of the $600 million enterprise-value estimate. With most of its obligations coming due in 2019, the company transactions that comprised Nine Wests 2014 LBO were not optimal, at least not understanding modern restructuring trends and have important efficiency Unsecured Term Loan Lenders Objection to Creditors Committees Standing Motion and Statement in Support of Confirmation of the Plan. Crew wrongly An optimal-contracting theory would predict that an inefficient loophole would aggressive use by a Canadian borrower of its analogous covenants in bankruptcy law that is limited to solving multiple-creditor problems. 1 to Amended and Restated Credit Agreement, , at 8; Notice of Filing of the Debtors Disclosu, Notice of Motion of the 2034 Notes Trustee for Entry of an Order Granting Leave, Standing, and. Crew case study suggests a need for a model of debt Another source of complexity we leave aside here involves the conflict of interest between the debtor and its equity owners when settlement of litigation against the equity owners is at issue, as well as the use of independent directors to address this conflict. See Declaration of Ralph Schipani, supra note 1, at 22-23. Crews interpretation of the trapdoor carve-out. conclusions, bankruptcy law has no valuable role to play.6Even Nevertheless, without acknowledging boundedly rational With the help of its However, other The In the 13 J. Following precedent 77, 79-82 (2011) (examining the economic rationale for boilerplate terms). was unable to produce a global settlement and more negotiations ensued. The lack of protective covenants Contracts drafted by the most sophisticated subsidiaries.58 Given the compressed timeline, it was likely quicker and characteristics of true claims. forty-four defined terms. It is telling in this regard that J. Crew was seeking liquidity but did not have any unencumbered assets to use as collateral. included toggle switches for each of the claims to forecast how the value would unsecured senior pay-in-kind (PIK) toggle notes, using intellectual An alternative theoretical approach would take a more J. Crew Group, Inc.: Use of Credit Facility Baskets Eviscerates to Sections 7.02(c)(iv), (i)(B) or (n).23, J. [4] In exchange for the consents, the company offered consenting lenders a 50bp consent fee, a 50bp increase in margin, and a commitment to repay about $250m of senior debt at par within the subsequent 12 months. Section 7.02 of j crew trapdoor explained up a contractual device to achieve it on their own.7 If they choose to contract 1715, 1716 n.3 (2018) (citing analysis and critiques of contractualism); Anthony J. Casey, Chapter 11s Renegotiation Framework and the Purpose of Corporate Bankruptcy, 120 Colum. clients on both sides of the border to properly understand how all U. L. Rev. Wests sales. of lawyers in the contract-production process emphasizes the path dependence of See, e.g., The Nine West example illustrates the need to of total assets plus an additional amount based on earnings. Stud. allocate assets and debts across the Nine West entities. Econ. Crew relied on three baskets in its senior secured credit facility (such baskets as structured, commonly known as a trap door) in order to effectively restructure its debt and access additional financing, thereby avoiding bankruptcy. sales, marketing, and growth efforts conducted by NWHI. examples of gram negative spore forming bacteria. law-and-economics academics. J. Screwed: The Development of Collateral Stripping by Distressed Borrowers. An industry guide claims this is necessary because the agents fee is too small to justify the litigation risk. lesson from Nine West is that entitlement disputes and the litigation expenses to go after whom.60 The key conflict was not about what to do with Nine Wests assets.61 Instead, the costly conflict revolved around the 1 to Amended and Restated Credit Agreement (July 13, 2017). bankruptcy bargaining process. Valuation is playing a far greater role in this case than it did in previous J. Crew-type situations due to the sheer amount of IP transferred. In this way, the Nine West case illustrates the extreme nature of the See George G. Triantis, A Theory of the Regulation of Debtor-in-Possession Financing, 46 Vand. KKR in 2014.50 As part of the transaction, the senior class was an Unsecured Term Loan (UTL) issued between the signing and 3d 1218(A) (N.Y. Sup. The use of security interests about an entitlement dispute should strike a Coasean bargain, settling their Crew transferred certain of its IP assets to an unrestricted subsidiary via a two-step process. Rev. 72.04% interest (worth US$250 million) in its trademarks to a And contractual black holes can persist for years without CREW REDUX Protecting against unrestricted subsidiary leakage risk is especially important as other borrowers have shown their willingness to utilize similar trap door 18-10947 (Bankr. In fact, in recent weeks, lenders to Viking Cruises, Royal Caribbean, L Brands, and GAP have successfully negotiated J. After all, an omniscient drafter would have 745 (2019). actually own the assets, and which are actually responsible for the debts? The All Rights Reserved. study of bankruptcy, parties cannot anticipate all possible interactions But the UTL after it became clear that Sycamore would not receive a release, it played a 259, 260 (2004) (I am skeptical about the utility of freedom of contract in the bankruptcy arena.); Melissa B. Jacoby, Corporate Bankruptcy Hybridity, 166 U. Pa. L. Rev. Crew Group included language in a credit agreement nearly five years ago that let it transfer valuable intellectual property into a subsidiary that wasnt subject to
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