The Week In Bankruptcy: New Ch. 11 Cases Flood Courts

By Vince Sullivan
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Law360 (June 19, 2020, 9:53 PM EDT) -- A steady stream of new bankruptcy cases poured into the nation's courts in the past week as the COVID-19 pandemic continues to wreak havoc on the global economy. Cash crunches gave way to insolvency as the prolonged closure of many businesses and the ancillary effects of shutdowns burrowed into the coffers of companies in many sectors.

New Cases

NorthEast Gas Generation LLC filed for Chapter 11 protection Thursday with more than $585 million in debt, saying months of decreased demand for the electricity generated at its gas-fired power stations combined with plunging natural gas prices forced it into bankruptcy. It got the nod to borrow $15 million in post-petition loans from existing lenders. The filing was its third since 2014.

Tobacco supplier Pyxus International hit bankruptcy June 15 with more than $1 billion of debt after COVID-19 shuttered the retailers who sold its products and disrupted its supply chain. The company focuses on tobacco, industrial hemp, CBD oil and vaping liquid, and it intends to eliminate $400 million of secured debt.

Smart-pill maker Proteus Digital Health sought bankruptcy protection after COVID-19 dashed its attempts to obtain new financing. The company had already been facing a liquidity crunch that forced it to furlough its employees. The company intends to sell its intellectual property, which is focused on pills that track medication usage.

Colorado exploration company Extraction Oil and Gas filed for bankruptcy June 14 with $1.7 billion of debt and plans to swap much of it for equity in a reorganized company. A precipitous drop in demand drove Extraction Oil and Gas into insolvency. The company obtained permission to draw on a $125 million post-petition loan at a first-day hearing.

Gym operator 24 Hour Fitness said in its initial bankruptcy filings that business restrictions imposed in response to the spread of COVID-19 caused its revenue to evaporate almost overnight when it was forced to close all 445 of its gyms and lock out its 3.4 million members. It got the nod to borrow $50 million of debtor-in-possession financing during its first court appearance.

Talent management and digital training company Skillsoft Corp. said it had already been considering a comprehensive restructuring for more than a year when the COVID-19 outbreak choked off its cash and forced it into bankruptcy. The company is pursuing a debt-for-equity swap that will wipe out more than $400 million of debt, but also received court permission to continue negotiations with a potential buyer.

Chisholm Oil and Gas Operating LLC crashed into Chapter 11 after its high-cost drilling operation in Oklahoma ate into its liquidity and the ongoing macroeconomic pressures wrought by COVID-19 and an international pricing war among oil producing countries pushed it into bankruptcy. A fight among the debtor and junior creditors began percolating at a first-day hearing Friday over the proposed plan's treatment of those creditors groups, which say they will receive a disproportionately small share of new equity.

Puerto Rico

The governor of Puerto Rico sued the Financial Oversight and Management Board at the helm of the commonwealth's bankruptcy proceeding last week, saying the board is exceeding its authority by trying to nullify a series of laws passed by the local government. The constitutionality of the board was recently affirmed by the U.S. Supreme Court.

Retail

Bankrupt retail icon J.C. Penney received court approval in Texas for an interim deal that will see $30 million in Nike products released to the debtor in exchange for a $2 million payment from the retailer. The two parties had been fighting over about $19 million in payments allegedly owed to Nike by the debtor for $80 million in products held back by the sportswear maker. The remainder of the goods will be released if a final settlement is approved by the court. The storied company hit Chapter 11 in mid-May after store closures caused by the pandemic choked off its cash flow.

Canned tuna giant Bumble Bee saw its former CEO sentenced to 40 months in prison Tuesday on federal charges he participated in a price-fixing ring with other seafood companies. Hundreds of millions in dollars in claims against Bumble Bee arose from the scandal and pushed the company into bankruptcy last year. It sold its business to a competitor for nearly $1 billion in January.

