Damian Schaible: “Junior capital coming into situations to buy runway – Unprecedented money raised and looking for homes has led to a number of situations where equity or junior creditors have been eager to put in additional junior capital quickly and flexibly in situations that in normal times would be restructurings. I have been involved in a number of situations in the past year where the presumptive fulcrum creditors have headed toward a traditional restructuring and equitization only to have junior capital come in behind them to prop up the companies. We will see how these work out in the coming year!
Third party releases – Purdue and the Boy Scouts cases have brought the somewhat arcane world of third party releases in bankruptcy cases under a real public microscope. There are a lot of social discussions underway about the propriety of non-debtors being released in cases, but the reality is that this type of release is completely de rigueur and more importantly often absolutely required to get settlements and restructurings done. Congress is now involved and some cases can become much tougher if the rules are monkeyed with extensively.
Super short prepacks – We are seeing more and more “one day prepacks” used to effectuate consensual restructurings. Once the very hard work of devising and achieving full consensus is done, we have traditionally had to wait (and pay for) about two months of process and delay. Courts like the Southern District of Texas have been leaders in designing “due process orders” to make sure that everyone gets notice and an opportunity to come to court in the event of any impact on their rights. So long as this important protection is provided, in the right case, it is just more efficient and significantly cheaper not to have to wait around in court to have a couple of extra hearings.”
Natasha Labovitz: “Well, the effects of the pandemic stimulus and easily available liquidity mean that we’ve all seen our kids and other loved ones a lot more. Let’s not lose sight of that being a really good thing. That said, it seems the restructuring professionals who have been re-deploying in the M&A, finance and mass tort arenas throughout 2021 are ready to return to more mainstream restructuring activity in the coming year. As the M&A and financing markets become increasingly more frothy at the same time the pandemic stimulus begins to recede and the US and global political environments begin to appear less stable, it looks increasingly like the kind of late-stage credit cycle that puts our industry on high alert. (Maybe a little like the way my dog perks up and trots to the kitchen when she hears the refrigerator door open … but surely we are more dignified than that.)”
Rachel Albanese: “(1) Where’s the Beef? Lots of money in the market led to dramatically less restructuring work in 2021. (2) The “toggle” plan – it was showing up everywhere for a while.”
Steven Korf: “The future of third-party releases (Purdue [Pharma]). The future of venue shopping (Johnson & Johnson and NRA).”
David Meyer: “Creditor on creditor tactics will continue with a dearth of restructuring opportunities. Continued shift from distressed for control funds to shareholder activist strategies and direct lending. Companies with scale that can tap capital markets do so and refinance or address near-term maturities; smaller companies are left behind for consolidation where available.”
Matthew Dundon: “Limits to third party releases, importance of fundamentals (e.g. EV:EBITDA relative value), and he who fights Fed is dead.”
Navin Nagrani: “First, in periods of market dislocation, the perception of value is sometimes more important than actual value (Wall Street Bets mania, etc.). Second, industry practitioners have continued to accomplish things remotely that would have historically only have happened in person (court appearances, pitches, internal meetings, etc.). And, third, no one that I know of was able to predict the general nature the markets inverted in 2021 (in a mostly positive way) from the depths of the chaos COVID created in 2020.”
Brian Resnick: “First, equity committees. Equity committees played major roles in several of the biggest cases of the year. From Hertz to Latam, bidding wars between sophisticated distressed investors put shareholders in the “fulcrum” position and gave them an important seat at the table negotiating bankruptcy exits. It took an unlikely set of circumstances (and singular pandemic), but with stock market exuberance continuing, equity committees may become a more regular feature in cases with unpredictable market upside potential. Second, the Texas Two-Step. J&J made the Texas-Two Step famous enough to get Congress’s (negative) attention, following attempts by a number of other companies (Georgia Pacific, CertainTeed, Trane Technologies) to try to cabin massive tort liabilities by running these types of divisive mergers through bankruptcy in the Western District of North Carolina. It is unclear whether any of these efforts will succeed or the tactic will be shut down legislatively or by the courts, but this novel maneuver may mark the high-water mark of restructuring aggressiveness and creativity. Until the next one. And third, remote hearings. Bankruptcy megacases in SDNY, Delaware, SD Texas and elsewhere continue to be conducted virtually even after many of their sister district courts and state courts are back in-person. There are good practical reasons that bankruptcy may be more conducive to Zoom. And it appears that a larger share of bankruptcy court business may stay online even after the pandemic ends. Aside from the obvious pros and cons, this development could also impact ongoing venue reform discussions. For better and worse, videoconferencing makes every jurisdiction “local” enough that any employee or creditor can easily and cheaply participate in proceedings. On the flip side, it also makes it less expensive for sophisticated bankruptcy professionals in the major restructuring markets to efficiently run megacases in faraway jurisdictions.”
Ryan Preston Dahl: “Just one: inflation. This isn’t so much a 2021 theme as it is a precursor of things in the “Ghost of Christmas Yet to Come” sort of way. After all, inflation was “transitory” in 2021 until somebody told us it wasn’t. But inflation certainly feels real for every company I’m working with. And we have a generation of operational managers, financial professionals, and legal advisors that have never seen, let alone experienced, inflation in any real (pardon the pun) way. But now it’s here and we’re all going to figure out what to do with it.”
Dan Dooley: “Third Party Releases: will they survive? I doubt it. The Texas 2-Step. How is it possible to fraudulently convey assets under Texas law with legal insulation? I don’t believe the Texas 2-Step will survive federal legislation. Bankruptcy venue reform. Given the backdrop of 3rd party release abuse, the absurdity of the Texas 2-Step and some ridiculous bankruptcy venue abuses, I think venue reform is likely to be part of a Bankruptcy Reform Act which will significantly reduce the importance of NYC, Wilmington and Houston Bankruptcy Courts. This legislation will likely not happen until 2023.”
Chris Ward: “The three themes I took note of in 2021 were (i) the attack on the independent director (whether this is fact or fiction still needs to play out), (ii) the mass tort dump and run (unfortunately, we probably have not seen the last of these), and (iii) more chapter 11 filings in the “home” jurisdiction of the debtor (will Houston continue to dominate Delaware and New York in chapter 11 filings? Who knew so many companies had their primary place of business in Houston?).”
