I INSOLVENCY LAW, POLICY AND PROCEDURE

i Statutory framework and substantive law

Although individual states in the United States have laws that govern the relationship between debtors and their creditors, insolvency law in the United States is primarily dictated by federal law because Article 1, Section 8 of the United States Constitution grants Congress the power to enact ‘uniform Laws on the subject of Bankruptcies’.2 While over time several different bankruptcy statutes have been passed by Congress, the US bankruptcy regime is currently set forth in Title 11 of the United States Code3 (the Bankruptcy Code), which codified the Bankruptcy Reform Act of 19784 and subsequent amendments. The most recent significant amendment to the Bankruptcy Code was the 2005 Bankruptcy Abuse and Consumer Protection Act.5

The Bankruptcy Code is composed of nine chapters.6 Chapters 1, 3 and 5 provide the structural components that generally apply to all bankruptcy cases. Chapters 7, 9, 11, 12, 13 and 15 lay out general procedures specific to certain types of bankruptcies. Generally speaking, these specific types of bankruptcies are:

  • a trustee-administered liquidation (Chapter 7);
  • b municipality bankruptcy (Chapter 9);
  • c debtor-in-possession (DIP) managed reorganisation or liquidation (Chapter 11);
  • d family farmer and fisherman bankruptcies (Chapter 12);
  • e individual bankruptcies (Chapter 13);7 and
  • f cross-border cases (Chapter 15).

Generally speaking, with respect to plenary corporate bankruptcies, US insolvency law provides for two distinct regimes: a trustee-controlled liquidation under Chapter 7 and a DIP-controlled reorganisation or structured liquidation under Chapter 11.8 This chapter focuses on Chapter 11 proceedings. Below are certain key provisions of US insolvency law.

The automatic stay

One of the most important provisions of the US insolvency regime is the ‘automatic stay’, which is codified in Section 362 of the Bankruptcy Code. The automatic stay is a statutory injunction that applies immediately upon the commencement of a bankruptcy proceeding. Generally, the automatic stay operates to enjoin most creditors from pursuing actions or exercising remedies to recover against a debtor’s property. There are limited exceptions to the automatic stay and it can be modified by a court upon a showing of cause. The automatic stay provides the breathing room necessary for the debtor or trustee to assess and assemble all of the property of the estate without creditors seeking remedies to protect their own self-interests. Accordingly, the automatic stay allows for the preservation of the debtor’s assets and the maximisation of their value and for an equitable distribution of those assets to creditors.

Safe harbours

One important exception to the automatic stay is that it generally does not apply to contracts that are colloquially referred to as ‘financial contracts’. Specifically, the automatic stay does not apply to certain delineated counterparties’ ability to offset, net, liquidate, terminate or accelerate ‘securities contracts’,9 ‘commodities contracts’,10 ‘forward contracts’,11 ‘repurchase agreements’,12 ‘swap agreements’,13 or ‘master netting agreements’14 with a debtor, provided that the counterparty may be required to exercise its remedies promptly.15 In addition, a debtor may not avoid as a fraudulent transfer a transfer to such a counterparty under one of these contracts unless the transfer is intentionally fraudulent.

The absolute priority rule

Another key tenet of US insolvency law is the absolute priority rule. The absolute priority rule provides that creditors with higher priority must be paid in full before creditors of lower priority receive any distribution from the bankruptcy estate, and thereby ensures a ‘fair and equitable’ distribution of the debtor’s property consistent with the priorities under applicable non-bankruptcy law. As a result, in the absence of consent, secured claims must be paid in full from collateral before general unsecured creditors receive any recovery. Similarly, because equity holders have the lowest priority, in the absence of consent, they cannot receive any distribution until all creditors have received payment in full on account of their allowed claims. Consent to the payment of a junior class can be obtained through a vote of the senior class on a plan of reorganisation.16

Avoidance actions

The Bankruptcy Code also provides a number of procedures that allow the debtor or trustee to avoid a pre-bankruptcy transfer of property from the bankruptcy estate. This allows the debtor to maximise the value of the bankruptcy estate and prevent a depletion of the estate prior to the commencement of the bankruptcy proceeding that may favour certain creditors over others. These protections are found in Chapter 5 of the Bankruptcy Code. The most commonly used of these actions are:

  • a avoidance of preferential transfers, which enables an insolvent debtor, subject to certain defences, to avoid and recover payments based on antecedent debt made to creditors within the 90 days prior to the debtor’s filing for bankruptcy – up to one year for payments made to insiders of the debtor;17
  • b avoidance of fraudulent transfers, which enables the debtor to avoid and recover transfers of property that were actually fraudulent or were made while the debtor was insolvent and for less than reasonably equivalent value;18 and
  • c avoidance of unperfected security interests, which enables a debtor to avoid liens on property if such liens were not perfected under applicable non-bankruptcy law prior to the commencement of the bankruptcy case.19
ii Policy

The goal of US insolvency law is to provide maximum return to creditors (and, if possible, equity holders) of the debtor and, in that context, to reorganise rather than liquidate business debtors to preserve employment and to realise the ‘going concern surplus’ of reorganisation value over liquidation value. This is accomplished by reorganising a debtor corporation under the provisions of Chapter 11 of the Bankruptcy Code. However, if a reorganisation is not possible – or if it would not result in a maximisation of value for creditors – the debtor company can be liquidated either under Chapter 11 or Chapter 7 of the Bankruptcy Code. Chapter 7 transfers the control of the liquidation process from the debtor’s management, who are likely to have greater familiarity with the assets and their value, to a trustee appointed by the United States Trustee20 or elected by the debtor’s creditors. Chapter 7 liquidations usually result in lower recoveries for creditors. Therefore, companies are more likely to be liquidated under Chapter 7 if there are not sufficient funds in the estate or available to the estate to run a Chapter 11 process.

iii Insolvency procedures

As discussed in Section I.i, supra, the Bankruptcy Code provides for two main types of insolvency proceedings available to businesses with assets in the United States: Chapter 7 and Chapter 11.

Chapter 7

Chapter 7 is a trustee-controlled liquidation. The goal of Chapter 7 is to ensure the most efficient, expeditious and orderly liquidation of the debtor’s assets to be distributed to the creditors and equity holders. Companies cannot reorganise under Chapter 7. The Chapter 7 liquidation procedure is administered by a Chapter 7 trustee either selected by the United States Trustee or by an election conducted by certain creditors. The Chapter 7 trustee is responsible for realising upon all of the property of the estate and coordinating the distribution of such property or proceeds of sales of such property.

Chapter 11

Chapter 11 provides for an insolvency proceeding in which the directors and management of the debtor company remain in control (the DIP) unless a trustee is appointed for cause. Chapter 11 proceedings allow for the reorganisation of the debtor’s operations and capital structure in the hope that the company will emerge from the bankruptcy process as a healthier, reorganised company. Chapter 11 gives the debtor the exclusive right to propose a plan of reorganisation for the first 120 days after commencement of the bankruptcy proceedings, and this date may be extended until 18 months after the order for relief (the petition date of a voluntary case) in the case if the debtor is making progress on a plan of reorganisation and can show cause why the court should extend the exclusivity period.21 The plan of reorganisation provides for how the debtor’s assets will be distributed among the classes of creditors and equity holders. It is also possible for a debtor to liquidate its assets through Chapter 11, which is typically a more structured liquidation than one under Chapter 7.

