Articles

In the current economic climate marked by fear and uncertainty due to the ongoing pandemic, various industries, including retail, hospitality, and oil and gas, are experiencing significant challenges. Reduced consumer spending and disruptions in supply chains have led to distressed situations, creating opportunities for savvy investors. This article explores the potential for investors to capitalize on distressed asset acquisitions in industries facing the impact of the pandemic. It emphasizes the need for a selective approach, highlighting that not every distressed situation warrants intervention. The dynamics of distressed asset acquisitions, particularly in the context of Chapter 11 bankruptcy, are discussed, with a focus on the importance of speed, due diligence, and the unique advantages of Chapter 11 "363" sales. The article suggests that, despite the challenges, investors with the agility to navigate these complexities can strategically position themselves to capitalize on undervalued assets and contribute to broader economic recovery while maximizing returns.

In the current volatile economic landscape, lenders are scrutinizing borrowers with unprecedented diligence, particularly in industries affected by the ongoing pandemic. This heightened scrutiny demands a strategic response from borrowers. This comprehensive guide explores the imperative need for borrowers to brace themselves for intensified lender scrutiny, offering insights into negotiating forbearance agreements, understanding the implications of bankruptcy, and ensuring valid and perfected security interests. Acknowledging lender apprehensions, the guide outlines a proactive approach, emphasizing the development of a robust action plan and a selective strategy for distressed situations. It provides practical guidance on expense reduction, payroll optimization, bookkeeping remediation, aggressive accounts receivable management, customer acquisition, and competitiveness assessment. The guide also delves into the dynamics of Chapter 11 bankruptcy, expedited sales, the importance of speed and due diligence, and the strategic opportunities presented by Chapter 11 "363" sales. Additionally, it highlights key considerations and strategic approaches for negotiating forbearance agreements, covering collateral valuation, forbearance periods, costs and fees, covenants, third-party oversight, communication protocols, and exit strategies. The guide concludes by emphasizing the importance of accuracy and third-party validation in financial projections and the need for borrowers to act proactively to ensure financial health and resilience in the face of uncertainties.

Healthcare bankruptcies present distinct challenges due to the sector's inherent complexities. This includes government oversight, intricate reimbursement structures, and the involvement of various stakeholders such as elected officials, unions, and patients. Healthcare CFOs must develop comprehensive communication plans that include patients, their families, and state regulatory authorities. Transparency and maintaining patient care standards are crucial components of these plans. Healthcare bankruptcies often trigger the appointment of an ombudsman to monitor patient care quality and represent patient interests. The court evaluates various factors to determine the necessity of appointing an ombudsman. Winning bids in healthcare bankruptcy auctions require more than just offering the highest price. Courts may consider factors such as the bidder's capitalization, financial stability, licensability, and commitment to preserving essential services. Healthcare CFOs must craft a robust 13-week budget, considering potential ombudsman fees, reimbursement delays, increased costs for care improvement, recoupments, and compliance with privacy laws. Creditors' committees play a pivotal role in investigating a debtor's financial affairs in healthcare bankruptcies. Proactive self-analysis by management can mitigate potential challenges during negotiations. CFOs play a pivotal role in steering healthcare organizations towards a robust and sustainable financial future. They must understand the specific challenges posed by government oversight, intricate reimbursement structures, and the involvement of diverse stakeholders.

Creditors' committees play a pivotal role in safeguarding the rights and interests of unsecured creditors during bankruptcy proceedings. By conducting thorough investigations, employing strategic approaches, and actively participating in the restructuring process, creditors can enhance their recovery and navigate the complexities of financial distress with greater confidence. Understanding the underlying causes of a company's Chapter 11 filing is paramount for creditors' committees. They must meticulously examine factors such as management shortcomings, adverse legal judgments, sales declines, and financial warning signs to uncover the true reasons behind the bankruptcy. Additionally, scrutinizing the debtor's restructuring strategies, utilizing effective tools like asset sales, and conducting thorough postpetition financial analyses are essential for maximizing creditor recovery. By employing these strategies, creditors can effectively protect their interests and emerge victorious in the intricate dance of bankruptcy proceedings.

Trucking companies facing financial distress can utilize Chapter 11 bankruptcy to restructure debts and revitalize their businesses. Careful planning and swift execution are key to success. Key considerations include proactive negotiations with stakeholders, effective communication with all parties involved, maintaining customer and vendor relationships, managing lender expectations, and prioritizing cash flow. By addressing these factors and seeking expert guidance, trucking companies can navigate the bankruptcy process effectively and position themselves for long-term success.

