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U.S. Judge Nixes Move to Toss Puerto Rico Bankruptcy Case

A federal judge on Friday rejected an attempt by a major Puerto Rico bondholder to throw out the U.S. territory’s historic municipal bankruptcy case, Reuters reported. U.S. District Judge Laura Taylor Swain ruled that the creation by the U.S. Congress of a financial oversight board for Puerto Rico under a law known as PROMESA and the appointment of the board’s members did not violate the U.S. Constitution. “The oversight board’s statutory objectives and scope of authority thus mark its character as territorial rather than federal,” Judge Swain’s ruling said. Aurelius Capital Management, an investment firm with a specialty in distressed debt, filed a motion last year arguing that the board’s creation violated the U.S. Constitution’s Appointments Clause. The hedge fund sought to dismiss the board’s May 2017 federal court case to restructure the territory’s roughly $120 billion in debt and pension liabilities.

Oaktree Says Claire’s Rush to Leave Bankruptcy Could Hurt Recoveries

Oaktree Capital Management LP, which has been an unhappy junior bondholder in the bankruptcy of Claire’s Stores Inc., said Thursday that the teen retailer’s rush to leave chapter 11 runs the risk of leaving a better offer on the table, WSJ Pro Bankruptcy reported. For months Oaktree has said Claire’s continues to favor senior bondholders and private-equity owner Apollo Management Holdings LP at the expense of other parties. In a court filing on Thursday, Oaktree, which holds 72 percent of secured second-lien bonds in the Hoffman Estates, Ill.-based company, lodged numerous objections related to the disclosure statement Claire’s filed last week in U.S. Bankruptcy Court in Wilmington, Del.

Nine West Asks Lazard to Help It Explore a Sale

Bankrupt fashion company Nine West Holdings Inc. has asked investment bank Lazard Ltd. to help it explore a sale, a month after its namesake brand known for its footwear and handbags fetched $340 million in an auction, Reuters reported. The sale of the Nine West brand, for $140 million more than the first offer, has emboldened the company to seek an outright sale for its remaining assets which include its jeanswear and jewelry businesses, and the Anne Klein and Kasper women’s’ brands. Some creditors had planned to convert their debt to equity in the remaining business. Nine West is also considering selling the businesses piecemeal. Nine West’s jeanswear and jewelry businesses, together with Anne Klein and Kasper, had net revenues of $1.1 billion in 2017, according to bankruptcy court documents. The jeanswear line includes Gloria Vanderbilt jeans sold in Costco Wholesale Corp., Kohls Corp. and Sears Holdings Corp. Brand licensor Authentic Brands Group LLC completed the acquisition of the Nine West brand this month after beating shoe retailer DSW Inc. in an auction.

San Antonio Zoo’s Efforts to ‘Adopt’ Toys ‘R’ Us Mascot Might Be a Stretch

With Toys “R” Us’s Geoffrey the giraffe facing possible extinction in the wake of the retailer’s closure, the San Antonio Zoo stepped up with a solution to save the bankrupt retailer’s mascot, the Houston Chronicle reported. The zoo last month launched an online campaign in hopes of “adopting” Geoffrey from Toys “R” Us Inc. to use as the face for giraffe conservation. Only 100,000 giraffes remain in the wild, the zoo said. The zoo started a GoFundMe page to raise $100,000 for the Giraffe Conservation Foundation and “to persuade the owners at Toys “R” Us to join the effort to save giraffes by donating the use of their most recognizable intellectual property.” Given it’s mired in bankruptcy, Toy “R” Us isn’t in a position right now to simply give away the rights to Geoffrey for nothing. Bankruptcy lawyers say the retailer has a duty to maximize the amount of money it can recover from selling assets so it can pay creditors. Those assets include its U.S. intellectual property, such as its name, its catchy, vintage TV jingle — “I don’t wanna grow up, I’m a Toys ‘R’ Us kid” — the Babies “R” Us brand, and Geoffrey. “If there are no buyers for Geoffrey, then (Toys “R” Us) can ask the bankruptcy court for permission to donate those rights to a worthy cause, which could include the zoo,” said bankruptcy attorney John Penn, who is not involved in the case. But “they at least need to try to get some kind of value for it first.”

Analysis: Eagan Avenatti Creditor Denied Outright Win Over Lawsuit Fees

A bankruptcy judge wouldn’t hand the proceeds from dozens of pending lawsuits tied to Michael Avenatti to a creditor of his formerly bankrupt law firm, Eagan Avenatti LLP, but ordered an accounting of everything the firm takes in, according to a WSJ Pro Bankruptcy analysis. Bankruptcy Judge Catherine Bauer in Los Angeles largely ruled against Jason Frank, a former business partner of Avenatti who sought to wrest control of assets belonging to Eagan Avenatti — a firm controlled by Avenatti but legally separate from Avenatti & Associates, which represents adult-film actress Stephanie Clifford, also known as Stormy Daniels, in her hush-money lawsuit against President Donald Trump. Frank’s request raised legal questions about which assets of a bankrupt law firm are available to satisfy its debts. Courts in California have held that when law firms fold, the fees collected later on by their former partners for hourly work can’t be clawed back for distribution to creditors. But Eagan Avenatti is a contingency-fee firm, a high-stakes corner of the legal industry that requires firms to invest time and money filing complaints while collecting a slice of settlements or verdicts that arrive years later if at all.

Foreclosures Restart in Puerto Rico

The foreclosure machine that ground to a halt in Puerto Rico after the devastation caused by Hurricane Maria in September is slowly cranking up again, the New York Times reported. Island residents who fell behind on their payments are facing creditors ranging from Wall Street to the federal government. Over the last four months, nearly 300 new foreclosure actions were filed in federal court in San Juan and in local courts across the island. Among the firms filing cases are an investment firm controlled by Credit Suisse, one in which the private equity firm TPG Capital is an investor and banks like Citigroup and Santander. Even the United States Department of Agriculture, which has underwritten more than 3,000 mortgages in mainly rural areas of Puerto Rico, has begun to foreclose on delinquent borrowers. The filings are some of the first in Puerto Rico since several federal agencies — including the U.S.D.A. — imposed moratoriums on new foreclosures and legal actions in existing cases after the hurricane devastated the island’s electrical grid. But the moratoriums have begun to expire, setting the stage for what housing advocates have feared could be a wave of home foreclosures in the United States territory of 3.4 million people.
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