The culmination of a Chapter 11 proceeding is the filing of the plan of reorganisation. The Chapter 11 plan provides how creditors’ claims will be treated by the estate. Under the Chapter 11 plan creditors and shareholders are divided into classes of holders sharing substantially similar claims or interests. Chapter 11 plans must meet certain standards to be confirmed. Even if a plan is accepted by the requisite vote of all impaired classes, it must be found by the court to be in ‘the best interests of creditors’ (providing each dissenting class member with at least what would have been recovered in a liquidation). As to a class that rejects the plan, the plan must satisfy the Bankruptcy Code’s ‘fair and equitable’ requirement (described above).

The plan of reorganisation is submitted to a vote of the various creditor and shareholder classes. If at least one class that stands to receive less than their asserted claim (an ‘impaired’ class) votes in support of confirmation, excluding insider yes votes, the plan can be confirmed over the dissent of another impaired class. Dissenting classes can thus be ‘crammed down’ so long as the plan is fair and equitable and does not discriminate among similarly situated creditors. Once the plan is approved by the necessary stakeholders, a court can confirm a plan so long as certain other prerequisites of Section 1129 of the Bankruptcy Code are satisfied.

Chapter 15

Chapter 15 is the Bankruptcy Code’s codification of the United Nations Commission on International Trade Law (UNCITRAL) Model Law and allows a foreign debtor, through its ‘foreign representative’ to commence an ancillary proceeding in the United States to support its foreign insolvency proceeding.

iv Starting proceedings

As set forth above, the US Bankruptcy Code provides for different types of insolvency proceedings. Not all of these proceedings are available for all types of companies. Specifically, insurance companies and banking institutions cannot file for Chapter 7 or Chapter 11 bankruptcy; a railroad can be a debtor under Chapter 11 but not Chapter 7, and stockbrokers and commodity brokers can file for bankruptcy under Chapter 7 but not Chapter 11. Regardless of the type of bankruptcy case, under Section 301(a) of the Bankruptcy Code, a debtor voluntarily commences a plenary insolvency proceeding by filing a petition with the bankruptcy court.

A bankruptcy proceeding can also be commenced against a debtor company, which is known as an ‘involuntary’ bankruptcy case. An involuntary case is commenced upon the filing of a petition with the bankruptcy court by three or more holders22 of non-contingent, undisputed claims, and such claims aggregate at least $15,325 more than the value of any lien on property of the debtor securing such claims.23 A bankruptcy court will order relief against the debtor in an involuntary case only if the debtor is generally not paying its debts as they become due, unless such debts are the subject of a bona fide dispute as to liability or amount,24 or if a custodian as described in Section 303(h)(2) of the Bankruptcy Code has been appointed.

A Chapter 15 case is commenced when the foreign representative of the debtor company files a petition for recognition of the foreign proceeding with the US bankruptcy court.25

v Control of insolvency proceedings

Under Chapter 7, the insolvency proceeding is controlled by a trustee who is appointed by the United States Trustee or elected by the debtor’s creditors to administer the debtor’s assets. The ‘Chapter 7 trustee’ is responsible for, among other things, ‘collect[ing] and reduc[ing] to money the property of the estate for which such trustee serves, and closes such estate as expeditiously as is compatible with the best interests of parties in interest’.26 Although the Chapter 7 trustee can continue business operations for a short period if value is maximised by doing so, generally, once a Chapter 7 trustee has been appointed, the debtor company is expeditiously liquidated.

Chapter 11 proceedings allow for the debtor’s existing management and directors to stay in place and operate the business during the bankruptcy case. For this reason, a debtor in a Chapter 11 proceeding is referred to as the ‘DIP’. The board of directors’ primary duties in connection with an insolvency proceeding are the same as they are outside bankruptcy27 – to maximise the value of the company.28 The key distinction is that when a company is insolvent, the creditors, not the shareholders, are the indirect beneficiaries of the board’s fiduciary duties to the corporation and are, thus, able to bring actions for breach of fiduciary duty.29 If it is in the best interests of the estate and its creditors, a trustee may be appointed to replace the DIP and administer a Chapter 11 case.30

During a Chapter 7 or Chapter 11 case, the DIP or trustee may take actions that are in the ordinary course of the debtor’s business without approval of the bankruptcy court. Actions after entry of the order for relief outside the ordinary course of business are subject to bankruptcy court approval.

In the United States, bankruptcy courts are courts of limited jurisdiction. This is because, unlike federal district and circuit courts, bankruptcy courts were not created under Article III of the United States Constitution. Instead, Congress created the bankruptcy courts because they were ‘necessary and proper’ to effectuate Congress’s enumerated powers to enact bankruptcy law. For this reason, bankruptcy courts may only oversee matters that are ‘core’ to the bankruptcy case unless the parties knowingly and voluntarily consent to adjudication of a ‘non-core’ matter by the bankruptcy court. Without consent, matters that are not ‘core’ to the insolvency proceeding must be decided by a federal district court. Appeals of bankruptcy court decisions are generally heard, in the first instance, by the federal district court sitting in the same jurisdiction as the applicable bankruptcy court.31 Bankruptcy court jurisdiction is the subject of a line of recent Supreme Court cases, and is discussed in greater detail later in this chapter.

Among other things, the bankruptcy court manages filing deadlines, hears evidence on contested issues and issues orders regarding requests for relief by the parties. Nevertheless, and despite the involvement of the court, many aspects of the bankruptcy process are negotiated by the parties outside the courtroom and the DIP or trustee is free to enter into settlement agreements, which are then subject to the approval of the bankruptcy court.32

vi Special regimes

Securities broker-dealers are not eligible for relief under Chapter 11. Instead, insolvent broker-dealers may liquidate under Chapter 7 of the Bankruptcy Code,33 but are more likely to be resolved in a proceeding under the Securities Investor Protection Act of 1970 (SIPA).34 SIPA proceedings are liquidation proceedings, and upon commencement of the SIPA proceedings, the broker-dealer will cease to conduct business as a broker-dealer, subject to certain limited exceptions. In SIPA proceedings, a trustee (the SIPA Trustee) will take control of all property, premises, bank accounts, records, systems and other assets of the broker-dealer and displace management. The SIPA Trustee’s primary duties will be to marshal assets, recover and return customer property (including through effectuating bulk account transfers to a solvent broker-dealer) and liquidate the broker-dealer.

In SIPA proceedings, the provisions of Chapters 1, 3 and 5 and Subchapters I and II of Chapter 7 of the Bankruptcy Code will also apply, to the extent consistent with SIPA, and the SIPA Trustee will generally be subject to the same duties as a trustee under Chapter 7 of the Bankruptcy Code with certain limited exceptions regarding securities that are property of the customers of the broker-dealer. If the broker-dealer is a registered futures commission merchant under the Commodity Exchange Act of 1936,35 the SIPA Trustee will have additional obligations under the Part 190 regulations36 promulgated by the Commodity Futures Trading Commission, with respect to any commodity customer accounts that have not been transferred to another futures commission merchant prior to the filing date.