Luxury retailer Neiman Marcus received final approval Tuesday for a $675 million debtor-in-possession financing package after the debtor reached a deal with unsecured creditors not to place liens on any recoveries related to a contested $1 billion dividend associated with a spinoff of a valuable business line. Neiman Marcus hit bankruptcy in May after closing all of its stores in the midst of the pandemic.

Denim seller True Religion Apparel proposed a Chapter 11 debt-for-equity swap Tuesday that would see about $65 million of its $139 million in debt converted into new term loans or equity in a reorganized company. COVID-19 business closures tipped the brand into bankruptcy in April.

A Texas judge approved $1.7 million in bonuses for executives of bankrupt retailer Stage Stores on Thursday, saying the payments — based on sale price benchmarks for the company's 700 stores — were appropriate given the circumstances. The court approved $1 million in retention bonuses for lower-level employees earlier in June. The company, which operates stores under the Peebles, Bealls and Goody's names, retreated into bankruptcy last month due to COVID-19 closures.

Automotive

Car rental behemoth Hertz Global dropped its plan to sell up to $1 billion in new stock to finance its Chapter 11 plan after federal regulators announced their intention to look into the decision. A bankruptcy judge approved the plan on short notice earlier this month. More than dozen major airports objected in the Chapter 11 case Tuesday, saying the company's restructuring plan would likely shortchange them for owed facility fees. Hertz filed for bankruptcy after travel restrictions rendered it unable to pay financing obligations for its massive vehicle fleet.

Bankrupt trucking conglomerate Comcar Industries had sales for its four business lines postponed Friday when multiple objections were made contending there were higher and better bids available for the assets. Comcar filed for bankruptcy in May after years of declining freight volume and falling prices.

Energy

The owner of a Philadelphia oil refinery shut down by a catastrophic explosion and fire last year told a Delaware bankruptcy judge it would be lowering the purchase price for its already-confirmed Chapter 11 sale plan. PES Holdings said the buyer asked for a $27.5 million price cut in the $252 million deal because it has been more difficult than anticipated to close the sale during the pandemic and that higher than expected environmental obligations have arisen. PES hit Chapter 11 last July after the blast shut down the facility, which has been operating since the late 1800s.

Other

An Arizona bankruptcy judge said Tuesday that the Small Business Administration cannot deny COVID-19 relief loans to companies solely on the basis of their status as a debtor in a bankruptcy proceeding. The decision in the case of telecommunications company PCT International furthers the tension among various bankruptcy courts over the issue of Paycheck Protection Program funding going to debtors.

The chief judge of the Delaware bankruptcy court said in-person hearings will be permitted in the First State after three months of remote proceedings, but unveiled a series of rigorous safety protocols that include mandatory face coverings and limited attendees at the hearing. Judges will make decisions on a case-by-case basis if they wish to hold in-person hearings or if they will continue with phone and videoconferencing.

Hospital chain Quorum Health Care Services began a confirmation trial in its Chapter 11 case that is expected to continue through June 22. The company said at the outset of the trial that its plan was designed to alleviate overwhelming debt obligations and not to simply wipe out existing equity holders.

A spinoff of glass and pipe maker Owens-Illinois received approval Wednesday for its choice of future claims representative in its Chapter 11 case over the objections of the U.S. trustee. Paddock Enterprises filed for Chapter 11 protection earlier this year to deal with legacy asbestos claims arising from pipe products it made in the 1940s and 1950s. The trustee sought to have an examiner appointed in the case to investigate the prepetition transactions that spun off Paddock and saddled it with the asbestos liabilities of Owens-Illinois.

Johnson & Johnson objected Tuesday to the Chapter 11 plan disclosure statement of its talc supplier, Imerys Talc America, saying it didn't provide sufficient information about how money in a talc injury trust would be distributed to claimants. Imerys filed for bankruptcy to deal with thousands of personal injury and wrongful death lawsuits over tainted talc used in Johnson & Johnson products that allegedly caused ovarian cancer or mesothelioma.

--Editing by Jill Coffey.

For a reprint of this article, please contact reprints@law360.com.

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