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Texas law firm Jackson Walker made news this week in the continued fallout from the SDTX saga by alleging former Chief Judge David Jones made efforts to control disclosures of his relationship with then-Jackson Walker partner Liz Freeman.
The rise of Houston as the pre-eminent destination for mega bankruptcies, an effort largely spearheaded by the “force of nature” Judge Jones and the two-judge panel he implemented in 2016 as the chief bankruptcy judge, and then his ultimate resignation in October 2023, has captivated the restructuring world for the past eight months. It also has many implications for the future of mega-bankruptcies and venue shopping (Will New Jersey be the next SDTX? Is Red Lobster just the beginning for Florida?), and especially the treatment in bankruptcy of aggressive pre-petition liability management exercises by sponsor-backed companies (will an inauthentic signature in Incora give junior or minority creditors back their sway in BK?).
While the Judge Jones story has had many twists and turns, this Wednesday’s court filing was striking for how stark Jackson Walker’s stance was against the judge who — even by Jackson Walker’s own admission — was instrumental in bringing more big cases to Texas, which was a boon to business for the firm. Jackson Walker provided this information in a withering response in several bankruptcy dockets (including here) — where the US Trustee is seeking to sanction Jackson Walker and recover fees for work the firm did in front of Judge Jones given the alleged conflicts.
Freeman’s departure from Jackson Walker was effective as of 1 December 2022, nine months after the firm says it found out about the ongoing relationship: “...when JW later learned of the existence of that intimate relationship on March 30, 2022, JW affirmatively rejected Ms. Freeman’s and former Judge Jones’s attempt to further hide the extent of their relationship and otherwise acted reasonably and in good faith to comply with its legal and ethical obligations that culminated with Ms. Freeman’s separation from the firm.”
Before Freeman ultimately struck an agreement to leave Jackson Walker, she first retained counsel to try to formulate some disclosure language. Later, as alleged in this week’s response, Jackson Walker recounts an instance in October 2022 where Judge Jones met with firm Partner Matthew Cavenaugh:
“[F]ormer Judge Jones invited Mr. Cavenaugh to his chambers at the conclusion of a hearing. Former Judge Jones apologized that JW had to deal with the situation. He then reiterated his view: any disclosure obligation belonged to him, and him alone. He further stated that any relationship he had with Ms. Freeman was casual, and no different from encounters with many other lawyers at many other firms. Former Judge Jones also insinuated that he was unhappy with JW’s insistence on a full and complete disclosure and Ms. Freeman’s exit. At the end of that in-chambers meeting, former Judge Jones handed Mr. Cavenaugh a piece of paper that contained former Judge Jones’s proposed disclosure. Former Judge Jones directed that JW ‘needs to make this happen.’” (emphasis 9fin’s)
That proposed disclosure was a watered-down disclosure of a “close personal relationship” Judge Jones had with Freeman sandwiched in between two other friendships.
Jackson Walker, in Wednesday’s filing says it “considered the proposed disclosure by former Judge Jones insufficient, inadequate, and misleading…”
For his part Judge Jones (who 9fin tried to contact today for comment but was unsuccessful), is now using separate counsel (he initially was defending himself) and at least in recent court documents has largely taken an approach to defend against some of the technical charges while allowing for the possibility that disclosures were insufficient: In a reply filed this week in a separate lawsuit from the McDermott shareholder who started this all, Van Deelen v. Jones, Jones says: “Whether right or wrong and irrespective of any driving motive, Jones’ decision regarding disqualification is entitled to judicial immunity. Accordingly, the disclosure/non-disclosure issue simply does not implicate the non-judicial acts exception,” later noting in a footnote, “Even if these activities were not judicial acts—they are—the activities are not the proximate cause of any injury alleged by the Plaintiff.”
Jackson Walker not only essentially disowns Judge Jones, it also suggests that Freeman did little to cement its status as the go-to local counsel for debtors counsel (namely Kirkland & Ellis, also a defendant in the Van Deelen case): “As cases began to be filed with more consistency in the Southern District of Texas, JW quickly became one of the local go-to law firms due to its reputation, knowledge of local practice, familiarity with the courts, and lower regional billing rates. Indeed, JW cemented itself in this role years before Ms. Freeman joined the firm, oftentimes teaming with other large law firms that did not have a significant bankruptcy practice in the Southern District of Texas.”
