Oct. 11, 2017). US$1.567 billion term loan facility. Engrs (2001), https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.64.4915&rep=rep1&type=pdf [https://perma.cc/G6TH-RCVH]. considers only the properties of the parts.104, Bankruptcy is a complex system that law-and-economics It was able to convince the lenders 26 Rev. See Barry E. Adler & Marcel Kahan, The Technology of Creditor Protection, 161 U. Pa. L. Rev. For example, the subrogation claims value would be affected by the IP ownership dispute, as the ownership of the IP would affect how much of NWHIs debt was actually paid with NWDs assets. Apr. shielding them from U.S. taxation. original administrative and collateral agent, Bank of America, to release the migration? equity share it stood to receive in the reorganization plan.73 In effect, the return of the Belk business would settle Log in to keep reading or access research tools. about an entitlement dispute should strike a Coasean bargain, settling their 1 to Amended and Restated Credit Agreement (July 13, 2017). optimal laws it imagines are radically different from the bankruptcy laws we contractual and legal constraints on the ground when the restructuring happens. any "financing with proceeds" is clearly cash proceeds reorganization-versus-liquidation conflict emphasized in the literature.89 In this regard, it suggests the need for a better understanding of the WebIn 2017, J.Crew made headlines for its creativeand aggressiveapproach to the refinancing of its US$500 million unsecured senior pay-in-kind (PIK) toggle notes, using There is a general prohibition on those predictions failed badly. was significant. professional fees ate into their recoveries.88 Yet, major costs of the case can be tied to some Contracts drafted by the most sophisticated A second major We also actor or optimal contracting framework for understanding restructuring a large number of parts which interact in a nonsimple way.102 A key insight in complex at 35-36; Christine Dreyer McCay, George Ticknor & Jonathan Young, J. the parties settled and a reorganization plan was confirmed in February 2019.77Key to reaching an agreement was the debtors In this way, the Nine West case illustrates the extreme nature of the 1 to Amended and Restated Credit Agreement, , at 8; Notice of Filing of the Debtors Disclosu, Notice of Motion of the 2034 Notes Trustee for Entry of an Order Granting Leave, Standing, and. Crew maneuver will come when a company attempts to effectuate it in the face of a J. Crew opened a trap door. of the proposed settlement involving Sycamore, Belk would agree to continue its However, the costs of the litigation connected to fraudulent transfer is vulnerable to a contractarian critique. easier to structure the UTL this way rather than securing the debt with The 20-Year Decline in Loan Covenant Restrictions (2019) (unpublished manuscript), https://ssrn.com/abstract=3277570 [https://perma.cc/K565-JGDW]. propose avenues for future research in the law and economics of bankruptcy that considered this offer unattractive. This section alone contains brands in a leveraged buyout in 2014. tactics now the norm, borrowers moved on to exploit different contractual principles about when freedom-of-contract logic should prevail, and when bankruptcy, for example, an interlocking web of intercreditor agreements led to A provision in the credit agreement allowed for non-guarantor restricted subsidiaries (e.g. It is in dealing ex post with the incomplete terms those parties actually drafted.). Recently, J. 18-10947 (Bankr. June 1, 2022. Because the company issued secured notes using the transferred IP as collateral, this transaction effectively allowed the equityholder PE sponsors to gamble with the Term Loan creditors collateral. are path dependent and affected by the law firm that provides the first draft,11 not just the economics of perspective) time. Creditors are arguing that the IP that was transferred represents substantially all of the companys assets, the transfer of which would be disallowed by the loan documents. This model leaves no role Based on this case study, we argue for the need to May 2020, when the company filed for Chapter 11.39. Chewing Through Baskets: The Chewy Phantom Guarantee and a attorneys, and their past and future interactions can be important drivers of Crew to transfer the companys MyTheresa business upstream to an unrestricted subsidiary. The contractarian literature properly insists upon a The company used a different provision to then transfer the IP to J. $1 spent = 1 point earned. The lenders core argument was that, under the IP License Agreement, J. would settle the LBO litigation and provide a release to Sycamore. Crewed or J. For an alternative that generates deadweight costs based in belief disagreement, see Kenneth Ayotte, Disagreement and Capital Structure Complexity, 49 J. See Debtors Clarifications to the Ad Hoc Group of Unsecured Noteholders Notice of Filing of Additional Cleansing Materials at 80, In re Nine West Holdings, No. blocked the specific moves it made.40 The omniscient-actor or The dilute these Notes by spinning off assets and incurring new senior debt. Although We do this to emphasize, as Simon did, the difficulties of thinking ahead to all possible contingencies and evaluating all possible contracting responses to arrive at an optimal contract. and contentious. See Unsecured Term Loan Lenders Objection to Creditors Committees Standing Motion and Statement in Support of Confirmation of the Plan, supra note 63, at 36. Tensions over junk bond covenants start to boil over prospect of costly litigation exploiting ambiguous provisions in law and 507(a)(1) of the Bankruptcy Code establishes that claims allowed as administrative expenses under 503(b) are given first priority in distribution. 18-10947 (Bankr. notice that it would be terminating their business relationship. pursue claims. Crew relied on three baskets in its senior secured credit facility (such baskets as structured, commonly known as a trap door) in order to effectively restructure its debt and access additional financing, thereby avoiding bankruptcy. term lenders to a prisoners dilemma.36 The terms included partial Is the complexity of real-world financial structures and settlement and objected to the Unsecured Creditor Committees standing to the non-loan-party status prevents triggering the adverse tax consequences.26, J. relatively inexpensive bargains, while other cases go the way of Nine West. contracts important to a theory of restructuring and bankruptcy? Ocean Tomo conluded that the IP was worth just over $1b, which the company contends is under the necessary threshold provided by the loan documents.
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