Category Archives: Bankruptcy

A bidding war over Hertz Global Holdings Inc. intensified as previously outbid investors returned to the table with a counteroffer for the bankrupt car-rental company, backed by Apollo Global Management Inc. and existing Hertz shareholders.

Investment firms Knighthead Capital Management LLC and Certares Management LLC, which previously offered to buy Hertz out of chapter 11 only to be eclipsed by a competing investor group, returned with a sweetened bid late Thursday that values Hertz at $6.2 billion, according to people familiar with the matter.

Apollo has agreed to supply up to $2.5 billion in preferred equity financing for the proposed restructuring, which unlike the prior offers would pay off the rental-car companys funded debt in full, people familiar with the matter said.

The revised bid challenges a restructuring offer that Hertz accepted earlier this month, backed by Centerbridge Partners LP, Warburg Pincus LLC and Dundon Capital Partners LLC and valuing the company at about $5.5 billion.

The competing proposal presents a choice for Hertz, which is racing to exit from bankruptcy by the end of June and has already put the restructuring terms it selected earlier this month up for approval from the U.S. Bankruptcy Court in Wilmington, Del.

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Hertz Bankruptcy Bidding War Heats Up With New Counteroffer - The Wall Street Journal

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The federal government has quietly reversed course on a policy that had kept thousands of businesses from applying for pandemic economic aid, with only weeks to go before funds are expected to run out.

In late March, ProPublica reported on a Small Business Administration rule that disqualified individuals or businesses currently in bankruptcy from getting relief through the Paycheck Protection Program, an $813 billion pot of funds distributed to small businesses in the form of loans that are forgiven if the money is mostly spent on payroll. The agency had battled in court against several bankrupt companies attempting to apply for PPP loans, and did not change course even after Congress explicitly passed legislation in December allowing it to do so.

Referencing ProPublicas story, the National Association of Consumer Bankruptcy Attorneys wrote a letter to newly installed SBA Administrator Isabella Guzman urging her to follow Congress suggestion and tell the Executive Office for U.S. Trustees a division of the Justice Department that oversees most American bankruptcy courts to allow debtors to receive PPP loans.

The agency has not yet contacted the Justice Department. But on April 6, the SBA released new guidance as part of its frequently asked questions for the program, redefining what it means to be presently involved in any bankruptcy. Under the new interpretation, debtors who filed under Chapter 11, 12 and 13 which cover businesses, family farms and individual consumers, respectively are eligible for PPP loans once a judge has approved their reorganization plan. A spokesperson for the SBA said the explanation had been added for clarity.

A reorganization plan specifies the debtors path to paying off obligations to creditors, and is monitored by a trustee. In simple cases, a judge can confirm it within a few months of filing. This is what often happens in consumer Chapter 13 cases, about 279,000 of which were filed in 2019, as well as in relatively straightforward Chapter 11 cases that dont require extensive litigation. About 5,500 companies filed for Chapter 11 in 2019.

The Administrative Office of the U.S. Courts doesnt track how many of those companies have confirmed reorganization plans in place, but its estimated to be in the thousands. Now, companies on the road out of bankruptcy which usually takes years to complete can apply for PPP loans before the programs May 31 deadline. With $50 billion left after several extensions, PPP funds are likely to run out before then.

Ed Boltz, a bankruptcy attorney on NACBAs board who circulated the organizations letter, said he believes the SBA changed its position after becoming aware of the foolishness of the prior administrations position.

How a Federal Agency Excluded Thousands of Viable Businesses From Pandemic Relief

The change would not have helped all the companies that sued the SBA over its policy. Florida-based Gateway Radiology Consultants, for example, didnt have a confirmed reorganization plan before it applied for a PPP loan last year, prompting a lawsuit. But the bankruptcy lawyer in that case, Joel Aresty, said plenty of his current clients could benefit.

If they were lucky enough to already be confirmed, they could freely qualify for a PPP loan the fact that you were in bankruptcy is no longer a deterrent, Aresty said. Its amazing how difficult they made such a simple proposition, really.