Although bank holding companies can file for Chapter 11 relief, their subsidiary depository institutions are not eligible for relief under the Bankruptcy Code, and are typically resolved by the Federal Deposit Insurance Corporation (FDIC) under the Federal Deposit Insurance Act.37 The FDIC has the authority to market a failed depository institution for sale to another depository institution, or the FDIC can insert itself as a receiver, close the bank and liquidate its assets to pay off creditors. The powers of the FDIC as receiver are very similar to those of a trustee in bankruptcy.38

Additionally, the Dodd–Frank Wall Street Reform and Consumer Protection Act39 established the Orderly Liquidation Authority (OLA), which provides that the FDIC may be appointed as receiver for a top-tier holding company of a failing financial institution that poses a systemic risk to financial stability in the United States. OLA sets forth the procedures that the federal government can take to cause the wind-down of financial institutions that were once considered ‘too big to fail’. Pursuant to OLA, the FDIC can exercise many of the same powers it has as a bank receiver to liquidate systemically risky financial institutions. Moreover, under the Dodd-Frank Act, institutions that may be subject to OLA must provide the FDIC with resolution plans (commonly known as ‘living wills’), to serve as road maps in the event the financial institution requires resolution.

State law governs all regulation of insurance companies, including the resolution of insolvent insurance companies.40

The Bankruptcy Code has mechanisms for dealing with the insolvency proceedings of corporate groups and there is no special regime to address these types of filings. If multiple affiliated companies in the same corporate group seek relief under the US Bankruptcy Code, they will file separate bankruptcy petitions but will often seek joint administration of the various bankruptcy proceedings, meaning that the bankruptcy cases of each member of the group will be overseen by the same judge, which provides for greater efficiency in the administration of the cases. Importantly, joint administration does not mean that the assets and liabilities of the group will be combined. Rather, corporate separateness will be observed despite the joint administration of the cases, unless there is cause to breach corporate separateness and ‘substantively consolidate’ the assets and liabilities of the debtor.

vii Cross-border issues

As part of the 2005 Bankruptcy Abuse and Consumer Protection Act, the United States enacted Chapter 15 of the Bankruptcy Code, which is based on the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law).41 Chapter 15 governs how a US court should treat a foreign insolvency proceeding when no plenary proceedings have been commenced in the United States and provides a mechanism for the cooperation between the US court and the foreign court overseeing a debtor’s plenary insolvency proceeding. Generally, Chapter 15 allows for the commencement of an ancillary proceeding upon recognition of the debtor’s foreign proceeding. Once the foreign proceeding is recognised by the US bankruptcy court, the automatic stay applies to the debtor and the property of the debtor that is within the territorial jurisdiction of the United States42 and the debtor’s foreign representative enjoys certain powers and privileges under the Bankruptcy Code, such as the right to intervene in any court proceeding in the United States in which the foreign debtor is a party, the right to sue and be sued in the United States on the foreign debtor’s behalf, the authority to operate the debtor’s business and the authority to initiate avoidance actions in a case pending under another chapter of the Bankruptcy Code.

The bar for accessing plenary proceedings in the US bankruptcy courts is relatively low. A company can be eligible to commence a Chapter 11 proceeding in a US bankruptcy court so long as it is incorporated or has any property or operations in the United States. Because of the perceived debtor-friendliness of US bankruptcy courts and the courts’ vast experience in restructuring large multinational companies, many multinational companies are filing for Chapter 11, even if their principal place of business, or centre of main interest, is located outside the United States. This trend has been particularly prevalent in the shipping industry. For example, the Taiwan-based TMT Group opened an office in Houston only a few days before filing for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of Texas.43

II INSOLVENCY METRICS

Since the global financial crisis, which saw gross domestic product adjusted for inflation (real GDP) drop 2.8 per cent from 2008 to 2009, the US economy has experienced a period of slow growth, though the pace of economic activity has begun to improve. Real GDP increased in the fourth quarter of 2015 at an average annual rate of 1.4 per cent and in the first quarter of 2016 at an average annual rate of 1.1 per cent.44 Further, reported unemployment continues to abate: the unemployment rate for April 2016 was 5.0 per cent, down from 6.1 per cent in June of the previous year and from its October 2009 high of 10 per cent.45

Additionally, credit has been readily available to US businesses. In 2014, US corporations issued over $1.48 trillion in bonds, a 10.4 per cent increase over the $1.34 trillion issued in 2013 and 19.4 per cent above the $1.24 trillion issued in 2012.46 Through the first four months of 2016, over $440 million worth of bonds have been issued.47 Average interest rates have remained near historic lows; the 10-year Treasury rate is currently around 1.85 per cent and has ranged between 1.63 per cent and 2.25 per cent in the current calendar year.48 It is currently anticipated that interest rates will gradually rise in coming months, as the Board of Governors of the Federal Reserve System (the Federal Reserve Board) considers scaling back its accommodative policy.49

US equity and equity-related proceeds totalled $229.5 billion on 848 deals in 2015.50 This represents a 12.2 per cent decrease in proceeds compared to the $258.1 billion raised in 2014 and approximately 15.9 per cent fewer deals than the 1,010 in 2014.51 US equity and equity-related proceeds in 2014 were approximately 18.8 per cent less than the $282.5 billion raised in 2013 and 5.9 per cent less than the $244 billion raised in 2012.52 Similarly, the number of deals in 2015 was 20.2 per cent less than the 1,062 in 2013 and 5.8 per cent greater than the 795 in 2012.53

US corporate default rates have risen since the first half of 2015. Moody’s measured the US speculative-grade default rate for the fourth quarter of 2015 at 3.4 per cent, 54 compared to default rates of 2.5 per cent in the third quarter,55 2.4 per cent in the second quarter56 and 2.3 per cent in the first quarter.57 Similarly, Moody’s indicated that the leveraged loan default rate for January and February of 2016 was 2.2 per cent and 2.4 per cent respectively, exceeding the 2015 second quarter rate of 0.9 per cent.58

As a result of challenges in sectors of the US economy, such as the energy sector, more businesses are seeking bankruptcy relief. Specifically, 6,782 businesses filed Chapter 11 bankruptcies in the 12 months ending on 30 June 2015,59 which is a 21.2 per cent increase from the 5,594 Chapter 11 business filings in the 12 months ending on 30 June 2015.60 The frequency of bankruptcy filings had been steadily subsiding since the peak of 12,445 Chapter 11 business filings in the 12 months ending on 30 June 2010.61 54 public companies filed for bankruptcy in 2014, down from the 71 such companies that filed in 2013.62 While the combined assets of the 54 public filers totalled $71.9 billion, as compared to the combined assets among public filers of $42.6 billion in 2013,63 this increase is largely attributable to the massive $36.4 billion Energy Future Holdings (TXU) filing rather than any trend towards an increase in the size of companies seeking bankruptcy relief.64

However, with challenges to large industries such as energy and retail, as discussed in greater detail in Section III, infra, the US has seen a resurgence in bankruptcy filings over the past year. In 2015, a total of 79 public companies, with aggregate prepetition assets of approximately $81.0 billion, filed Chapter 7 or Chapter 11 bankruptcy proceedings,65 with many of the most significant filings involving the energy, financial services, retail electronics and hotel and casino industries.66 The wave of filings in these particular sectors was owing in large part to the steep drop in the price of oil that began in the fourth quarter of 2014.67 The energy and retail industries have continued to produce the most significant bankruptcies in 2016.

