2024 brought a number of headline stories that will impact the bankruptcy and restructuring market in 2025 and beyond. A few of those are summarized below.
LMEs (Of course). Liability management exercises — sometimes referred to as “lender-on-lender violence” — continued on their growth trajectory during 2024, with restructuring advisors looking for (and finding) gaps in credit documents that allow for the practice. While uptiers, drop-downs and double-dips were all the talk of the first 364 days of the year, the Fifth Circuit’s ruling in Serta coming on December 31st closed out the year with a bang (or a thud). The Circuit Court reversed former Bankruptcy Judge David Jones’ ruling which had blessed Serta’s uptier transaction (allowing the majority lenders to leapfrog the non-participating lenders). Judge Jones’ original decision, coming from a prominent jurisdiction (Southern District of Texas) was a “stamp of approval” for many uptier transactions that came before and that followed. Among other things, the District Court found that the exchange of existing debt for newly issued senior debt did not constitute an “open market purchase” because it was not made available to all lenders. The District Court further remanded to the Bankruptcy Court the question of whether the excluded lenders had valid counter-claims (breach of contract, etc.) against the participating lenders and the borrower. The court further stripped certain indemnification provisions that had been included in the plan to protect against such a ruling. This brand new decision will likely have a dramatic impact on the feasibility of future LME transactions (at least until the drafting catches up). Others transactions that do not rely on open market purchases (J.Crew, for example) will be less impacted by the ruling.
Purdue Pharma. The Supreme Court finally got an opportunity to weigh in on the lengthy saga regarding the validity of non-consensual third-party releases in favor of members of the Sackler family. Purdue’s plan of reorganization was premised on a massive settlement with the family that would have resulted in approximately $6 billion from the family directed for creditor recoveries. The Court considered whether the Bankruptcy Code allows a Bankruptcy Court to authorize the release of claims against non-debtors absent the consent of potential claimholders. No, said a divided Court in the highly anticipated ruling (interestingly with Gorsuch authoring the opinion and Kavanaugh the dissent). While the ruling was limited to non-consensual releases, questions remain as to what constitutes consent and what becomes of non-consensual releases in plans that had been confirmed prior to the ruling.
Retailers. Large big box retailers and other household brand names continued to deal with trouble in 2024. Rite Aid, Big Lots, Conn’s HomePlus, Express, Rue21, Ture Value and Sam Ash Music all filed bankruptcy. As for restaurant chains, Red Lobster and TGI Fridays filed for bankruptcy relief as well. Adjusting to a new retail environment due to on-line competition and changing customer behaviors continues to be difficult for many retailers and restaurants.
New Jersey Bankruptcy Court. Texas’ loss was New Jersey’s gain in 2024. The Bankruptcy Court for the Southern District of Texas had become an attractive venue for bankruptcy filings over the last nine or ten years, growing in prominence since the series of exploration and protection companies sought protection there in 2016-2017. (Remember when a barrel of oil fell to $20?) Concerns over the aforementioned Judge Jones’ ethics led to his resignation in 2023 and legal tangles with many, including a prominent local firm, have dominated the news from the district since. One result has been that a the Southern District of Texas, one that had been attracting many mega bankruptcy cases, has seen those filings drop in 2024 while New Jersey has taken up the slack. New Jersey may also benefit from rulings in the Eastern District of Virginia (e.g., Enviva) that have raised conflict issues for debtor counsel that are often brushed aside in other districts. Indeed, the Bankruptcy Court of New Jersey saw two of the largest cases of 2024 in WeWork and Rite Aid, a trend that will likely continue in 2025.
We’re looking forward to seeing which of these stories and themes influence bankruptcies and restructurings in 2025.