The new definition may now help Mark Shriner, a coffee shop owner in Lincoln, Nebraska, who filed for Chapter 13 bankruptcy in 2018 following a divorce. His plan was confirmed the same year. The SBAs exclusion of debtors from the PPP originally prevented him from applying, forcing him to take on higher-interest loans to keep his doors open.

His cafe likely would have qualified for up to $25,000, and Shriner said he could have used some of the money to improve his online ordering or devise a takeout-friendly menu. Even now, he said, getting PPP money would help him plan for the future and bring back more staff.

Informed of the change last week, Shriner sent an application to his bank, which said it would hear back from the SBA within a couple weeks.

Wow, Shriner said. That would be great.

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The Federal Government Will Now Give PPP Loans to Borrowers in Bankruptcy - ProPublica

Family members of a Kroger real estate executive who died following an altercation at Shotgun Willies in 2019 say the Glendale strip clubs recent bankruptcy filing is an attempt to use the COVID-19 pandemic as a smokescreen to limit the debtors liability in six pending lawsuits.

The truth is that the debtor is a profitable company that will likely recover quickly from the pandemic and has the financial wherewithal to provide a significantly higher return to unsecured creditors, the surviving wife and children of Randall Wright wrote in a March 24 court filing.

Wright was 48 when he died in May 2019 after being put into a chokehold by a bartender at the club, according to a wrongful death lawsuit his family filed five months later. The local district attorneys office announced in September 2019 that it would not file charges in connection with the incident, citing multiple factors.

The club disclosed the familys lawsuit and others pending against it when it filed for Chapter 11 bankruptcy protection in November. In a statement to BusinessDen at the time, Shotgun Willies attributed the filing to the pandemic, noting the club was prohibited from operating for weeks in the spring, and again around the time of the filing.

We believe this action gave us the only chance of surviving in this uncertain climate and was unfortunately unavoidable, the club said.

But the Wright family has asked the court to reject Shotgun Willies reorganization plan, characterizing the bankruptcy as just the latest example of the clubs efforts to hide its ability to pay the Wrights in the wake of the lawsuit.

The family notes that an entity called Glendale Holdings LLC was registered in August 2019, and ownership of the clubs building at 490 S. Colorado Blvd. was transferred to that entity in early 2020. The transaction was later reversed. Stephen Long, an attorney representing Shotgun Willies, previously told BusinessDen the transfer was done for tax purposes in case the club was sold.

While Shotgun Willies owns the building it operates in, it doesnt own the land the building sits on. That is owned by Coal Creek Partners LLC, which is made up of some but not all of the owners of Shotgun Willies, according to the club. While preparing to file for bankruptcy, the club and its landlord determined they werent on the same page about how much the club owed, ultimately settling on a higher amount than the clubs original estimate, according to court documents.

The Wright family refers to the situation as the debtors convenient discovery of additional debit to a related entity. The family also questions the strip clubs forecast regarding how long it will take to get the business back to where it was before the pandemic. The strip club had revenue of about $7 million in 2019.

The debtor projects that even five years after the most devastating economic effects of the pandemic are expected to subside (and despite widespread vaccinations already well underway as of the date of this filing), the debtors annual sales will still be approximately $4 million, significantly less than in the years prior to the bankruptcy filing, the Wrights said in their recent filing. This forecast is at odds with the views of most economic experts.

The Wrights are represented in their objection by attorney David Warner of Littletons Wadsworth Garber Warner Conrardy. He is also representing another party that objects to the reorganization plan using similar language. The individual, Charles McClure, filed a personal injury lawsuit against the strip club in April 2020.

Models Lucy Pinder, Dessie Mitcheson and Carmen Electra have also objected to the reorganization plan. They sued the club in 2019, claiming Shotgun Willies was using images of them in advertising without permission or compensation.

