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Optimum Secures Financing Amid Creditor Feud; Supreme Court Declines Bestwall Review
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Tuesday, June 2. In today's briefing, Optimum Communications secured $500 million in preferred-equity financing for a new subsidiary, giving the telecom operator greater flexibility to manage its debt burden, including upcoming maturities. And the Supreme Court declined to hear a challenge to Georgia-Pacific’s use of the Texas Two-Step bankruptcy strategy.
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Patrick Drahi is Optimum Communications’ controlling shareholder. Photo: VIOLETA SANTOS MOURA/REUTERS
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Optimum Reaches Equity Deals in Bid to Address Debt Maturities
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Optimum Communications has struck $500 million of equity deals to provide the telecom operator with financial flexibility as it aims to address near-term maturities and whittle down its $26 billion debt stack.
A group of outside investors recently bought $300 million of preferred equity in a newly formed subsidiary that owns the assets of Optimum East Cable and a stake in the Lightpath commercial fiber business, the company said Monday. Patrick Drahi, Optimum Communications’ controlling shareholder, swapped $200 million of common shares for an equivalent amount of preferred equity in that subsidiary.
The unit also plans to buy back up to $300 million of Optimum’s common shares from public shareholders at $2.50 a share, the same price at which Drahi is exchanging his stock.
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U.K. Restructuring Gains Traction as Chapter 11 Alternative
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On Friday, subsidiaries of New Fortress Energy filed for chapter 15 bankruptcy in New York, seeking U.S. recognition of a debt-cutting restructuring under way in London.
The Nasdaq-listed energy infrastructure business called its U.K. proceeding an example of “good forum shopping,” saying it preserves value for the company while proving faster and cheaper than a traditional U.S. chapter 11 filing. The proposal also allows current shareholders to retain a roughly 35% equity stake and preserve the company’s stock listing.
The strategy relies on a mechanism under the U.K.’s Companies Act known as Part 26A. The tool could emerge as the “first true global rival to chapter 11,” according to a recent paper by Jared Ellias, a professor at Harvard Law School, and Narine Lalafaryan, an assistant professor of corporate law at the University of Cambridge.
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Pulp-and-paper manufacturer Georgia-Pacific was among the first to use a legal tactic known as the Texas Two-Step to settle mass-tort litigation. Photo: Patrick T. Fallon/Bloomberg News
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Supreme Court Won’t Review Bestwall’s Texas Two-Step Bankruptcy Case
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The Supreme Court on Monday declined to review a chapter 11 case involving the so-called Texas Two-Step, a legal strategy in which a company divides itself into two entities, assigning assets to one and liabilities to the other before placing the liability-bearing entity into bankruptcy.
The case involves Georgia-Pacific, one of the first companies to use the tactic to resolve mass-tort litigation. In 2017, it created Bestwall to assume roughly 64,000 pending asbestos lawsuits.
The court’s decision leaves intact lower-court rulings that refused to dismiss Bestwall’s bankruptcy case.
The official committee of asbestos claimants has said that the bankruptcy was filed in bad faith, raising the question of whether a company capable of paying its liabilities can seek protection from creditors. “Like any other Chapter 11 petition, asbestos-driven bankruptcies require genuine financial distress that Bestwall concedes it lacks,” the committee said in a court filing.
Bestwall’s lawyers countered that the term “financial distress” doesn’t appear in the bankruptcy code and that the bankruptcy court previously found that the company faced sufficient financial distress to qualify for chapter 11 protection.
Lawyers for Bestwall and the claimants’ committee couldn’t be reached for comment.
–Becky Yerak
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For the second quarter, the airline narrowed its guidance for available seat miles growth to 2% to 4%, compared with its previous forecast of 1.5% to 4.5%. Getty Images
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JetBlue Seeing Strong Demand Across All Geographies
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JetBlue Airways said it is seeing strong demand across all geographies and cabins even as surging fuel costs force airlines to raise prices and cut routes.
The company said it was seeing particularly strong demand for close-in travel and routes previously operated by Spirit Airlines following the budget airline's shutdown.
Soaring fuel costs due to the conflict in the Middle East have weighed on airlines' bottom lines. JetBlue has been looking to identify flights that won't bring in enough revenue to cover the costs of fuel, airport-landing fees and maintenance, The Wall Street Journal has reported.
The elevated fuel prices have particularly hurt low-cost airlines and served as the final nail in the coffin for Spirit, which shut down operations last month after attempts to get relief from the Trump administration collapsed.
JetBlue Chief Executive Joanna Geraghty wrote a message to employees in April that said the airline isn't on the brink of bankruptcy.
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Illinois Lawmakers Pass Bill to Bar Private Equity Control of Law Firms
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Illinois lawmakers approved a bill to prevent private-equity firms from influencing law firms, as more states consider limits on buyout deals in the legal field.
The Illinois state Senate on Saturday passed House Bill 5487, which aims to strengthen state prohibitions on nonlawyers’ helping to manage law firms. The measure was passed by the state’s General Assembly in April and now heads to Gov. JB Pritzker, a Democrat. He has 60 days to sign or veto the legislation.
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