A total of 140 companies commenced Chapter 15 proceedings in the 12 months ending on 30 June 2015,68 nearly doubling the 76 Chapter 15 cases that were initiated during the 12 months ending 30 June 2015.69

III PLENARY INSOLVENCY PROCEEDINGS

i Arch Coal

Arch Coal, headquartered in St Louis, Missouri, is a leading producer and marketer of coal in the United States, with operations and coal reserves in each of the major coal-producing regions of the country. As of November 2015, it was the second-largest holder of coal reserves in the United States, owning or controlling over 5 billion tons of proven and probable reserves.70 The company’s principal business is the mining and preparation of thermal coal and metallurgical coal, which is sold primarily to steel mills for the manufacture of steel.71

On 11 January 2016, Arch Coal Inc, together with several affiliates, filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Eastern District of Missouri. Arch Coal’s funded debt obligations, totalling more than $5 billion, included:

  • a a secured term loan facility of $1.9 billion;
  • b one series of senior secured second lien notes totalling $350 million;
  • c outstanding letters of credit secured by an accounts receivable securitisation facility totalling $178 million; and
  • d four series of outstanding unsecured notes totalling approximately $2.875 billion.72

Before filing for bankruptcy, Arch attempted to effectuate an out-of-court restructuring through two private debt exchange offers. However, in order to close the exchange offers, the term loan administrative agent would have had to execute certain documents, including an amendment to the credit agreement and a new intercreditor agreement. The administrative agent was subsequently directed by a majority of the term lenders to not take such actions. Meanwhile, market conditions continued to deteriorate and Arch pivoted to discussions regarding potential DIP financing and the terms and conditions of a proposed Chapter 11 restructuring.73 The debtors and a group of ad hoc first lien lenders agreed on terms and conditions of a $275 million-DIP term loan facility and the principal terms of a plan of reorganisation.74

The original plan submitted by Arch Coal was not supported by a majority of unsecured creditors, who felt bankruptcy proceedings could have been avoided if not for the secured lenders’ with actions with respect to the debt exchange offers.75 After multiple negotiations, Arch Coal filed an amended plan in July, pursuant to which senior lenders agreed to more favourable terms for the creditor committee in exchange for the committee’s agreement to abandon separate litigation in connection with the bankruptcy. The new terms offered general unsecured claimants 6 per cent of the new common stock of the reorganised company, warrants to acquire additional shares, and $30 million in cash. Senior managers also surrendered claims to $6 million in incentives to help the Chapter 11 plan gain momentum.76

Alpha Natural Resources

Alpha Natural Resources, headquartered in Bristol, Virginia, and operating in three major coal producing basins across the United States, is the country’s leading supplier and exporter of metallurgical coal and a major supplier of thermal coal to electric utilities and manufacturing industries across the country. The company owns approximately 25,000 acres in the Marcellus Shale natural gas field of southwestern Pennsylvania, the most profitable region of one of the largest and most concentrated natural gas fields in the United States. Alpha also engages in limited operations outside its core coal production business including mining equipment sales and repair, coal export and other miscellaneous activities.77

On 3 August 2015, Alpha and 150 of its direct and indirect subsidiaries filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Eastern District of Virginia. As of the Petition Date, the Debtors funded debt obligations included:

  • a secured indebtedness, comprised of bank debt and notes, totalling $1.96 billion;
  • b institutional unsecured indebtedness totalling $2.10 billion; and
  • c secured convertible notes totalling $109 million.78

The market forces affecting the broader coal industry proved particularly challenging for Alpha, having purchased Massey Energy Co for approximately $7 billion just before prices began to decline.79 Despite a series of measures taken to right size the company in light of the worsening macroeconomic environment, Alpha ultimately concluded that seeking protection under Chapter 11 was the best course to maximise stakeholder value and regain profitability.

On 6 July 2016, Alpha received court approval for a bankruptcy plan, which called for the sale of certain core assets to its lenders and addressed how to pay for the clean up of mines that have closed or might close. The first lien lenders, through a newly formed group called Contura Energy Inc, will purchase the company’s two Powder River Basin mine complexes in Wyoming and three complexes in West Virginia, among other assets. Contura will also provide Alpha with a $35 million line of credit and will contribute up to an additional $100 million to help with Alpha’s reclamation activities. On July 26, Alpha emerged from bankruptcy.80

Magnum Hunter

Magnum Hunter is an oil and gas company headquartered in Irving, Texas, primarily engaged in the acquisition, development, and production of oil and natural gas reserves in the United States. Magnum Hunter’s core operations focus primarily on unconventional shale resource plays in West Virginia and Ohio, and also owns oil and gas properties in Kentucky, Oklahoma and Texas. Outside of its core exploration, development and production business, Magnum Hunter is also involved in midstream operations, through its equity interest in Eureka Hunter Holdings, which owns a natural gas pipeline system located in West Virginia and Ohio.81

On 15 December 2015, Magnum Hunter filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the District of Delaware. As of the petition date, the debtors reported approximately $1.5 billion in total assets and approximately $1.1 billion in total liabilities, with funded debt obligations including:

  • a a bridge financing facility secured by a first priority lien and security interest in substantially all of the debtors assets totalling approximately $70 million;
  • b a second lien term loan facility of $336.6 million;
  • c senior unsecured notes totalling approximately $600 million; and
  • d equipment and real estate notes of $13.2 million.82

The proposed plan was met with wide support from Magnum Hunter’s creditors, with over 75 per cent of debt holders agreeing to support the restructuring. The plan called for a DIP loan of $200 million to allow Magnum Hunter to continue operations through bankruptcy, with the DIP somewhat unusually converting into a 28.8 per cent equity stake in the reorganised company pursuant to an agreed upon debt-to-equity exchange.83 In May 2016, the plan became effective and Magnum Hunter successfully emerged from bankruptcy less than five months after filing for protection.