Long, the attorney representing Shotgun Willies, told BusinessDen Thursday that a hearing on the objections is scheduled for June 1. He noted that the clubs reorganization plan has the support of the U.S. trustee and the Subchapter V trustee, Harvey Sender.

Long also defended the veracity of the financial projections that the Wrights described as dour.

The projections that were submitted to the court were not our projections, Long said. They were projections by an independent financial analyst.

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Plaintiffs say Shotgun Willies bankruptcy filing is an attempt to avoid paying - The Denver Post

Photograph: Shutterstock

The bankruptcy filing this week by Golden Corrals second-largest franchisee is at least the 35th such filing by a large franchisee or restaurant chain since the outset of the pandemic.

It wont be the last, either. Even as restaurant sales surge, its entirely likely we could see more such filings as valuations for restaurant chains reset while landlords and lenders start asking for the funds theyre owed.

Whats going to precipitate more bankruptcies is when banks have to start, wait a second, its been a year, year and a half now, we need to get some money in, Dave Bagley, managing director of the investment bank Carl Marks Advisors, said on an upcoming episode of the Restaurant Business podcast A Deeper Dive. Thats coming as summer approaches.

The biggest issue, he said, is valuations.

Bankruptcy filings are most of the time transactional moves. The lender wants to be repaid. Or, in an increasing number of cases, it wants to take control of a company after having acquired the debt on the secondary market. Eighty to 90% of such filings lead to a transaction, Bagley said.

Valuation levels in the restaurant space were uncertain over the past year. That likely kept many chains out of bankruptcy because lenders had no idea how much the company was worth.

Whats more, Bagley said, the lenders didnt have to push the issue. The same was true with their landlordswho have debt of their own. Lenders didnt force them to pay off their debt because they didnt have to.

This created a were-all-in-this-together scenario in which landlords didnt force restaurants to pay all of their rent and lenders didnt force them to pay off debt.

That gave chains more time to develop strategies for surviving the pandemic. It has likely kept many restaurants from closingonly 2% of the restaurants in the Top 500 closed last year, a remarkably small number. And only about 5% of casual dining restaurants closed, which is also small given that the typical casual dining restaurant lost about a quarter of its business last year.

There was no one pushing the restaurant to do anything, Bagley said.

This didnt work for everybody, of course. Some chains were pushed into a bankruptcy filing quickly, and some landlords forced the rent issue. After all, it wasnt as if there werent any bankruptcies or closures.

Now, restaurant sales are on the upswingmany chains have reported record sales in recent weeks and just about every sector is seeing post-pandemic highs, at least, as consumers spend their stimulus cash on restaurant food.

Whats more, Bagley said, some certainty on valuations is coming. At some point, the lenders know what they have. That could force more companies into bankruptcy court.

None of this is to say that well have a massive rash of bankruptcy filings. But the industry isnt entirely out of the woods when it comes to seeking out debt protection, even with strong sales. Indeed, as I was writing this we learned of 36th filing, this one from the 13-unit fast casual chain Meatheads Burgers & Fries.

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The restaurant chain bankruptcy wave is not over - Restaurant Business Online

Under the settlement, Standard Amusements will invest millions more in rides and food and other improvements at Playland than under the 2016 agreement.

The Westchester County Board of Legislators last week approved a bankruptcy court settlement with Standard Amusements regarding the management of Playland Amusement Park in Rye.

The settlement, which the board approved 13-4, was negotiated by the county and Standard the terms of which were previously approved by the bankruptcy court.

The agreement gives the county significantly improved terms compared with the 2016 agreement, which had become the subject of a dispute in Standards bankruptcy reorganization filing.

The choice legislators faced was voting to approve the settlement, with its improved terms, or against the settlement, thereby sending the case back to bankruptcy court where Standard could move to assume the 2016 contract.

Under the settlement, Standard will invest millions more in rides and food and other improvements at Playland than under the 2016 agreement.

