The record-breaking winter storm that hit Texas in February led to an unprecedented demand for electricity, which the state’s electric utilities were not able to satisfy at pre-storm price levels. Electric Reliability Council of Texas (“ERCOT”), a non-profit that manages the state’s electric grid and sets the wholesale price of electricity, initiated rolling blackouts and set electric prices to the market cap of $9,000 per megawatt hour. The increase in wholesale electric prices also pushed consumer prices to astronomical levels: one Texas customer was billed nearly $17,000 for electricity in February.

Weeks after Brazos Electric Power Cooperative, Inc. filed for chapter 11, Griddy Energy LLC joined it after suffering similar financial losses. The Griddy filing was precipitated by the increase in energy prices during the winter storm and later lawsuits by Griddy’s customers and the Attorney General of Texas stemming from these price hikes. Griddy intends to release customers from their unpaid electricity bills in exchange for releases from liability. Continue Reading Texas Storm Continues to Spark Chapter 11 Filings by Electric Providers

When Congress passed the CARES Act last year, it included changes to the Bankruptcy Code that helped individuals and businesses. Many of these provisions expire on March 27, 2021 even though the economy has not yet returned to normal. The COVID-19 Bankruptcy Relief Extension Act of 2021, which has not passed yet, would extend the changes for another year. The proposed law also seeks to extend other COVID-19 bankruptcy relief provisions that were enacted through the Consolidated Appropriations Act of 2021 and would otherwise expire in December 2021. If this law is passed as currently written, the relief will include:

  • An increase in the maximum debt threshold for a small business debtor to qualify under Subchapter V;
  • An amendment to the definition of “income” for Chapters 7 and 13 that excludes COVID-19 related payments from the federal government;
  • An amendment permitting debtors in Chapter 13 to modify a plan of reorganization if the debtor is experiencing a material financial hardship due to the COVID pandemic;
  • A provision that prevents termination of utility services in bankruptcy for individuals who make a payment to the utility for service provided during the 20 days prior to the bankruptcy filing, and after the 20-day period, pay for services provided during the case when those payments becomes due.

More information about this proposed bill may be found in this press release from U.S. Senate Democratic Whip Dick Durbin, who introduced this bipartisan legislation.

Because of the unprecedented winter storm that clobbered Texas in February 2021, Brazos Electric Power Cooperative, Inc., was forced to file for chapter 11 in response to staggering increases in energy prices around the time of the storm. According to the first day declaration, Brazos was financially stable and bankruptcy “was unfathomable.” But in response to rotating outages across Texas, the Public Utility Commission of Texas instructed the Electric Reliability Council of Texas (“ERCOT”) to raise rates far beyond expectations for more than four straight days. ERCOT also imposed tremendous fees on energy use. After seven days of swelled energy prices, Brazos was presented with a bill for around $2.1 billion—due in mere days. Continue Reading Texas Deep Freeze Spurs Chapter 11 Filing for Waco Based Energy Company

Belk Inc., a national privately-owned department store chain, just completed a $450 million debt restructuring in less than 24 hours! U.S. Bankruptcy Judge Marvin Isgur confirmed the plan the morning of the First Day Hearing despite the U.S. Trustee’s concerns about adequate notice. The Debtors’ prepackaged plan became effective hours after it was confirmed by the Court.

Belk argued that the plan must be confirmed quickly because the company had no cash reserves and no committed DIP financing. The Court agreed with the need for a speedy plan to protect thousands of jobs and hundreds of stores from closing. The prepackaged restructuring plan was supported by nearly all the creditors. The U.S. Trustee objected to hasty plan confirmation because the interested parties would be rushed to evaluate, respond, or object to the plan. Continue Reading In and Out of Bankruptcy in One Day: Record-Setting Prepackaged Restructuring Plan Confirmed Within Hours of Chapter 11 Filing

Earlier this month, three student loan borrowers filed an involuntary Chapter 11 petition under 11 U.S.C. § 303(b)(1) for Navient Solutions LLC, a student loan servicer. Three or more entities who each hold a claim against an involuntary debtor can file an involuntary bankruptcy petition on that debtor’s behalf if each claim is neither a contingent liability nor the subject of a bona fide dispute as to liability or amount. The borrowers alleged that Navient is insolvent and wrongfully collected about $45,000 in loan repayments from the petitioners after their loans were discharged in bankruptcy. On February 17, 2021, Navient filed an expedited motion to dismiss the petition, arguing that it was frivolous and filed in bad faith by petitioners’ counsel: for an advantage in other Navient suits and to harm Navient’s reputation. Navient asserted that the petitioners failed to allege specific facts or provide documentary evidence supporting the debtors’ right to file under section 303(b)(1). Continue Reading Navient’s Expedited Motion to Dismiss Student Loan Borrowers’ Involuntary Chapter 11 Petition