Quiksilver

Quiksilver is one of the world’s leading outdoor sports lifestyle companies. Its brands include Quiksilver, Roxy and DC, each catering to casual outdoor lifestyle associated with surfing, skateboarding, snowboarding and related activities. Headquartered in Huntington Beach, California, the company’s products are sold in over 115 countries through wholesale accounts, retail stores and e-commerce websites. Quiksilver’s operations related to its products include product design and development, production and distribution channels.84

On 9 September 2015, Quiksilver and several of its affiliates filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the District of Delaware. The debtors collectively accounted for 34 per cent of the parent company’s revenue, with the remaining 66 per cent attributable to non-debtor affiliates operating outside the United States.85 As of the petition date, Quiksilver had approximately $850 million of long-term debt, consisting of:

  • a an asset-based revolving credit facility of $92 million;
  • b secured notes of $279 million;
  • c unsecured notes of $223 million;
  • d European lines of credit and other borrowing facilities of $32 million; and
  • e European unsecured notes of $224 million.86

While the company has been revising its operations since 2013 in hopes of a turnaround, it has suffered from inadequate liquidity, underperforming retail stores and late deliveries to wholesale customers. Under the proposed plan, Oaktree Capital, which held 73 per cent of the unsecured notes (as well as other debt incurred by non-debtor affiliates),87 will exchange its debt claims for a majority stake in the reorganised company, and the company will borrow $175 million from Oaktree affiliates to be used in completing the company’s restructuring and to cover the costs of the bankruptcy.88 Junior bondholders objected to the plan, submitting that the debt-for-equity exchange was premised on an undervaluation of the reorganised company. Those objections were settled in mediation, with Quiksilver nearly doubling the pool of cash set aside for junior creditors to $14.5 million and allocating a 4.75 per cent stake in the reorganised company among them. The plan was approved by the bankruptcy court in January 2016.89

Linn Energy

Linn Energy, based in Houston, Texas, is an independent oil and natural gas company. Through its direct subsidiary, Linn owns Berry petroleum company, which it acquired in 2013 and whose operations are integrated with Linn’s. Linn, along with its direct and indirect debtors subsidiaries, excluding Berry, owns approximately 27,000 gross productive wells across the United States. As of the end of 2015, the Linn debtors’ reserves, which exceeded the equivalent of 4 trillion cubic feet, were comprised of 25 per cent oil, 59 per cent natural gas and 15 per cent natural gas liquids. Linn also operates pipelines, processing facilities and steam generators to support their production activates.90

On 11 May 2016, Linn and several of its subsidiaries filed for bankruptcy protection under Chapter 11 in the US Bankruptcy Court for the Southern District of Texas. As of the petition debtors has funded debt obligations in excess of $7.5 billion comprised of:

  • a a first lien credit facility of Linn totalling $5.962 billion;
  • b second lien notes issued by Linn totalling $1 billion;
  • c unsecured notes issued by Linn totalling $3.023 billion;
  • d a first lien credit facility of Barry totalling $889 million; and
  • e unsecured notes issued by Berry totalling $834 million.91

The events leading to Linn’s bankruptcy, discussed at greater length in Section V, infra, are typical of the challenges facing the broader energy industry, including low commodity prices and a highly competitive market.

The proposed plan, supported by a majority of the lenders, called for Linn and Berry to separate, with Linn senior lenders receiving $2.2 billion in new debt and second-lien noteholders and unsecured creditors receiving stock in the newly reorganised company. The plan also allowed for the possibility of Berry senior creditors receiving new debt and also splitting new stock in the reorganised company. Notably, Linn had sufficient liquidity to operate through bankruptcy and did not seek DIP financing, which is typically a staple of bankruptcy proceedings.92

IV ANCILLARY INSOLVENCY PROCEEDINGS

i Berau Capital Resources

Berau Capital Resources PTE Ltd was a Singaporean company that commenced a foreign insolvency proceeding in Singapore on 4 July 2015 after defaulting on over $450 million of US dollar-denominated notes. Shortly thereafter on 10 July 2015, the debtors filed a Chapter 15 petition with the US Bankruptcy Court for the Southern District of New York seeking, among other things, recognition of the Singaporean proceeding as a ‘foreign main proceeding’ under Chapter 15 of the Bankruptcy Code.

A Chapter 15 proceeding is a US proceeding ancillary to a main proceeding pending in a foreign debtor’s home country, a primary purpose of which is to facilitate cooperation in cross-border insolvency cases by permitting foreign debtors access to the United States bankruptcy courts. To successfully initiate a Chapter 15 proceeding, the foreign debtor must first establish the US bankruptcy court’s jurisdiction over its case. Though there is much disagreement among scholars as to the applicable standard by which such jurisdiction should be determined, the prevailing (and much criticised) view is set forth in the 2013 decision of the United States Court of Appeals for the Second Circuit, In re Barnet.93 In Barnet the Court of Appeals concluded that Section 109(a) of the Bankruptcy Code, which provides that ‘a person that resides or has a domicile, a place of business, or property in the United States…may be a debtor under this title’, applies to Chapter 15 cases.

Although Berau did not have a place of business in the United States, the company argued that its debt documents – which contained typical provisions found in a US debt issuance, including an indenture governed by New York law, a New York forum selection clause and a provision appointing an authorised agent for service of process in New York – constituted ‘property in the United States’ for purposes of Section 109(a).

Judge Glenn, who presided over Berau, ultimately held that contractual terms invoking New York law were sufficient to satisfy the eligibility requirement of Section 109(a), reasoning that the company’s contractual rights under its debt documents constituted property rights governed by New York state law. The court also concluded that applicable New York law reflects a policy of allowing contract counterparties with transactions that satisfy specified threshold amounts to establish New York ‘property’ by designating New York governing law and applying a New York forum selection clause. In so holding, and because it is exceedingly common for indentures to be governed by New York law documents, the Berau court may have opened the door for expansive Chapter 15 eligibility for foreign debtors without any other property in the United States.

V TRENDS AND OTHER RECENT DEVELOPMENTS

Bankruptcy filings in the United States have increased over the past year, halting a decline since their 2009–2010 peak during the global financial crisis.94 Companies had been buoyed by access to cheap capital because of historically low interest rates, providing relief for companies with highly leveraged balance sheets that likely would have struggled to meet their debt obligations had interests rates begun to rise.95 However, despite the persisting low-interest rate environment, adverse market forces in a number of industries have led to a wave of bankruptcy filings.

The sections below highlight recent trends in the energy and retail sectors and also offer some detail on recent decisions and other developments that may be relevant in US bankruptcy practice in the coming years.

i Industry downturns
Energy industry downturn

The energy industry has experienced a number of bankruptcies over the past few years despite the general availability of cheap credit, and this trend is unlikely to abate in the near future. In particular, the coal industry will continue to be hit hard by the prevalence of cheaper and cleaner sources of energy, such as natural gas, increasingly stringent regulation and large unfunded pension and retirement liabilities. According to the Institute for Energy Economics and Financial Analysis, the combined market capitalisation of major publicly traded US coal companies has fallen by over 90 per cent since April 2011, plummeting $62.5 billion to $4.59 billion.96

In April, Peabody Energy, a coal-mining company based in St Louis with global operations, became the largest major US coal company to file for Chapter 11, joining Arch Coal, Patriot Coal, and Alpha Natural Resources, among others.