The settlement also gives the county significant new oversight over Standards operation of the park controls that were not in the 2016 agreement.These new oversight powers include the power to review and approve Standards construction plans, approval of new rides, new and more specific financial reporting requirements for Standard, and county approval of an annual operating plan for the park, among others.

In addition, the settlement contains new terms under which Standard can assign the contract to another company. The county will now have the ability to object to an assignment, and there are new requirements that any company that might take on the contract must have years of amusement park management experience and demonstrated financial resources.

There are also improved financial terms for the county.Under the 2016 agreement, the county shared only in Standards net profit and only after Standard recouped its capital investment.Under the settlement, the county will be paid from the beginning out of gross revenue over $12 million. The county also will receive an annual fee starting at $300,000 in 2022, increasing to $400,000 in 2023 with annual adjustments thereafter.

If Standard fails to generate at least $12 million in gross revenue per year for four straight years, the county may terminate the contract.

The settlement also heads off expensive litigation in the future by hiring a commercial arbitrator, to be agreed to and paid for by both parties, to resolve disputes.

Any county workers at Playland, not hired by Standard, or who do not want to work for Standard, will continue to be employed elsewhere by the Parks Department. Standard is committing to continuing to hire a diverse slate of young seasonal workers during the summer as well as older workers.

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Playland Operator Reaches Settlement with Westchester County - The Examiner News

The Boy Scouts of America, under pressure to end a costly bankruptcy case, are exploring an alternative exit from chapter 11 that the youth group said abandons its longstanding goal of protecting hundreds of affiliated local councils from sex-abuse litigation.

The Boy Scouts put forth an alternative chapter 11 plan that would resolve sex-abuse liabilities for only the bankrupt national organization, while leaving local councils spread across the country open to thousands of legal claims.

The contingency plan isnt a first choice for the Boy Scouts, which filed for bankruptcy in hopes of shielding the local councils and the wealth they hold from legal exposure over childhood sexual abuse. Since filing for bankruptcy last year, the Boy Scouts have favored a broad deal between abuse victims and local councils, which are tied to the institution but arent themselves in bankruptcy.

That remains on the table, Boy Scouts lawyer Jessica Lauria said in the U.S. Bankruptcy Court in Wilmington, Del. But if the preferred plan falls to gain traction among victims or cant clear bankruptcy court, the Boy Scouts would pivot to an alternative version that only covers the national organization, she said.

In that scenario, local councils in California, New Jersey, New York and other states would be exposed to the kind of legal action that the Boy Scouts had filed for bankruptcy to resolve, according to court papers filed Monday.

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Boy Scouts, Pressured to End Bankruptcy, Explore Leaving Local Councils Behind - The Wall Street Journal

Avianca Holdings SA plans to raise $1.8 billion to repay debt and provide new financing as the Colombian airline eyes an exit from the bankruptcy reorganization it was forced into last year during the pandemic-driven travel collapse.

The air carrier retained Seabury Securities LLC to help raise the exit financing, likely a combination of debt and equity, the company said in a regulatory filing Wednesday. Avianca said it will repay $1.4 billion in bankruptcy loans and have around $1 billion in liquidity when it emerges from the reorganization at some point this year.

Avianca was Latin Americas second-largest airline before the Covid-19 pandemic slowed air travel to a trickle last year, leading it to file for Chapter 11 protection in a New York court in May. Latam Airlines Group SA and Mexicos Grupo Aeromexico SAB also were forced into bankruptcy as the region suffered one of the worlds sharpest drops in flights.

Read more: Avianca Adding Routes to Beaches With Eye On Bankruptcy Exit

In addition to the $1.4 billion in loans it plans to refinance, Avianca raised $900 million from a group of investors including United Airlines, hedge fund Citadel Advisors LLC and Salvadoran air mogul Roberto Kriete. The company is negotiating final terms to convert that tranche into equity as it builds its new capital structure. Its still not possible to know whether the value of existing shares will be diluted, according to the filing.

