Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Thursday, May 12. A federal appeals court agreed to review J&J's use of chapter 11. Coinbase CEO said users may lose their crypto assets in bankruptcy. And exiled Chinese mogul Guo Wengui dropped his personal bankruptcy case, weighed down by legal fees.

J&J talc claimants win appellate review of bankruptcy case. A federal appeals court has agreed to review Johnson & Johnson’s use of a bankruptcy tactic to shift into chapter 11 mass litigation that alleges the company’s talc-based baby powder caused cancer.

The Third U.S. Circuit Court of Appeals on Wednesday granted requests by talc injury claimants for an immediate review of an emerging strategy used by J&J and a handful of other large, solvent companies to freeze roughly a quarter of a million injury lawsuits through bankruptcy.

The appeal stems from a February ruling by Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., declining to throw out the chapter 11 case of LTL Management LLC, a newly formed J&J subsidiary created to carry talc-related liabilities into chapter 11.

• J&J Names Executives of Planned Tylenol, Band-Aid Company

Exiled Chinese businessman Guo Wengui abandons bankruptcy case. Exiled Chinese businessman Guo Wengui abandoned his personal bankruptcy case, saying he can’t afford the mounting costs of using chapter 11 to fight litigation from his largest creditor.

Mr. Guo, also known by the name Kwok Ho Wan, asked in court papers Wednesday to dismiss his bankruptcy case, saying it is “buckling under the weight” of the professional fees racked up during “unrestrained legal warfare” with his longtime legal foe, Pacific Alliance Asia Opportunity Fund LP.

He said he lacks a source of financing to cover the administrative costs of the bankruptcy, hire a financial adviser or develop a repayment plan after his son’s family office pulled an offer to foot those ongoing bills. Pacific Alliance, which wanted the chapter 11 case dismissed, didn’t immediately respond to a request for comment.

Ukraine-bound smartphone donation ensnared in tech startup’s chapter 11. A California-based software company has asked a bankruptcy judge to allow it to foreclose on 10,000 smartphones owned by bankrupt Hoyos Integrity Corp., a security-focused smartphone startup, so a portion of them can be shipped to war-torn Ukraine.

Green Hills Software LLC on Tuesday asked Judge Mary Walrath at the U.S. Bankruptcy Court in Delaware to lift Hoyos’s automatic stay in order to take possession of the smartphones, used to secure a $4 million loan it made to Hoyos.

Before the bankruptcy filing, Hoyos and Green Hills were in discussions to send a batch of international phones to the government of Ukraine to “assist in its efforts against the invasion by Russia.”

Coinbase says users’ crypto assets lack bankruptcy protections. Cryptocurrency trading platforms might look and feel like regular brokerage apps to everyday users, but regulators have long warned they lack the oversight and investor protections that are built into traditional financial services.

Coinbase Global Inc. acknowledged that reality this week. In its quarterly filings, the crypto trading firm suggested that the digital tokens it holds for its users might not really belong to them if push comes to shove.

“Because custodially held crypto assets may be considered to be the property of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we hold in custody on behalf of our customers could be subject to bankruptcy proceedings, and such customers could be treated as our general unsecured creditors,” the company said.

Bankrupt Armstrong Flooring wins time to sway lenders on financing. Armstrong Flooring Inc. won a few more days to convince its secured lenders to support the financing the vinyl tiles maker needs for a more robust sale process rather than liquidate the business.

The publicly traded company said during its debut in the U.S. Bankruptcy Court in Wilmington, Del., on Wednesday that secured lenders— Bank of America Corp. and Pathlight Capital LP—have agreed to continue to negotiate what is currently a $30 million financing proposal until Friday.

In the interim, the lenders had agreed to a short-term funding arrangement for Armstrong to make its latest payroll and to pay certain vendors.

Driller’s top bankruptcy lenders challenge bondholders’ lawsuit financing. Fidelity Management & Research Co. and Apollo Global Management Inc. alleged that a Texas oil driller’s junior bondholders are improperly financing a legal dispute over who should control the company following its 2020 bankruptcy restructuring.

Investors are still fighting over an 80% stake in Mesquite Energy Inc. nearly two years after the company, then known as Sanchez Energy Corp., exited from chapter 11. As part of the bankruptcy plan, the business allocated a 20% equity stake to top lenders Fidelity and Apollo while placing the remaining stock in a lockbox, to be divided depending on the outcome of the separate litigation.

That dispute remains unresolved in the U.S. Bankruptcy Court in Houston. However, senior lenders including Fidelity and Apollo are alleging that junior bondholders ran afoul of Mesquite’s court-approved chapter 11 plan by arranging outside funding to cover ongoing legal costs, according to court papers filed Tuesday.

Latam settles with holdout creditors ahead of bankruptcy trial. Latam Airlines says it reached settlements with unsecured creditors to ease the Chilean airline's exit from bankruptcy protection following a contentious chapter 11 process.

The company says its official committee of unsecured creditors as well as a trustee for Chilean-law bonds had reached agreements to support a negotiated end to the chapter 11 case. Latam has been at loggerheads with those creditors, which took issue with the terms of a planned $5.4B capital raise backed by Sixth Street Partners, SVPGlobal and other major creditors.

If approved, the bankruptcy plan would put them in control of the restructured business, while maintaining diluted equity stakes for Latam's current shareholders. Under the settlement, Chilean bondholders won rights to also subscribe to the capital raise. – Andrew Scurria

Purdue Pharma CEO bonus worth up to $3M opposed by states. Attorneys general from California, New York, New Jersey, Illinois and more than a dozen other states on Wednesday opposed a request to pay an incentive bonus worth up to $3 million to Purdue Pharma LP's chief executive officer.

