniker I would put on a business card immediately) opine on the merits of MDLs compared to the bankruptcy process, and which process is best suited for the resolution of these talc liability claims. At the end of the day, the question seems to be whether J&J can “manufacture” financial distress. LTL 1.0 saw J&J provide what was basically a blank check to LTL for talc claims and its bankruptcy. The Third Circuit decided that wasn’t enough distress. Now that blank check is limited to $8.9 billion, but that seems to be the only fact that has changed, although this humble author could be missing something. In any event, this is the tip of the iceberg. Whatever Judge Kaplan finds will almost inevitably be appealed, so giddyup folks.
Lordstown Motors files for Chapter 11 bankruptcy and sues Foxconn | Axios
After an exciting debut, Lordstown Motors has recently filed for bankruptcy and sued its partner Foxconn, the world’s largest electronics maker. Relations between Lordstown and Foxconn became strained after the motor company received a delisting warning from Nasdaq and now the company hopes to sell its assets through bankruptcy.
S&K Take: This is a pretty incredible story. Lordstown had a market cap in excess of $5 billion at one point and has taken on hundreds of millions in equity over the company’s lifespan. Flash forward to today, and the company has over $100 million in cash, but has manufactured just 65 vehicles. The company burns between $10 million and $15 million in cash per month! The company highlights disputes with Foxconn that allegedly gave rise to the bankruptcy, an has filed a complaint against Foxconn. The gist of the allegations are that Foxconn came on as a partner to help the debtors manufacture vehicles, but never really helped and only sought to strip company assets and poach talent. Very salacious stuff. Yet another hot SPAC company that couldn’t execute on its business plan for a host of reasons. These cases have been coming fast and furious. We will keep an eye on this one for sure.
Bankrupt David’s Bridal Receives Tentative Bid to Keep Most Stores Open | BNN Bloomberg
David’s Bridal has started discussions with an interested buyer that is interested in keeping nearly 195 of their stores open, potentially saving 7,000 jobs.
S&K Take: Some great news in the David’s Bridal case. Retail cases have generally been ugly lately (see our prior commentary on Bed Bath & Beyond) so hopefully this one bucks the trend. Sounds like there is some wood to chop to get this done—the DIP lender asserted that they had been excluded from conversations about the sale. Regardless, a very good development.
Facing Bankruptcy After a $700 Million Bailout | The New York Times
After receiving a $700 million pandemic relief loan by the federal government in 2020, trucking company Yellow has failed to make a comeback and may be filing for bankruptcy this summer. With a troubling economic standpoint and an ongoing struggle with its workers union going on, Yellow’s fate hangs in the balance.
S&K Take: One of the big names on the restructuring horizon, Yellow has a $567 million term loan maturing in a year as well as a $730 million tab to the US government. Not great! Yellow has been downgraded by the rating agencies (S&P and Moody’s). In an effort to right the ship, Yellow recently filed a lawsuit against the Teamsters for $137 million alleging that they unjustifiably blocked Yellow’s restructuring for 8 months. I am sure this name will stay in the press given its position in the logistics industry, and it is one that we will be following closely.
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