When it emerges, Avianca signaled that its costs will be cut drastically. It said some 300 initiatives will save $500 million annually, helping cut leverage to below three times Ebitda from 5.8 times as of the end of 2019.

The case is Avianca Inc., 20-11133, U.S. Bankruptcy Court for the Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.

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Avianca to Seek $1.8 Billion With Bankruptcy Exit in Sight - Bloomberg

Mitchell Kossoff (Photo via Kossoff, PLLC)

Real estate investors who say theyve been scammed out of millions in escrow funds from attorney Mitchell Kossoffs law firm now want to push the firm into bankruptcy.

A group of four investors filed a petition for involuntary bankruptcy Tuesday against Kossoff PLLC, listing slightly more than $8 million in misappropriated escrow funds, filings with New Yorks Southern District bankruptcy court show.

A representative for the Kossoff firm could not be immediately reached. The company has taken down its website since The Real Deal first reported last week that founder Mitchell Kossoff seemed to have disappeared, leaving several of the citys biggest multifamily landlords concerned about what happened to their escrow funds. Tuesdays lawsuit also contends he has not been located.

The Manhattan district attorneys office is also investigating Kossoff, Law360 previously reported.

The largest debtor of the four investors who filed suit, Miami-based developer Gran Sabana Corporation, also filed a civil claim in federal court alleging Mitchell Kossoff violated the contract on their $4.5 million escrow fund.

Rather than hold the money for the anticipated real estate transactions as Kossoff agreed to do (and was bound to do by legal and ethical requirements) Kossoff siphoned Gran Sabanas funds, as well as the funds of other clients, out of the escrow account for his own personal use, the lawsuit claimed.

The other creditors in the bankruptcy case are United American Land, which says its missing about $2.4 million, Louis and Jeanmarie Giordano, who say theyre missing about $1 million and Thomas Sneva, who claims hes missing more than $57,000.

The allegations echo those in at least two other lawsuits filed against Kossoffs firm last week. Westchester-based investor Rob Yaffa and Long Island-based investor SSM Realty Group each filed complaints over nearly $2 million missing escrow funds combined.

Contact Rich Bockmann

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Landlords try to push AWOL attorney Kossoff into bankruptcy - The Real Deal

By T. D. Thornton

Two weeks after being granted an extra month to determine if Ahmed Zayat is hiding assets while seeking Chapter 7 bankruptcy protection, the court-assigned trustee in the case told a federal judge Friday that the allegedly insolvent owner and breeder of Triple Crown champ American Pharoah (Pioneerof the Nile) is still trying to evade scrutiny by withholding records.

And trustee Jeffrey Testa further warned that the longer the case drags on, the higher the risk is that Zayat will wipe away cloud-storage financials before the trustee can examine those documents.

Testa now wants the judge to compel turnover of Zayat's trove of electronic records, and to direct Zayat to cooperate with the investigation, according to an Apr. 16 United States Bankruptcy Court (District of New Jersey) filing.

In that document, the legal team for the trustee wrote that because of the serious and disturbing allegations of fraud at play in this case, the court should not leave it to chance that Mr. Zayat or his designees will act competently to maintain the integrity of the evidence.

Given the overwhelming allegations of fraud and expected sought-after delay, the Chapter 7 Trustee simply cannot wait any longer for access to the Cloud, the filing states. Although Mr. Zayat has represented that the Cloud is secure and that he is aware of his obligations, the longer the information on the Cloud remains in the hands of Mr. Zayat the more susceptible it is to manipulation or destruction, and this ongoing and unreasonable delay impedes the Chapter 7 Trustee's investigation.

The job of trustee in a voluntary bankruptcy case is to make sure that a debtor's claim of insolvency is on the up-and-up. In Zayat's case, he alleged in his initial filing last September that he has $19 million in debt but only $314.22 in assets, with a huge chunk of that money owed to Thoroughbred-related creditors.

People who file for bankruptcy protection generally try to cooperate with their assigned trustees, because without the trustee's seal of approval, their debt likely won't get forgiven by a judge.

