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Crypto Lender BlockFi Lands Bailout; Zohar Funds' Chapter 11 Plan Approved
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Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Wednesday, June 22. Crypto lender BlockFi landed a rescue loan as digital currencies stabilized. Lynn Tilton's Zohar investment funds are leaving bankruptcy behind, but litigation with their founder will go on.
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FTX CEO Sam Bankman-Fried has said that companies such as FTX should help out struggling crypto companies.
PHOTO: ANTHONY KWAN FOR THE WALL STREET JOURNAL
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Crypto exchange FTX extends $250 million credit line to lender BlockFi. FTX founder and Chief Executive Sam Bankman-Fried said that companies such as FTX should help out struggling crypto firms that are struggling to stay afloat. The selloff in digital assets has destroyed about $2 trillion in total market value, putting crypto lenders and other digital-asset platforms in jeopardy.
BlockFi said the credit line is “intended to be contractually subordinate to all client balances,” a nod to growing fears about how crypto users will fare in a bankruptcy setting.
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“I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion."
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— FTX founder and Chief Executive Sam Bankman-Fried
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The Zohar loan funds created by Lynn Tilton will transfer their remaining assets to her longtime legal adversary MBIA and other creditors.
PHOTO: BRENDAN MCDERMID/REUTERS
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The chapter 11 plan approved on Tuesday shifts the Zohars’ remaining assets of loans, equity stakes and litigation claims to creditors including MBIA and Bardin Hill Investment Partners LP. The judge said the transfer of assets was appropriate and complied with Zohar investment terms that give priority to those senior creditors above Ms. Tilton’s claims.
The Zohars have accused her of siphoning management fees, tax dividends and other distributions from the businesses she ran. Ms. Tilton denied those allegations on the witness stand, saying she sustained massive losses herself on the Zohars.
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“If my strategy had been to siphon fees, I executed that strategy very poorly."
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— Lynn Tilton, testifying in bankruptcy court on Tuesday.
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Leveraged muni funds fall as bond rout continues. The worst bond rout in decades has meant double-digit losses for leveraged municipal bond funds. In the first five months of 2022, closed-end muni funds returned negative 15.9%, counting share price changes and assuming distributions are reinvested, according to Morningstar Direct. That compares with a total return of minus 7.47% for the Bloomberg muni-bond index.
Those losses reflect drastic changes across fixed-income markets that have upended decade-old investing strategies in the wake of an aggressive campaign by the Federal Reserve to curb inflation through interest-rate increases.
Closed-end funds typically employ leverage, borrowing an amount equivalent to about one-third of their value and investing it. Short-term interest costs have risen, reducing the income that closed-end funds can pay out after covering borrowing costs. Meanwhile, falling bond prices have driven down funds’ market values because the availability of newer, higher-yielding debt makes lower-yielding options less appealing.
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Beginning July 1, WSJ Pro Bankruptcy will discontinue the PDF version of our newsletter. The emailed newsletter will be delivered as usual, with click-through links to access every article. The emailed version includes more features, including bankruptcy case updates, industry moves and Q&As, and we would like all of our readers to enjoy the full experience.
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Treasury Secretary Janet Yellen.
PHOTO: COLE BURSTON/BLOOMBERG NEWS
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President Biden restores higher debt limit for small business bankruptcies. The White House said Tuesday that President Biden signed into law bipartisan legislation increasing the eligible debt limit for a speedier small-business bankruptcy option to $7.5 million from$2.5 million.
The higher debt-cap reestablishes a pandemic-era change that expired earlier this year, temporarily disqualifying troubled companies with more than $2.5 million in debt from accessing a business-friendly version of chapter 11. Restoring the higher cap was widely supported by business and bankruptcy organizations and keeps the $7.5 million debt cap in place for two years. — Jonathan Randles
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New Jersey real estate firm approved for $20 million condo sale. A judge gave approval Tuesday for bankrupt National Realty Investment Advisors LLC to sell eight condominium units in Brooklyn, N.Y., Philadelphia and Delray Beach, Fla., for a total of about $20 million.
Rapidly rising mortgage rates were part of consideration as New Jersey-based NRIA argued before Judge John Sherwood of the U.S. Bankruptcy Court in New Jersey that to maximize profits from the sales, time is of the essence as the condominium market could soften. NRIA filed for bankruptcy on June 7 under investigation by federal and state authorities, following the Federal Bureau of Investigation's arrest of an executive adviser last year. — Akiko Matsuda
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StorCentric data business files chapter 11 after SPAC deal fails. Data management and storage business StorCentric Inc. filed for bankruptcy after an attempted deal to merge with a blank check-firm fell through earlier this year.
The Sunnyvale, Calif.-based firm filed for protection Monday in the U.S. Bankruptcy Court in San Jose. After cancelling plans to go public due to markets conditions, the company reached a tentative deal to be acquired by a special purpose acquisition company in February. But the SPAC deal collapsed in April because the sponsors were unable to raise the necessary capital, according to StorCentric CFO John Coughland.
StorCentric filed chapter 11 ahead of the June 30 maturity on a $25 million note, and expects to sell the business through the proceeding. — Soma Biswas
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A bankruptcy filing by Talen Energy's power division is complicating efforts to close the Colstrip coal plant, a polluting facility co-owned with Western utilities. (E&E News)
Retail investors dashed into Revlon Inc. again as a stronger appetite for risky assets led to a more than 30-fold jump in trading for the bankrupt cosmetics giant. (Bloomberg)
Fledgling electric-vehicle startups face a reckoning after Electric Last Mile Solutions collapsed into bankruptcy last week. (Axios)
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