2016 has also been a particularly challenging year for the oil and gas industry as companies struggle to service debt as falling prices squeeze revenues. The industry has seen a bevy of bankruptcies since 2014, with 60 of the 1,000 companies in the industry filing for bankruptcy protection. This trend has continued in 2016 and Deloitte has estimated that bankruptcies will increase by six times this year.97 During the industry downturn, more than 385,000 energy jobs have been lost globally.98 Oil demand for the third quarter in 2016 is growing at less than one-third of the rate that it did in the same period last year.99

Despite the continued challenges facing the industry, there is growing optimism that the oil and gas industry is inching closer to a rebound. One of the most formidable obstacles in the way of an industry recovery is the stubbornly low price of oil, with crude prices around $45 a barrel, reversing a surge that raised prices to more than $52 a barrel in June. To drill profitably at this rate, oil producers must cut costs, but realising these cost savings could prove challenging, as service companies must raise prices to support taking rigs and hydraulic fracturing equipment out of storage and hiring capable professionals to operate them, driving up the break-even oil price for operators.100 The price of oil, therefore, will play a determinative role in whether the growing optimism yields material improvement, or if the next year brings more of the same for the beleaguered industry.

Retail industry downturn

The retail industry has also been hit hard through the first half of 2016. Despite some signs portending optimism for the future, the industry remains in flux and substantially challenged.

Changing dynamics in the retail industry have created myriad operational challenges, forcing once-successful retailers to file for bankruptcy protection. These market forces include consumer shift from traditional brick and mortar stores to online shopping sites such as Amazon, a highly competitive market, and a still tepid economy, which has impaired the earning power of middle-class Americans. These dynamics have left retailers with insufficient revenue to cover high fixed costs such as leases for their stores.

In March, Sports Authority ushered in a wave of retail bankruptcies, filing for Chapter 11 bankruptcy protection with debt obligations exceeding $1.1 billion and total assets less than $1 billion. The company initially announced with its filing plans to close 140 stores, nearly one-third of its total, and eventually decided to liquidate all assets. In April, Vestis Retail Group, which manages Eastern Mountain Sports, Bob’s stores and Sports Chalet, also filed for protection under Chapter 11. Aeropostale, an apparel company, filed the following month.101

Retailers that have so far avoided bankruptcy have not been immune to the market forces ravaging the industry and have been trimming operations accordingly. Underscoring the pressure on brick and mortar operations, Staples, Abercombie & Fitch, and Toys ‘R’ Us, among others, have closed several hundred stores in the past few years.102

While the challenges facing the industry remain substantial, there is some reason for optimism. The National Retail Federation raised its year-over-year sales growth forecast for 2016 from 3.1 to 3.4 per cent, citing improvements in the housing market, job growth and hire wages as factors that should lead to increased consumer spending throughout the year.103 It will be interesting to see if these positive signs lead to a recovery in the industry or if the second half of the year sees more retailers filing for bankruptcy in light of the adverse retail climate.

ii The Second Circuit allows tort claimants to sue New GM despite its free and clear asset purchase

The Second Circuit Court of Appeals, reversing a bankruptcy court order, held that plaintiffs could sue New GM over product deficiencies in assets New GM purchased free and clear from Old GM in an asset sale pursuant to Section 363 of the Bankruptcy Code. The Court agreed with the lower court that the plaintiffs’ due process rights had been violated when Old GM executed the asset sale in the 2009 bankruptcy proceedings without disclosing the known deficiencies in its ignition switch products. However, the Second Circuit disagreed with the bankruptcy court’s conclusion that the violation did not prejudice the plaintiffs. The bankruptcy court’s finding of no prejudice relied on the assumption that even if the tort claims had been raised during the bankruptcy proceedings, the claims would not have impeded the asset sale free and clear of all claims and encumbrances. The Second Circuit disagreed, reasoning that it was speculative to assume that the court would have approved the sale with no material changes in light of the substantial claims of the plaintiffs.

The Second Circuit’s decision highlights the importance of debtor disclosure in the bankruptcy proceedings to ensure that all parties are bound by the process. Furthermore, though the debtor is responsible for disclosure of all relevant information in the context of a Section 363 sale (363 sale), the purchaser is wise to ensure that proper notice has been provided and that it can rely on the sale being free and clear of all claims.104 Yet, the precedential impact of the Court’s ruling may be of modest significance. In the short term, the decision is a substantial victory for plaintiffs seeking damages arising out of GM’s deficient ignition defects and subsequent recall. The decision could be interpreted as a broad precedent undermining a 363-sale purchaser’s ability to rely on the free and clear doctrine. However, it is perhaps more likely that courts will limit the Second Circuit’s decision to the particularised facts of the GM case, which alleged wilful concealment by the debtor of information readily apparent to it prior to the asset sale. It is also noteworthy that because the Court found that the plaintiffs could make a showing of prejudice, it did not determine whether plaintiffs must make a showing of prejudice resulting from the due process violation to assert its tort claims against the purchaser in a 363 sale.105

iii Gifting

A recent trend in bankruptcy settlements over the last several years has been the increasing use of ‘gifting’, a consensual arrangement in which a senior creditor class gives a junior class or equity some of its share of recoveries otherwise due to it under a plan of reorganisation. The rationale underlying this practice, at first glance, seems benign, as sophisticated parties with bargaining power seemingly may opt to transfer their rights to junior parties in exchange for a more swift resolution to the bankruptcy proceedings. However, this analysis becomes more complicated when an intermediate creditor is involved and the priority regime outlined in Section 507 of the Bankruptcy Code is considered. Under Section 507, there is a hierarchy in resolving the claims of various creditors against the assets of the debtor. Viewed in this light, the intermediate creditor can object that junior creditors are receiving distributions before senior claims are paid in full, in violation of the absolute priority rule.

In 2011, the Second Circuit handed down a decision in In re DBSD North America, which limited the ability of senior creditors to gift their share of a distribution to more junior creditors. In DBSD, the Court considered whether the decision of senior creditors to gift some of its cash distribution to equity holders, bypassing junior creditors with claims of higher priority relative to the equity holders, ran afoul of the absolute priority rule.106 The Court invalidated the plan, holding that the senior creditors had no right to gift estate property in contravention of the statutorily contemplated hierarchy. The decision left unresolved the propriety of a senior creditor bypassing an intermediate creditor in gifting non-estate property to a junior creditor. In a decision that limited the scope of the DBSD holding, the Third Circuit held that the holding was limited to gifting estate property. Senior creditors, however, remained free to gift non-estate property.107

An arrangement known as a ‘structured dismissal’ has become an increasingly popular technique for parties seeking to implement a gifting arrangement without running afoul of the absolute priority rule. A structured dismissal is a dismissal of a Chapter 11 case combined with additional provisions in the dismissal order, which often include mutual releases, procedures for claims reconciliation, ‘gifting’ of funds to junior creditors and retention of jurisdiction by the bankruptcy court. Structured dismissals are often employed in situations where the debtors have insufficient unencumbered assets to finance a confirmable Chapter 11 plan (e.g., after a sale of all or substantially all of such debtors’ assets pursuant to Section 363 of the Bankruptcy Code). The fate of the structured dismissal, at least insofar as it may be used as a gifting mechanism, is now in the hands of the Supreme Court, which granted certiorari in a recent Third Circuit case, Czyzewski v. Jevic Holding Corp,108 which affirmed that structured dismissals may allow for allocations that do not adhere to the absolute priority hierarchy. The holding created a circuit split with the Fifth Circuit, which rejected the propriety of such arrangements.109 It will be important to see how the Court rules on this question, as it could potentially remove a tool that has been used to more expeditiously settle bankruptcy cases.

iv Covenants and DIP loans

Many large corporate bankruptcies involve the debtor securing a post-petition DIP loan. The DIP loan provides the debtor with the cash necessary to continue its operations throughout the bankruptcy and to cover the costs of the bankruptcy. The lender extending a DIP loan to the debtor, often a prepetition creditor of the debtor interested in protecting its prepetition position, will place covenants in the DIP loan, setting milestones that the debtor must meet under the terms of the loan. Such milestones can include, among others, deadlines to file disclosure statement and solicit votes on a plan of reorganisation, deadlines to obtain critical relief (e.g., the filing of a motion under Section 1113 of the Bankruptcy Code seeking to modify collective bargaining agreements, deadlines to file sale procedures and sale motions, if applicable, and deadlines to obtain confirmation of a plan).