In addition to this newly revealed interaction between Jackson Walker and Judge Jones prior to Freeman’s exit from the firm, Wednesday’s response includes a catalog of Judge Jones’ interactions in his court room over the years as a footnote to the following prompt: “Notwithstanding this friendly and approachable demeanor off the bench, former Judge Jones was a force of nature on the bench. He was intimidating at times, unapologetically self-assured of his opinions about issues, and did not hesitate to openly voice his displeasure of lawyers and/or their clients when he disagreed with their legal positions or strategy.”
This footnote is worth a read:
People Moves
If you have any recent moves to announce, please send to one of our team’s emails below to include in our People Moves section.
Michael Urschel, head of complex securitization at Milbank, is moving to Kirkland & Ellis.Jonathan Brownson, Joydeep Choudhuri and Prue Criddle are set to joinLatham & Watkins from the capital markets and lending group at Cahill Gordon. Daniel Berlin has joined Sixth Street as a principal, leaving his position as senior analyst with Elmwood.
The Distressed Pitch List — We have published the first edition of our Distressed Pitch List, where we aim to identify topical credits that may be targets for liability management exercises and / or turnaround efforts in the future. Our first edition features Anywhere Real Estate, Embecta, Leslie’s, and Multiplan.
FreshDirect—The grocery delivery company has hired restructuring advisors and has been reaching out to potential investors for rescue financing. The development marks a rapid downfall for FreshDirect, which enjoyed strong demand during the pandemic and was acquired by Turkish company Getir late last year.
Bausch Health— Two creditor groups have banded together to implement one of the largest — and most unique — cooperation agreements to date, amid growing concerns over the company’s pursuit of one-off exchanges and the potential spin off of valuable eye care subsidiary Bausch & Lomb.
Sunnova Energy— The residential and commercial solar companyhashired AlixPartners to help boost liquidity and Moelis to explore restructuring options. Last week, it has agreed on several funding deals, including a new tax equity agreement with JP Morgan and a lease securitization deal with owners of home security firm Brinks Home.
Sound Inpatient Physicians— The hospital staffing company launched an exchange offer earlier this week with approximately 90% of its existing lenders on board. Its sponsors, Summit Partners and UnitedHealth have also agreed to inject $49m of equity into the company.
Del Monte Foods— A group of lenders has hiredHoulihan Lokey to help kickstart negotiations with the company, which is struggling to gain traction on its financing raise.
Office Properties Income Trust—The REIT announced two amendments this week to its exchange offers launched earlier this month. The first set of amendments — aimed at leveraging tensions between noteholder groups to maximize discount capture — introduced “priority amounts” of new secured notes each series of unsecured notes (due 2025 to 2031) could exchange into, and stipulated that other maturities will be able to participate in any unallocated or “undersubscribed” amounts in reverse-chronological order — effectively demoting the 2025s to the bottom for any unallocated priority amounts. The second set of amendments reduced the priority amount reserved for the 2025s and increased it for the 2027s, but promoted the 2025s to the top of the priority order for undersubscribed priority amounts. This latest iteration too potentially allows for meaningful discount capture by OPI.
Dynata— The struggling market research company filed a prepack this week in the US Bankruptcy Court for the District of Delaware that would see first lien lenders receive 95% of reorg equity, with a confirmation hearing set for 2 July.
Red Lobster — Red Lobster commenced its Chapter 11 on 19 May in the Middle District of Florida. At its first day hearing, the company received interim approval of its first-day motions, but a looming fight over terms contained in its DIP facility was highlighted, with the UST making vigorous objections to the proposed roll-up and foreshadowing issues that a yet-to-be-appointed UCC will potentially find objectionable.