When Congress passed the Small Business Reorganization Act (“SBRA”) in August 2019, we lived in a different world. The SBRA added a “Subchapter V” to the Bankruptcy Code for small business debtors, responding to longstanding criticism of the Bankruptcy Code’s costs and complexities on small businesses trying to reorganize. The SBRA became effective exactly one year ago, on February 19, 2020, and when many businesses in the United States shut their doors in March 2020, many thought that the timing of the SBRA was just right to serve the needs of the small business community. On the paper anniversary of the SBRA’s effective date (the first wedding anniversary is colloquially referred to as the paper anniversary), we have looked at how the SBRA has helped small business debtors and how Congress modified Subchapter V this year to further help struggling small businesses. We are also highlighting a few issues coming out of Subchapter V so far. Continue Reading Subchapter V: The Paper Anniversary

Greylock Capital Associates, LLC, a New York-based hedge fund founded in 2004, recently filed for chapter 11 protection under subchapter V for small businesses. Assets under management for Greylock have halved since 2017 and the hedge fund has cut its staff from 21 people to just nine now. Greylock filed to reject its $100,000 per month Madison Avenue lease that the hedge fund no longer needs. Greylock leased the 11,400 square foot premises in 2014, but when the fund’s growth stalled after its height in 2017 there was no need for such a large office in the heart of midtown Manhattan. Continue Reading Greylock Capital Associates, LLC May Preview A Rash of Filings To Reject New York City Leases

On January 28, Judge David Jones of the Bankruptcy Court for the Southern District of Texas sanctioned BP after finding that its conduct in an arbitration proceeding involving the Seadrill debtors amounted to a “willful, knowing, and intentional” violation of the Bankruptcy Code’s automatic stay provisions. Judge Jones also sanctioned BP by awarding Seadrill their attorneys’ fees and costs in bringing the motion.

Seadrill brought an emergency motion to enforce the automatic stay pursuant to Section 362 of the Bankruptcy Code in connection with a post-petition order issued by an arbitration tribunal that required Seadrill to post a $1.7 million bond should it lose the arbitration. If Seadrill did not post the bond, the arbitration would not continue. Continue Reading Seadrill Bankruptcy Court Sanctions BP For Willful Violation of Automatic Stay in Arbitration Proceeding

The Outlook

A recent string of high-visibility hotel chapter 11 filings  has led investors and lenders to wonder what to expect for 2021. Recent filings include:

  • Martinique Hotel, a 165-key property in Brooklyn – September 2020
  • Tillary Hotel, Brooklyn, a 174-key boutique property in Brooklyn – December 2020
  • Holiday Inn Resort Orlando Suites, a 777-key property in Orlando, Florida – January 2021
  • Wardman Park Hotel, a 1,152-key property in Washington, D.C. – January 2021
  • Eagle Hospitality REIT, filed chapter 11 petitions for 18 properties, including the Queen Mary Hotel in Long Beach, California – January 2021

In New York City, there have been many hotel closures in addition to bankruptcy filings. According to the New York Post, 2020 data released by the Department of City Planning showed 146 of the city’s 705 hotels have closed —20%. The closures account for 42,030 of the city’s 128,000 hotel rooms. Analysts cited by the Post said the hotel industry won’t fully recover to pre-pandemic levels until 2025. Continue Reading Hotels 2021: Restructurings on the Horizon?

On January 15, 2021, the Supreme Court unanimously ruled in City of Chicago v. Fulton that a secured party in possession of a debtor’s collateral does not violate the automatic stay by passively retaining possession after a debtor commences a bankruptcy case. When a debtor files a bankruptcy case, the Bankruptcy Code protects the debtor by imposing an automatic stay on efforts to collect prepetition debts or “any act . . . to exercise control over property” of the bankruptcy estate. Continue Reading Recent Supreme Court Ruling Provides Important Protection for Secured Creditors