There is an inherent tension in the restrictiveness of these milestones, which can be constraining and onerous for a debtor and the need for financing. On the one hand, debtors need DIP financing and lenders need assurances as inducement to make these loans to a bankrupt company. On the other hand, strict covenants can tie the hands of debtors and add additional complexity and expense if other creditors contest the plan supported by the DIP lenders.

The recent trends in the industry has been towards more DIP lenders insisting on more restrictive milestones in DIP covenants.

However, striking the right balance on the restrictiveness of milestones in DIP loans is still an open question. For instance, in response to the trend towards more restrictive covenants, the ABI Commission to Study the Reform of Chapter 11 has recommended adding to the Bankruptcy Code that no milestones can require actions within 60 days of the petition date. It will be interesting to see if that proposal or others gain traction and where the market settles on this issue.

Footnotes

1 Donald S Bernstein and Timothy Graulich are partners and Christopher S Robertson is an associate at Davis Polk & Wardwell LLP. Damon P Meyer is a senior vice president at Highbridge Capital Management LLC and former counsel of Davis Polk.

2 US Constitution, Article I, § 8.

3 11 U.S.C. §§ 101–1532 (2012).

4 Pub. L. No. 95-598 (1978).

5 Pub. L. No. 109-8 (2005).

6 As discussed in Section V, infra, there is a proposal currently under consideration in Congress to add a new chapter or subchapter to the Bankruptcy Code tailored to resolving systemically important financial institutions.

7 Individuals can also seek relief under Chapters 7 and 11 of the Bankruptcy Code.

8 A trustee can be appointed in Chapter 11 for cause. 11 U.S.C. § 1104(a)(1).

9 11 U.S.C. § 555.

10 11 U.S.C. § 556.

11 Id.

12 11 U.S.C. § 559.

13 11 U.S.C. § 560.

14 11 U.S.C. § 561.

15 See In re Lehman Brothers Holdings Inc., Case No. 08-13555 (JMP) (Bankr. S.D.N.Y. 15 September 2009).

16 A plan of reorganisation is approved by a class when a majority in number of the class members vote in favour of it and the class members who voted in favour hold at least two thirds of the total value of the claims in that class. 11 U.S.C. § 1126.

17 11 U.S.C. § 547.

18 11 U.S.C. §§ 544(b), 548. Under Section 548, the trustee can avoid a fraudulent transfer of an interest of the debtor in property that took place within two years before the date of the filing of the petition. Under Section 544(b), a trustee can avoid a transfer of an interest of the debtor in property under applicable state law, which can extend the look-back period beyond two years. However, a debtor might not be able to avoid and recover subsequent transfers of property received abroad by a foreign transferee from a foreign transferor. See Securities Investor Protection Corp. v. Bernard L. Madoff Inv. Sec. LLC, Case No. 12-00115 (S.D.N.Y. 7 July 2014).

19 11 U.S.C. § 552(a).

20 The United States Trustee Program is a component of the Department of Justice that seeks to promote the efficiency and protect the integrity of the federal bankruptcy system. The Program monitors the conduct of parties in interest in bankruptcy cases, oversees related administrative functions and acts to ensure compliance with applicable laws and procedures. It also identifies and helps investigate bankruptcy fraud and abuse in coordination with various law enforcement agencies. The United States Trustee is distinct from the trustee appointed to administer Chapter 7 and certain Chapter 11 cases.

21 11 U.S.C. §§ 1121(b), (d)(2)(A).

22 Only a single holder is necessary to commence an involuntary case if there are fewer than 12 overall holders of claims against the debtor.

23 11 U.S.C. §§ 303(b)(1), (2).

24 11 U.S.C. § 303(h)(1).

25 11 U.S.C. §§ 1504, 1515.

26 11 U.S.C. §704(a)(1).

27 The Supreme Court has observed that ‘the willingness of courts to leave debtors in possession “is premised upon an assurance that the officers and managing employees can be depended upon to carry out the fiduciary responsibilities of a trustee”’. Commodity Futures Trading Comm’n v. Weintraub, 471 US 343, 355 (1985), citing Wolf v. Weinstein, 372 US 633, 651 (1963). Officers and directors may therefore owe fiduciary duties to the estate even if their fiduciary duties to the company were limited under state law prior to the bankruptcy. In re Houston Regional Sports Network, L.P., Case No. 13-35998 (Bankr. S.D. Tex. 12 February 2014).

28 ‘Even when [a] company is insolvent the board may pursue, in good faith, strategies to maximise the value of the firm.’ Trenwick America Litig. Trust v. Ernst & Young, 906 A.2d 168, 175 (Del. Ch. 2006), aff’d, 931 A.2d 438 (Del. 2007).

29 Marshall Huebner and Hugh McCullough, ‘The Fiduciary Duties of Directors of Troubled US Companies: Emerging Clarity’, in ICLG to: Corporate Recovery and Insolvency 2008 6, 7 (Global Legal Group, Ltd 2008).

30 11 U.S.C. § 1104.

31 The 1st, 6th, 8th, 9th, and 10th Circuits have established Bankruptcy Appellate Panels (BAPs), which are panels composed of three bankruptcy judges that are authorised to hear appeals of bankruptcy court decisions. These panels are units of the federal courts of appeals. BAP judges continue to serve as active bankruptcy judges in addition to fulfilling their BAP duties. If a BAP has been established in a given circuit, the BAP will hear an appeal of a bankruptcy court decision unless a party to the appeal elects to have it heard by the district court. Decisions of the BAP may be appealed to the appropriate circuit court of appeals. United States Courts, Bankruptcy Appellate Panels, available at www.uscourts.gov/FederalCourts/UnderstandingtheFederalCourts/CourtofAppeals/BankruptcyAppellatePanels.aspx.

32 Fed. R. Bankr. P. 9019.

33 11 U.S.C. §§ 741–753.

34 Pub. L. No. 91-598 (1970), codified at 15 U.S.C. §§ 78aaa et seq.

35 Pub. L. No. 74-675 (1936), codified at 7 U.S.C § 1 et seq.

36 17 C.F.R. Part 190.