But Zayat's case has been riddled with accusations of his stonewalling and evasion since the outset of the initial hearings. Zayat, through his attorney, has repeatedly denied those claims and stated that he has been a willing and cooperative petitioner.

Not only can a trustee file an objection if aspects of the filing don't seem legit, but if alleged fraud is uncovered in a bankruptcy petition, the Federal Bureau of Investigation can investigate, and the U.S. Department of Justice can prosecute.

The trustee's request to the judge on Friday capped a week of drawn-out, back-and-forth demand letters and phone conferences between the trustee and Zayat's legal team over whether and how the access to his cloud-storage records would be granted.

According to the filing, just when the trustee thought the parties had agreed on safeguards that would satisfy Zayat's concerns about not wanting anyone to read his family's personal emails, Zayat on Apr. 15 instead proposed an unworkable alternative, which essentially was that the trustee should ask for specific financials it believed were stored in the Cloud and Zayat would retrieve them for the trustee.

This proposed process was simply a close cousin of Mr. Zayat's previous proposals designed, in the Trustee's view, to dictate and control the process contrary to law [and] leave the Cloud unsecured, delay, and make Mr. Zayat the lynchpin of any document search and review, the filing states.

Mr. Zayat's primary basis for refusing to grant the requested access is that the Cloud allegedly commingles and contains his emails and those of his family members that are supposedly unrelated to the Debtor's business and that might comingle and contain, among other things, HIPAA-implicated, non-business, and attorney client-privileged communications, the filing continues.

The fact that Debtor's principal and his family members supposedly decided to mix business and non-Debtor affairs does not negate Debtor's statutory duty to turn over property of the estate and recorded information to the Chapter 7 Trustee, the filing asserts. There is simply no valid reason why the Chapter 7 Trustee should not be granted access to independently secure the Cloud. The law does not support Mr. Zayat's position

Given these circumstances and Mr. Zayat's decision not to allow the Chapter 7 Trustee to have access to and independently secure the Cloud and its contents raise serious concerns on the part of the Chapter 7 Trustee that the cloud and its contents might not be secure while under Mr. Zayat's exclusive possession and control, and that the Chapter 7 Trustee might be obstructed in reviewing documents that can lead to recoveries for the benefit of all creditors.

The Chapter 7 Trustee has already taken steps to engage a reputable IT partnerEpiqto take control of the Cloud, preserve it, and copy its contents. Mr. Zayat will have access copies to any information on the Cloud once it is secured; thus there is and will be no prejudice to Mr. Zayat or his family members, the filing states.

MGG Investment Group, LP, the lender that is separately suing Zayat and his family members for allegedly obtaining a $24-million loan by fraud and then not repaying it, has alleged in court documents that the trustee needs to examine bank accounts in the names of Zayat's wife (Joanne Zayat) and son (Justin Zayat) because they appear to have been used as conduits through which Sherif El Zayat, the Debtor's brother, loaned money to Ahmed Zayat.

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Bankruptcy Trustee Warns of Risk that Zayat Will Wipe Away Electronic Records - Thoroughbred Daily News

Queen were so heavily in debt before the release of 1975's A Night At The Opera, they would have been forced to split if the album had not been a success.

The bands fourth album, which featured the hits Bohemian Rhapsody and Youre My Best Friend, became a lifesaver for the rockers, who would have been forced to give up on their dreams if it had flopped.

"We were not only poor, but we were in debt," guitarist Brian May says in a new video posted on the group's YouTube page.

"All the sound and lighting companies and the people that we worked with hadnt been paid. So we were at a really crucial point. We might have had to break up if that album hadnt done well. It was an expensive album, enormous complexity on there. Even looking at it now, I wonder how we did some of that stuff."

Bandmate Roger Taylor adds, "I remember when we went into the studio to make A Night At The Opera, it felt like make or break."

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Queen were close to bankruptcy before A Night at the Opera success - Music News