Zachry Group — The family-owned EPC company filed for Chapter 11 protection in SDTX after facing defaults under its EPC contract for a mega LNG project in Texas, and battling cost issues and supply chain disruptions. The project is owned by Qatar Energy and ExxonMobil, and Zachry has filed an adversary proceeding to pursue multiple claims against the project and its owners. Parties will attempt to mediate the disputes, while the company will fund the bankruptcy with cash on hand and generated from operations.
Cano Health— Cano Health’s disclosure statement was approved after having to continue the hearing two times to allow for more time to negotiate terms of a settlement with its UCC. The plan, a dual-track plan at petition date, now contemplates a restructuring transaction, after no actionable bids were received for the company’s assets. A hearing on confirmation is scheduled for 28 June.
Diamond Sports Group— The regional sports network (RSN) operator’s confirmation hearing was pushed back by over a month to late July 2024 following a blackout of the RSNs by Comcast, stemming from a dispute regarding a multi-year renewal agreement between Diamond and its third largest distribution partner.
Steward Health — The unsecured creditors committee (UCC) has hired Akin Gump to represent them in the Chapter 11 restructuring of the struggling hospital operator, with the UCC expected to take an aggressive stance on certain activities of Steward CEO Ralph de la Torre and Medical Properties Trust.
ConvergeOne—The debtors’ Chapter 11 plan was confirmed by Judge Christopher Lopez, who also overruled an objection from certain excluded lenders.
Robertshaw— The debtors’ adversary proceeding with Invesco began this week. All parties provided opening statements and presentations. The trial will last 6 days.
Staples — The Sycamore Partners-backed office supplies company saw banks widen pricing and reduce size in order to price it. The company had previously announced an exchange of notes and a capital raise to address maturities through 2027. 9fin had earlier reported that the company was working with bankers at JP Morgan and Morgan Stanley to gauge investor interest in a refinancing of upcoming debt.
Medical Properties Trust — Medical Properties Trust secured a 6.9%, 10-year £631m non-recourse financing secured by certain properties in its UK portfolio. The company plans to use the proceeds to repay outstanding debt, including a £105m secured term loan due December 2024, revolver borrowings and a £-denominated term loan due early 2025, and for general corporate purposes. Its 10-Q for Q1 24 still hasn’t been filed.
McAfee — The company completed a repricing of its Euro and US dollar term loans, with lenders also receiving a paydown. Earlier, a group of lenders that 9fin had reported had organized were said to have signed a cooperation agreement and also hired an FA.
Lionsgate— Bondholders left out of an earlier exchange have reportedly started to explore legal action, after the film and TV media company completed an exchange where its 2029 SUNs indenture was amended to strip certain covenants and events of default.
Other active distressed and restructuring coverage
Alkegen — Formerly known as Unifrax, the specialty materials maker is getting financing proposals from third party investors to help pad its liquidity and address its upcoming debt wall.
Altice France—The telecom company has revealed its first highly anticipated move, disclosing designations of five more subsidiaries as unrestricted as well as moving its HoldCo RCF down to OpCo level. 9fin’sdeep-dive report explores the range of eventualities that are blown open by creditors’ diverging incentives, Patrick Drahi’s huge capacity to strip value away from creditors, French law considerations and the intricacies of timings, triggers and creditor group make-ups.
Anthology — Nearly 100% of the first lien loans of the Veritas-backed ed-tech company are said to have agreed to exchange under a liability management deal that 9finhad reported was launched after negotiations with an ad hoc group of first lien lenders. The deal also extends the company’s revolver to early-2028.
Altice USA—As part of the heavily indebted Drahi empire that has come into focus after the hardball tactics taken with Altice France creditors, the USA business of Altice has now reportedly started working with a financial advisor while bondholders are organizing.
Ardagh Group— Two creditor groups continue to prepare for subsequent debt negotiations with the glass and metal packaging company after an aggressive third-party financing transaction.
Astound Broadband — A group of lenders started confidential talks with the Stonepeak-backed internet and cable provider. While the company has far-dated debt maturities, it is grappling with a cash flow squeeze.
Belk — Lenders to the department store chain have been speaking with the company about a restructuring that could exchange much of its debt into equity.
