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AI Comes to Bankruptcy: Proceed With Caution; Rockville Diocese Seeks Chapter 11 Dismissal
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Good day, and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Tuesday, April 16. In today's briefing, corporate bankruptcy advisers are exploring artificial intelligence for its ability to process vast data sets, with its use being weighed in recent cases such as FTX, WeWork and Johnson & Johnson’s LTL Management unit. And the Diocese of Rockville Centre is seeking to dismiss its own bankruptcy after clergy sex-abuse survivors rejected what it described as its best and final settlement offer.
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AI legal assistance. ILLUSTRATION: THOMAS R. LECHLEITER/THE WALL STREET JOURNAL
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AI comes to bankruptcy, as courts deal with its ethical and privacy risks. Corporate bankruptcy advisers exploring artificial intelligence for its ability to process vast data sets also must address ethical and security concerns raised by courts flustered by its arrival.
Restructuring adviser Alvarez & Marsal and the law practices Loyens & Loeff and Orrick Herrington & Sutcliffe have all weighed using AI in recent chapter 11 cases such as FTX, WeWork and Johnson & Johnson’s LTL Management unit, potentially helping clients reduce costs and speed up processes.
In the bankruptcies of opioid maker Purdue Pharma, California utility PG&E and toy retailer Toys “R” Us, fee examiners used the AI tool Legal Decoder to analyze legal spending. According to Joe Tiano, a founder of Legal Decoder, the technology can crunch 11,000 invoice line items in five minutes where it might take an individual weeks or months to complete.
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The Diocese of Rockville Centre in court papers said it offered to settle sex abuse claims with a $200 million compensation package, but the committee for victims argued the true figure would be far lower. PHOTO: MARK LENNIHAN/ASSOCIATED PRESS
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Biggest Catholic diocese in bankruptcy urges dismissal after victims reject offer. A nearly four-year effort to resolve hundreds of sex-abuse claims in bankruptcy by one of the biggest U.S. Catholic dioceses appears headed toward failure after victims overwhelmingly rejected its latest settlement offer.
The Diocese of Rockville Centre, seat of the Roman Catholic Church in suburban Long Island, on Friday filed court papers seeking to dismiss its own bankruptcy after clergy sex-abuse survivors rejected what it described as its best and final settlement offer.
Dismissing the case would free hundreds of lawsuits against the diocese and its parishes to move forward, according to lawyers for sex-abuse plaintiffs. Judge Martin Glenn of the U.S. Bankruptcy Court in New York will have a final say on whether to dismiss the chapter 11 case.
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Yellow ceased operations last summer. PHOTO: PAUL HENNESSY/ZUMA PRESS
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Long-shot bidder drops effort to revive failed trucker Yellow. An investment group dropped its long-shot bid to resurrect bankrupt trucker Yellow, ending an effort to unwind one of the biggest failures ever in the trucking business.
Sarah Riggs Amico, the executive chair of specialized auto carrier Jack Cooper Transport who was leading the bid, said the group formally withdrew its latest offer on Friday after failing to get engagement from Yellow as the trucker auctions off facilities and equipment in bankruptcy.
Amico said it was “unclear how much could have been left to start a new going concern.”
“We made a monthslong effort to revive the business and save thousands of jobs, but we have candidly never gotten any indication from the company that they were very interested in seeing a going concern coming out of the process,” Amico said.
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Apollo Global Management bought certain assets of Lumen Technologies, Embarq among them, in a 2022 leveraged buyout. PHOTO: JEENAH MOON/BLOOMBERG NEWS
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Apollo-backed telecom Embarq wins legal dispute against bondholders. Embarq won a legal battle against bond investors that claimed that debt issued by the telecommunications firm to fund its leveraged buyout by Apollo Global Management triggered an event of default on an existing bond.
On Sunday, a New York State Supreme Court justice dismissed claims made by investment firms Capital Research and Management and Discovery Capital Management, ruling that the buyout debt didn’t cause a default in the bond the two firms own, which was issued years before the LBO.
Justice Andrea Masley also rejected the investors’ argument that they should have the same collateral rights as the buyout debt.
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Amazon last year paused construction on its second headquarters in northern Virginia.
PHOTO: AMANDA ANDRADE-RHOADES FOR THE WALL STREET JOURNAL
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Big Tech is downsizing work space in another blow to office real estate. Big technology companies are cutting back on office space across major coastal cities, leaving some exposed landlords with empty buildings and steep losses.
The pullback marks a sharp reversal after years when companies such as Amazon.com, Meta Platforms’ Facebook and Google parent Alphabet had been bolstering their office footprints by adding millions of square feet of space.
Now, big tech companies are letting leases expire or looking to unload some offices. Amazon is ditching or not renewing some office leases and last year paused construction on its second headquarters in northern Virginia. Google has listed office space in Silicon Valley for sublease, according to data company CoStar. Meta has also dumped some office space and is leasing less than it did early on in the pandemic.
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Superdry to go private, raise funds in attempt to avoid insolvency. Superdry plans to go private, raise funds and overhaul its property agreements as the fashion brand fights to avoid becoming the latest U.K. retailer to enter into insolvency proceedings.
The company on Tuesday set out a plan to cut costs and get fresh liquidity in a bid to turn around its finances. Without the restructuring, some of the group's businesses would need to enter into administration—a U.K. process similar to chapter 11 bankruptcy protection in the U.S.—or an equivalent insolvency process, Superdry said.
The news sent shares sharply lower. At 0951 GMT, Superdry's stock shed 28% to 5.8 pence—which would be a new record low if maintained until close—and took its loss over the past year to about 93%.
The turnaround plan marks Superdry's latest attempt to regain a firmer financial footing after founder and Chief Executive Julian Dunkerton, who is also a major shareholder, pulled a takeover proposal last month.
—Michael Susin
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The logo of Industrial & Commercial Bank of China, one of the six Chinese banks whose credit rating outlook was downgraded by Fitch. PHOTO: FLORENCE LO/REUTERS
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Fitch Ratings downgrades outlook for Chinese state-owned banks. Fitch Ratings has downgraded the outlook for six Chinese state-owned banks amid concerns about the government’s ability to support the sector in the event of stress. The move comes after the rating agency cut its outlook for China’s sovereign credit rating last week.
Fitch on Tuesday downgraded the outlook for the credit rating of six Chinese banks to negative from stable, including Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, Bank of Communications and Postal Savings Bank of China.
Last week, the rating agency cut its outlook for China’s long-term foreign debt to negative from stable, citing risks to China’s public finances as the country faces more uncertainties “amid a transition away from property-reliant growth to what the government views as a more sustainable growth model.”
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As Johnson & Johnson prepares to kick off the pharma earnings season on Tuesday, investors are still asking the same old question: When will executives finally put to rest the talc litigation that has dogged the company for years? (Barron's)
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