Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Tuesday, May 31. We hope you enjoyed the holiday weekend. In bankruptcy news, Mallinckrodt's unsecured creditors stepped up to finance the company's exit from chapter 11 after the loan market was unreceptive. Silicon Valley startup firms are warning their portfolio companies about an impending downturn. As if property developers in China didn't have enough problems, their state-backed counterparts are taking market share.

Drugmaker's bondholders self-finance chapter 11 exit. Mallinckrodt PLC has won backing from its bondholders to fund its exit from bankruptcy protection after a chilly reception from the leveraged credit market.

A $900 million loan deal failed to gain traction with market participants, partly due to concerns about investing in a company linked to opioid production amid growing market sensitivity about environmental, social and governance issues, people familiar with the matter said. Mallinckrodt has since downsized the deal offering to $650 million and secured commitments from unsecured bondholders, these people said.

The deal struggles follow a broader selloff in the leveraged credit market in recent weeks that has brought junk-rated bonds and loans under pressure.

Startups get tips on how to stay afloat. After years of funneling cash into startups’ grand ambitions, Silicon Valley’s investors are engaging in the grim ritual of delivering survival advice, advising portfolio companies to cut costs, preserve cash and jettison hopes that hedge funds will swoop in with big checks.

The investors’ admonitions are a departure from the growth-above-all mantra for startups in recent years, and come as the venture market is showing signs of sputtering. Funding for global startups—at around $58 billion in commitments midway through the second quarter—is on pace to drop by about one-fifth compared with the previous quarter.

China's state-backed developers gain ground on private counterparts. Troubled real-estate giants from China Evergrande Group to Sunac China have defaulted on their international bonds, allowing state-owned counterparts to take advantage by acquiring more land and other assets.

Developers backed by the central or local governments have dominated land auctions around the country in recent months, thanks in part to their continued access to affordable financing. While they are also contending with slumping apartment sales and falling home prices, their sales drops have been less severe than their non-state-backed peers. Instead of trying to rescue their private competitors, state-backed developers could profit from fire sales of quality assets.

Biden pledges to back Fed's fight against inflation. President Biden said he would support the Federal Reserve in its effort to combat high inflation by reducing economic demand. He acknowledged that job growth could slow from a monthly pace of 500,000 to around 150,000 as a result.

• Fed Governor Christopher Waller doesn't want to back off half-percentage-point rate hikes until there is clear evidence of a slowdown in inflation.
• U.S. households boosted spending for a fourth straight month, but many Americans appear to be tapping savings to offset cost increases from inflation.

Biomass maker files chapter 11 to block bondholder sale. A South Carolina manufacturer of wood pellet biomass filed for bankruptcy and sued its bondholder trustee to stop a forced sale Jasper Pellets LLC sought protection in the U.S. Bankruptcy Court in Charleston, S.C. on Friday ahead of a planned foreclosure sale of membership interests in the business after it defaulted in 2020.

In court papers, Jasper said it ceased operating seven months ago but still owes $12.5 million in municipal bond debt but that its business is worth more than $20 million. Unsecured creditors are best served by keeping the current managers in control until assets can be sold or otherwise reorganized, according to Jasper's lawyers, which are seeking an injunction against the bond trustee, U.S. Bank Trust Co. NA. — Andrew Scurria

Ebony owner confident deal for Black News Channel will get done. The owner of Ebony magazine is "very confident" it will be able to complete a stalking horse deal to acquire Black News Channel LLC out of bankruptcy, a lawyer for Ebony said Friday.

"We're very excited about the opportunity," John Hutton, a lawyer representing an affiliate of Ebony Media said during a hearing in the U.S. Bankruptcy Court in Tallahassee, Florida.

U.S. Bankruptcy Judge Karen Specie on Friday approved BNC's request to enter into an exclusivity agreement with Ebony Studios LLC to complete a stalking horse deal that will set the price floor for the cable news network's assets. BNC, which provides Black Americans' perspective on current events, filed bankruptcy earlier this year after a cash crunch. — Jonathan Randles

Loot Crate remnants seek litigation financing. The bankrupt former owner of pop culture subscription box service Loot Crate is seeking court approval for up to $500,000 in financing to continue pursuing breach of fiduciary duty claims against former directors and officers.

Loot Crate filed for bankruptcy in 2019, and its namesake business was sold during the chapter 11 proceedings. Now the corporate shell Old LC Inc. and its unsecured creditors want the U.S. Bankruptcy Court in Wilmington, Del., to approve litigation financing from Statera Capital LLC to pursue claims they believe are still a valuable asset. — Becky Yerak

Crypto crash shatters dreams. The sudden downfall of TerraUSD, touted as blue-chip cryptocurrency, is a reminder that crypto is often little more than a casino, with weak regulation and few means of recourse for the losers. That caught many investors off guard because TerraUSD was a stablecoin, designed to maintain its value of $1 per coin.

Investors piled into TerraUSD because of the opportunity to make money in Anchor Protocol, a sort of crypto bank that offered annual yields of nearly 20% on deposits of the coin. Critics questioned whether Anchor’s yields were sustainable. But such eye-popping interest rates are common in decentralized finance, or DeFi, a sort of parallel financial system for crypto with its own version of banks and lending.

As often happens in unregulated, untested parts of the markets, the pitch was too good to be true. Now, the TerraUSD implosion has fueled calls for greater government oversight of stablecoins.

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. 

Follow us on Twitter: @SomaBisWSJ; @gladstonea; @jodixu; @AskAkiko; @Sparkyrandles; @ajsaeedy; @AndrewScurria; @beckyyerak.