Carestream Dental — The CD&R and CareCapital Advisors-backed company has been working with to address its revolver and term loan maturities this year.
CommScope — The company reported Q1 24 results, with continuing declines across segments and significant cash burn, though the CCS and OWN segments have shown signs of recovery. Management noted that CommScope was continuing to evaluate all alternatives, including using flexibilities in credit documents (9fin analyses here), to address debt maturities.
Cox Media Group— Certain holders of Cox Media Group’s term loan and bonds organized driven by concerns around the Apollo-backed TV broadcasting and radio company issuing dividends when the business is struggling and facing a high debt burden.
Emergent BioSolutions — Holders of Emergent’s 3.875% SUNs due 2028 stand to receive a high potential recovery amid a stabilization of earnings, per 9fin analysis, as our illustrative waterfall outlines a scenario-based recovery of between 92% and 93% with the bonds quoted near 60 cents.
Enviva — Vinson & Elkinsfought the US Trustee’s objection to its proposed retention as debtors’ counsel. V&E’s lawyer and the US Trustee sparred over what acceptable disclosure and conflicts processes entail.
Express — The retailer filed for Chapter 11 protection with the intention of pursuing a going concern sale by 10 June.
EyeCare Partners — The vision care network completed its liability management deal involving $275m of new money and a discounted debt exchange that offered better terms to lenders who participated early and were involved in confidential talks with the company.
Fisker— The troubled EV company’s forbearance agreement with Heights Capital was extended again to 17 May, with its Austrian subsidiary filing for a restructuring proceeding in Austria. The company also disclosed that a group holding over 25% of its 2026 convertible senior notes had delivered a letter seeking to accelerate repayment of the notes, stemming from an event of default as the company had missed an interest payment. Our latest coverage of the troubled EV manufacturer and the dual track process set by Heights Capital can be found here.
Gol Airlines— Gol’s Abra bondholder group recently disclosed updated members and holders including distressed investors. The bankrupt airline has said it will evaluate all recapitalization or other transactions, including to raise capital while in bankruptcy. In recent days the UCC has objected to the debtors attempts to allow aircraft lessors to sell a participation interest in their unsecured claims, while retaining their voting rights on any potential Chapter 11 plan.
Gray Television — The broadcaster announced a $250m debt repurchase plan along with Q1 24 earnings that showcased a year-on-year improvement, sending prices of its debt and shares higher.
Hearthside Food Solutions — Some par holders have sold their positions in Hearthside’s loan to Apollo Global Management, which is leading the steering committee of an ad hoc group of lenders.
Hertz — The rental car company’s capital structure took a hit after Q1 24 results outlined an acceleration of vehicle depreciation tied partially to the company’s investment in electric vehicles, with higher-than-expected cash burn and concerns over its ABS structure and future liquidity.
iHeartMedia— A group of first lien lenders to iHeartMedia are organizing loosely with Gibson Dunn, but haven’t yet formally retained the law firm, according to 9fin sources. (For a look at the company’s options for a potential liability management exercise under its credit documents, go here.) The move is the latest sign of investor concerns over the challenges facing the media industry.
Incora—The judge overseeing Incora’s adversary trial handed the bankrupt aerospace supplier’s sponsor Platinum Equity a win and a loss. While Judge Marvin Isgur issued an opinion allowing witness testimony that Platinum wanted excluded, he vacated an earlier decision that recalled one of the private equity firm’s fact witnesses to the stand.
Invitae — Kirkland & Ellis defeated objections from both the UCC and UST to its proposed retention as debtor counsel. It also received approval for the sale of its assets to LabCorp and plans to file a plan and disclosure statement in the near term.
MRP Solutions — Lenders to Clearlake Capital-backed packaging manufacturer (fka Mold-Rite Packaging) are organizing.
Peloton—The fitness company is working with JP Morgan to gauge investor interest in refinancing its existing debt with a new loan that would incorporate some bond-like call structures.