As companies increasingly seek Chapter 11 bankruptcy protection, labor costs have become a prime target for reductions. This trend, often driven by the desire to improve profitability and enhance valuation, can have detrimental consequences for workers, who may face layoffs, pay cuts, or reduced benefits. To address these concerns, this article advocates for the appointment of an examiner in cases where a debtor seeks to reject or modify collective bargaining agreements (CBAs) or retiree benefits. By acting as a public advocate, an examiner can provide the court with an impartial assessment of the situation and help ensure that the resolution is fair and equitable to all parties in interest. In an economy where unemployment is high, protecting the interests of workers is paramount. Requiring the appointment of an examiner would help to ensure that labor bears a fair share of the costs of reorganization, while also safeguarding the interests of other stakeholders.

Out-of-Court Workouts for COVID-Struggling Businesses: Bridging the Incentive Gap with Tax Breaks Problem: The COVID-19 pandemic has hit businesses hard, regardless of their financial health. Traditional bankruptcy, with its legal fees and collateral erosion, isn't ideal. Solution: Out-of-court workouts, where lenders and borrowers collaboratively restructure loans, offer a better way to preserve value for all. Challenge: Current CARES Act relief helps with regulations but lacks financial incentives for banks to engage in workouts. Proposed Solution: Implement tax breaks for banks that successfully restructure loans related to COVID-19. This could include: Reduced taxes on income from restructured loans. Targeted tax credits for exceeding pre-set workout goals. Benefits: Faster and cheaper than bankruptcy, saving taxpayers money. Higher loan repayment rates, boosting bank profits and tax revenue. Preserved jobs and economic activity. Concerns: Potential moral hazard addressed by: Limiting the duration of tax breaks. Targeting breaks to banks showing genuine effort. Conclusion: Tax breaks can unlock the power of out-of-court workouts, leading to a win-win for businesses, lenders, and the economy in the post-pandemic recovery.

In the face of escalating financial challenges for hospitals in the aftermath of the COVID-19 pandemic, this article explores the critical need for reform in Chapter 11 bankruptcy proceedings for nonprofit hospitals. Authored by Kenneth A. Rosen, Chair of the Bankruptcy, Financial Reorganization & Creditor’s Rights practice group at Lowenstein Sandler LLP, the piece emphasizes the unique complexities of hospital bankruptcies, where emotional ties, political considerations, and conflicting interests often hinder objective decision-making. The author proposes a pivotal change to the bankruptcy code, advocating for the mandatory appointment of an examiner with a distinct mandate as a public advocate or ombudsperson. This examiner would provide impartial assessments of community and public interests, ensuring bankruptcy judges receive independent advice for informed and public-centric decision-making in hospital bankruptcy cases.

Kenneth A. Rosen, leading the legal team at Lowenstein Sandler, has been chosen as counsel for the Official Committee of Unsecured Creditors in the Chapter 11 bankruptcy of Exide Technologies. Exide, a manufacturer and recycler of automotive batteries, filed for Chapter 11 protection in May 2020, citing $817.4 million in funded debt. Notably, Rosen previously represented the committee in Exide's 2013 bankruptcy. The two-year engagement covered various issues, leading to Exide's successful emergence from bankruptcy in 2015. Now, under Rosen's leadership, the Lowenstein team will guide the committee through the complexities of the current Chapter 11 proceedings.

Toys "R" Us, Sears, and Forever 21, despite being retail giants, faced Chapter 11 bankruptcy and left vendors unpaid while covering professional fees. This pattern reveals a lack of financial transparency, highlighting the need for reform in the Chapter 11 process. The problem lies in unfulfilled promises, unpaid bills, and a broken trust system that undermines the intended purpose of Chapter 11. The bankruptcy judges, though empathetic, lack resources for thorough financial analysis. Debtors prioritize securing post-petition credit over fairness to vendors, with the pressure from secured creditors complicating matters. Chief Restructuring Officers (CROs) play a crucial role, but their effectiveness depends on transparency, and consequences should follow failures or overruling by the board. Proposed Solution: To address these issues and protect vendors, the following reforms are proposed: Publicly Available Monthly Reports: Detailing open purchase orders and payment status. Listing unpaid post-petition liabilities and available liquidity. Filed with the court and accessible on the debtor's website. CRO and CFO Accountability: Overseeing report preparation and certifying accuracy. Facing consequences for failures in transparency or mismanagement. Conclusion: Implementing reforms that emphasize financial transparency and hold key players accountable is crucial to preventing Chapter 11 from harming unsuspecting vendors. This will contribute to a healthier bankruptcy system, safeguarding those who support companies in their critical time of need. Call to Action: It is imperative to adopt these proposed measures to foster a more transparent and accountable Chapter 11 process, preventing it from becoming a graveyard for vendors.