The states filed an objection in the U.S. Bankruptcy Court in White Plains, N.Y. challenging payment of potential financial awards for Purdue CEO Dr. Craig Landau. The states said Dr. Landau "is not the right person to lead Purdue and address the inherent dangers of its products and their relationship to the opioid crisis." The states also noted that before leading the drugmaker, Dr. Landau served in other executive roles during times Purdue's conduct gave rise to three felonies the company pled guilty to related to its marketing and distribution of OxyContin.

Purdue's lawyers have previously argued that any financial awards are contingent on hard-to-reach business goals and that Dr. Landau's leadership is needed to guide the company through chapter 11 and maximize the value of the business for the benefit of creditors, which include opioid victims. Any executive bonus must be approved by a bankruptcy judge. – Jonathan Randles

Goldman Sachs wins dismissal of lawsuit from Ruby Tuesday bankruptcy. Goldman Sachs Group has won dismissal of a $54M lawsuit stemming from the 2020 bankruptcy of restaurant chain Ruby Tuesday.

As part of that chapter 11 case, Goldman Sachs got ownership of a corporate retreat at Maryville College in Tennessee. Goldman Sachs was then sued by real estate developer BNA Associates LLC, which alleged that the investment bank had interfered with its earlier efforts to take over the property. A judge in the U.S. District Court in Nashville, Tenn. granted Goldman's motion to dismiss the lawsuit, saying, among other things, that it had a preexisting legal interest in the lodge as a secured lender. – Becky Yerak

City of Long Beach to get credit in Queen Mary film, bankruptcy filing says. The credits in a movie about the Queen Mary ocean liner will mention the city of Long Beach, Calif., according to an agreement reached in bankruptcy court.

The city owns the retired ocean liner, which most recently was managed as a hotel by bankrupt tenant Urban Commons Queensway LLC. Urban Commons last year gave up the lease. Imagination Design Works Productions Inc. has filmed on the ship, expects to release a Queen Mary movie next year, and asked whether the credits should name Long Beach, Urban Commons or chapter 7 trustee Jeoffrey Burtch.

A filing Tuesday in the U.S. Bankruptcy Court in Wilmington, Del., says the credit will be: "Based in part on the Queen Mary, owned and operated by the City of Long Beach." – Becky Yerak

Corporate defaults inch up in May, full-year forecast unchanged. U.S. defaults rose to 0.6% as of Wednesday from 0.4%, driven up by Talen Energy Corp. and Service King, which collectively accounted for $3.3 billion in defaulted debt in May. U.S. corporations had no defaults in April, following $5.6 billion in March, according to Fitch Ratings Inc.

The default forecast was unchanged at 1% for the year despite macroeconomic uncertainty. And the rate is expected to remain at 1%-1.5% in 2023 as companies sit on ample cash and high oil-and-gas prices help energy companies stay afloat. – Jodi Xu Klein

Bond market whipsawed by inflation data, stock declines. A nascent rally in U.S. government bonds was thrown off balance Wednesday by inflation data that was higher than Wall Street expected, marking the latest twist in a tough year for bond investors.

Treasury yields, which rise when bond prices fall, jumped immediately after the Labor Department said that the consumer-price index, excluding volatile food and energy categories, climbed 0.6% in April from the previous month. That was above the 0.4% gain in so-called core prices anticipated by economists surveyed by The Wall Street Journal.

Yields then fell, though, as the S&P 500 shed earlier gains and slid more than 1.5% while investors sought out safer assets. The shifts highlighted the complex dynamics confronting investors, with inflation remaining stubbornly high and the Federal Reserve promising a rapid series of interest-rate increases that has already spread pain across markets.

China consumer inflation accelerates modestly in April. China’s consumer inflation edged up in April and factory-gate price pressures remained elevated as Covid-19 lockdowns jammed up logistics networks and the Ukraine war pushed up global energy prices.

China’s consumer-price index in April was up 2.1% from a year earlier, official data showed Wednesday, the fastest pace in five months—accelerating from March’s 1.5% and topping the 2% median forecast of economists polled by the Journal.

The gain was led by increases in food and fuel prices due to the pandemic and a sustained run-up in global commodity prices, China’s National Bureau of Statistics said.

U.S. inflation eased in April to 8.3% annual rate. U.S. inflation remained close to its highest annual rate in four decades last month, declining only slightly to 8.3% with signs the economy continued to face upward price pressures.

The Labor Department’s consumer-price index reading last month marked the first drop for inflation in eight months, down from an 8.5% annual rate in March. But the decline came primarily from a slight easing in April gasoline prices, which reached a new high on Tuesday. Broadly, the report offered little evidence that inflation was cooling.

• U.S. Treasury Yields Climb After April Inflation Is Higher Than Expected
• Follow the live coverage on inflation here

Coinbase has no risk of bankruptcy, CEO Armstrong says after his statement on crypto value. (CoinDesk)

Inside the opioid sales machine of Mallinckrodt Pharmaceuticals. (The Washington Post)

Household debt levels are increasing, but very few consumers are showing deep signs of distress. (The New York Times)

Opinion: Student loan relief should come in bankruptcy court. (The WSJ)

Share your tips, suggestions and feedback with the WSJ Pro Bankruptcy team: Soma Biswas; Alexander Gladstone; Jodi Xu Klein; Akiko Matsuda; Jonathan Randles; Alexander Saeedy; Andrew Scurria; Becky Yerak. 

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