Rubio’s Restaurants — Rubio’s is considering a possible Chapter 11 bankruptcy filing in order to sell itself. A bankruptcy filing would be its second in the past four years.
rue21— The Blue Torch-controlled fashion retailer filed a Chapter 33 before Judge Brendan Shannon of the US Bankruptcy Court for the District of Delaware. The company aims to close all stores, conduct wind-down sales, and market its IP and intangibles for a sale. The docket is available here.
Salem Media— Certaindebtholders have banded together with Paul Hastings to negotiate a possible debt restructuring with the conservative Christian media company.
SI Group — The chemical additives company shared preliminary 2023 results, which left some investors questioning the sustainability of its capital structure, even as its business shows signs of recovering.
SIRVA — The moving services company was downgraded by S&P from B- to CCC. The S&P note states that on 25 April, SIRVA’s first and second-lien credit agreements were “modified to pledge more equity from subsidiaries as collateral to lenders, to 100% from 65%, which we view as lenders' concerns over the company's performance and ability to manage its obligations in a difficult operating environment.” This comes after it raised a new money priming loan (per S&P a $84m delayed-draw term loan) in order to bridge the company to a broader debt restructuring.
Sonrava Health (fka Western Dental) — The New Mountain-backed company is sounding out investor interest on new funding backed by its accounts receivables balance.
Spirit Airlines — The troubled ultra low-cost airline reported Q1 24 earnings, disappointing but largely in line with guidance published recently, and management painted a bleak picture for Q2 and beyond. Management also announced concrete plans to survive on a standalone basis. Read our three-part series on the stressed ultra low-cost airline and its Loyalty Notes: Part 1, Part 2 and Part 3.
Telesat Canada — The Canadian satellite company posted expected declines in revenue, EBITDA and margins in Q1 24, and reaffirmed guidance for the full year. Backlog and cash generation for the legacy business declined as Telesat continues to lose GEO customers and focuses on Lightspeed. Certain creditors are reported to have hired Evercore and Lincoln International for advice. 9fin earlier provided a comprehensive analysis of the company’s disappointing FY 23 earnings and FY 24 guidance.
2U—The education tech company has started confidential negotiations with creditors on ways to overhaul its debt. Once a high-flying online education startup, 2U is facing an upcoming debt wall and heightened regulatory scrutiny of its revenue-sharing business model.
United Site Services — The portable toilet rental company is set to tap a $115m commitment from sponsor Platinum Equity as it battles weaker earnings amid an inflationary and higher rate environment.
TGI Friday’s — The restaurant chain has engaged an FA to raise roughly $200m of new funding to pay down debt.
Thrasio— The Amazon aggregator’s Chapter 11 plan confirmation hearing was delayed to 10 June, amid continuing investigations by the disinterested directors and the UCC into potential unencumbered assets and estate claims and releases.
VeriFone — Lenders to the payment and commerce solutions company have organized with Gibson Dunn as they prepare for negotiations ahead of the maturity of the company’s $250m revolver and over $2bn of term loans in 2025.
VistaJet — The private jet subscription company released Q4 23 results, with the company’s founder penning a letter announcing legal action against a “group of individuals” that has “disseminated half-truths, false rumors and lies”.
WeWork — WeWork continues to reject attempts from the Flow Parties, which includes Adam Neumann, the company’s former CEO, to derail its Chapter 11 case. The latest objections from the group came against the company’s proposed $450m new money exit DIP facility. The court overruled those objections and granted access to $50m so that WeWork can pay off certain administrative expenses, including attorneys’ fees. Final approval, as well as confirmation of the company’s plan, will be heard on 30 May.
Workhorse — The electric vehicle company continues to raise capital through the issuance of convertible notes and warrants and employ cost-cutting measures to address cash flow pressures. 9fin had earlier reported that the company is working with Stifel to help raise bridge financing.
Xplore — The Canadian rural internet provider kickstarted a grace period after skipping a coupon payment due at the end of March. It has been in talks with creditors and sponsor Stonepeak on ways to restructure its legacy business and fund the growth of its fiber projects.
Zayo— The telecom company announced that it is carving out two entities, including its European business and its business that manages network needs outside of the North American and European networks. After the separation, Zayo Europe will appoint a new board of directors.
