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Bankruptcy Headlines

Update on Proposed Extension of the PPP Loan Program – Gotta Read That Fine Print!

By Thomas J. Salerno STINSON LLP

With a change in administration likely within the next two months, and Congress scrambling to agree on another rescue package for millions of Americans facing yet more pandemic related economic hardship as many of the government subsidies and stimulus plans are set to expire the end of December, Senators Rubio and Collins have revamped S. 4321 initially introduced on July 27, 2020 ("Initial Proposed PPP III Legislation"), which would (finally) make the Payroll Protection Program loans ("PPP Loans") available to debtors in bankruptcy. The PPP expired in early August 2020, and S. 4321 became bogged down in neverending partisan politics, and, ultimately, put on the back burner by the Götterdämmerung that was the presidential election. The Initial Proposed PPP III Legislation still had issues, but was, at least, a step in the right direction.

On October 1, 2020, Senators Rubio and Collins apparently reintroduced a different version of the Initial Proposed PPP III Legislation, S. 4773 (the "Amended PPP III Legislation"). One of the first lessons all lawyers learn (some the hard way) is that the devil is always in the details, and you gotta read the fine print! Click here to read the full analysis.

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Purdue Pharma Pleads Guilty to Role in Opioid Crisis as Part of Deal With Justice Dept.

Purdue Pharma pleaded guilty yesterday to criminal charges that it misled the federal government about sales of its blockbuster painkiller OxyContin, the prescription opioid that helped fuel a national addiction crisis, the New York Times reported. The admission brought a formal end to an extensive federal investigation that led to a multibillion-dollar settlement between the company and the Justice Department. “The abuse and diversion of prescription opioids has contributed to a national tragedy of addiction and deaths,” Jeffrey A. Rosen, the deputy attorney general, said in a statement. “Today’s convictions underscore the department’s commitment to its multipronged strategy for defeating the opioid crisis.” Purdue’s chairman, Steve Miller, acknowledged in a remotely conducted hearing in federal court in New Jersey that in order to meet sales goals, the company told the Drug Enforcement Administration that it had created a program to prevent OxyContin from being sold on the black market, even though it was marketing the drug to more than 100 doctors suspected of illegally prescribing OxyContin. Purdue also pleaded guilty to paying illegal kickbacks to doctors who prescribed OxyContin and to an electronic health records company, Practice Fusion, for targeting physicians with alerts that were intended to increase opioid prescriptions. Practice Fusion has paid $145 million in fines for taking those kickbacks. The company agreed last month to plead guilty to criminal charges and face criminal and civil penalties of about $8.3 billion as part of the settlement with the Justice Department. A federal bankruptcy judge in New York approved the deal last week. The settlement included $3.54 billion in criminal fines and $2 billion in criminal forfeiture of profits. The department said they were the largest financial penalties levied against a pharmaceutical manufacturer.

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J.C. Penney Gets a Verbal Confirmation of its Bankruptcy Plan from Judge as Sale Remains Pending

J.C. Penney is almost at the end of its bankruptcy after getting a verbal confirmation Tuesday of its plan from Bankruptcy Judge David Jones, the Dallas Morning News reported. That plan of reorganization includes the sale of the retail company to landlords Simon and Brookfield and a big chunk of its real estate to lenders to pay down debt. The pending transaction includes a complex document for the transfer of 160 stores and six distribution centers to Penney’s lenders. Penney’s shareholders continued to object to the plan’s treatment of their rights to future claims, their lawyer Mathew Okin said at the hearing. In response, Judge Jones granted shareholders pre-petition claim status, giving them future rights if they pursue a legal case. The judge deemed himself the gatekeeper of that status but noted that any shareholder claims would be dwarfed by creditors who have agreed to the plan of reorganization. Penney’s shareholders are holding stock with no value but haven’t accepted that the bankruptcy plan has canceled their equity. Judge Jones had allowed them to form an ad hoc equity committee and approved funds to pay fees for financial and legal assistance.

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California Pizza Kitchen Exits Chapter 11 Protection

California Pizza Kitchen says that it has emerged from chapter 11 protection with $220 million less in debt and no lending obligations coming due in the near term, Restaurant Business reported. Earlier disclosures by the casual-dining chain indicate that the court-approved plan of reorganization leaves the brand with $177 million in borrowed capital for expansion and sharpening the chain’s focus on what it calls a “Cali health” menu. The new bill of fare includes such items as a BBQ Don’t Call Me Chicken Pizza, a meatless riff on its signature barbecue-chicken pie. The new version features a plant-based protein analog in place of chicken. The company retired its debt by swapping equity for what it owed lenders. Those former creditors now own substantially all of the operation, California Pizza Kitchen said. The operation had tried to sell itself via an auction last month, but no bidders came forward. The company filed for bankruptcy protection at the end of July, citing the impact of the pandemic. Sales had been sliding for at least two years beforehand, according to the researcher Technomic. CPK currently operates or holds the franchise rights to 240 restaurants in 10 countries.

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Commentary: CARES Act Saved the Coronavirus Economy, But More Steps are Necessary*

There is widespread agreement that the $1.8-trillion economic recovery package that went into effect in March — the CARES Act — averted economic disaster after the coronavirus pandemic began, according to a Bloomberg commentary. With each passing month, the evidence mounts that the CARES Act performed better than even its strongest advocates thought it would. Perversely, its success is undermining the perceived need for Congress to provide additional support, according to the commentary. There are signs that the cushion is losing air. The pace of monthly job gains has slowed considerably since the spring. This fall, consumers pulled back on spending, and their confidence in the economy fell in November to a three-month low. The savings rate has fallen by 20 percentage points as households burn through their reserves. Lines at food banks are growing as nutritional insecurity worsens. If Congress does not pass another stimulus, then the first quarter of 2021 could easily see a shrinking economy and increasing unemployment. Deeper problems could take root. Millions of businesses could be wastefully lost. Labor demand could weaken over the medium term, keeping unemployment higher for longer. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.