37 Pub. L. No. 81-797 (1950).

38 Federal Deposit Insurance Company, ‘Overview: The Resolution Handbook at a Glance’, available at www.fdic.gov/about/Freedom/drr_handbook.pdf#page=10.

39 Pub. L. 111-203 (2010).

40 11 U.S.C. § 1011.

41 ‘United Nations Commission on International Trade Law (UNCITRAL): UNCITRAL Model Law on Cross-Border Insolvency with Guide to Enactment’, 30 May 1997, available at www.uncitral.org/pdf/english/texts/insolven/insolvency-e.pdf.

42 11 U.S.C. § 1520.

43 In re TMT Procurement Corp., No. 13-33763 (MI) (Bankr. S.D. Tex. 20 June 2013). There are limits to a foreign-based company’s ability to seek Chapter 11 protection. See In re Yukos Oil Co., 321 B.R. 396,410-411 (Bankr. S.D. Tex. 2005) (bankruptcy court declines to exercise jurisdiction over Chapter 11 case of a Russian oil company seeking to use the automatic stay to prevent a foreclosure sale by the Russian government).

45 United States Department of Labor, Bureau of Labor Statistics, Labor Force Statistics from the Current Population Survey, available at http://data.bls.gov/timeseries/LNS14000000.

46 Federal Reserve Board, New Securities Issues, US Corporations, available at
www.federalreserve.gov/econresdata/releases/corpsecure/current.htm.

47 Id.

48 United States Department of Treasury, Daily Yield Curve Rates, available at
www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldYear&year=2015.

49 Kate Davidson, ‘Janet Yellen Says the Fed Could Raise Rates ‘in the Coming Months’’, The Wall Street Journal (2 June 2016 10.28 a.m.), available at www.wsj.com/articles/janet-yellen-says-fed-could-raise-rates-in-the-coming-months-1464372155?mod=trending_now_10.

50 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2015 (last accessed 2June 2016), available at http://dmi.thomsonreuters.com/Content/Files/ 4Q2015_Global_Equity_Capital_Markets_Review.pdf.

51 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2014 (last accessed 2 June 2016), available at http://dmi.thomsonreuters.com/Content/Files/4Q2014_Thomson_Reuters_Equity_Capital_Markets_Review.pdf.

52 Thomson Reuters, Global Equity Capital Markets Review: Full Year 2012 (last accessed 30 June 2015), available at http://dmi.thomsonreuters.com/Content/Files/4Q12_Thomson_Reuters_Equity_Capital_Markets_Review.pdf.

53 Id.

54 Moody’s Investor Services Announcement: Global spec-grade default rate almost doubled in 2015 and will rise in 2016 (13 January 2016), available at www.moodys.com/research/Moodys-Global-spec-grade-default-rate-almost-doubled-in-2015--PR_342302.

55 Moody’s Investor Services Announcement: Global spec-grade corporate default rate edged higher in third quarter (19 October 2015), available at www.moodys.com/research/Moodys-Global-spec-grade-corporate-default-rate-edged-higher-in--PR_336812.

56 Id.

57 Moody’s Investor Services Announcement: Global speculative-grade default rate rises to 2.3 per cent in first quarter (14 April 2015), available at www.moodys.com/research/Moodys-Global-speculative-grade-default-rate-rises-to-23-in--PR_322929.

58 Moody’s Investor Services Announcement: Global speculative-grade default rate continues to rise (8 March 2016), available at www.moodys.com/research/Moodys-Global-speculative-grade-default-rate-continues-to-rise--PR_345304.

59 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2016, available at www.uscourts.gov/statistics/table/f-2/bankruptcy-filings/2016/06/30.

60 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2015, available at www.uscourts.gov/statistics/table/f-2/bankruptcy-filings/2015/06/30.

61 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2010, available at www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2010/0610_f2.pdf.

62 New Generation Research, Inc., 2014 Corporate Bankruptcy Annual Report at 6, available at www.bankruptcydata.com/Research/2014 per cent20Corporate per cent20Bankruptcy per cent20Annual per cent20Report.pdf.

63 Id.

64 Nick Brown and Bill Cheung, Texas power company Energy Future files for bankruptcy, Reuters (29 April 2014 7:53 p.m.) available at www.reuters.com/article/2014/04/29/us-energyfuture- bankruptcy-idUSBREA3S0CP20140429.

65 Fraser Tennant, ‘Bankruptcy snapshot reveals US filings up 46 per cent in 2015,’ Financier Worldwide (26 January 2016), available at www.financierworldwide.com/fw-news/2016/1/26/bankruptcy-snapshot-reveals-us-filings-up-46-per cent-in-2015-with-energy-a-big-loser.

66 The Turnaround Letter, Largest Bankruptcies of 2015, available at www.turnaroundletter.com/largest-bankruptcies-this-year.

67 See End of Day Commodity Futures Price Quotes for Crude Oil WTI (NYMEX), available at www.nasdaq.com/markets/crude-oil.aspx?timeframe=2y.

68 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2016.

69 United States Courts, US Bankruptcy Courts – Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12-Month Period Ending 30 June 2015.

70 Chapter 11 Voluntary Petition Non-Individual, Case No. 16-40120 at 5, ECF No. 1 (Bankr. E.D. Mo. 1 November 2016).

71 Declaration of John T. Drexler, Senior Vice President and Chief Financial Officer of Arch Coal, Inc. in Support of Debtors Chapter 11 Proceedings and First-Day Pleadings, Case No. 16-40120 at 3, ECF No. 3 (Bankr. E.D. Mo. 1 November 2016).

72 Id. at 7-8.

73 Id. 15-18.

74 Id. At 21.

75 Peg Brickley, ‘Arch Coal in New Deal for Bankruptcy Exit Plan,’ The Wall Street Journal (5 July 2016), available at www.wsj.com/articles/arch-coal-in-new-deal-for-bankruptcy-exit-plan-1467732739.

76 Id.

77 Declaration of Phillip J. Cavatoni, Executive Vice President and Chief Financial and Strategy Officer of Alpha Natural Resources, Inc, in support of First Day Pleadings, Case No. 15-33896 (KRH), ECF No. 6 at 4-5 (Bankr. E.D. Va. 3 August 2015).

78 Id. at 5-6.

79 Linda Sandler, ‘Coal Miner Alpha Natural Resources Files for Bankruptcy,’ Bloomberg (3 August 2015), available at www.bloomberg.com/news/articles/2015-08-03/coal-miner-alpha-natural-resources-files-for-bankruptcy.

80 Heather Richards, ‘Contura acquires Wyoming assets after Alpha’s bankruptcy emergence,’ Casper Star Tribune (26 July 2016), available at http://trib.com/business/energy/contura-aquires-wyoming-assets-after-alpha-s-bankruptcy-emergence/article_a95a816f-312a-585d-8a92-55d05ec58001.html.

81 Declaration of Gary C. Evans in Support of First Day Pleadings, Case No. 15-12533 (KG) at 3-4, ECF No. 15 (Bankr. D. Del. 15 December 2015).

82 Id. at 17.

83 ‘Magnum Hunter Resources Corporation Receives Approval for Restructuring Plan,’ Market Wired (20 April 2016), available at www.marketwired.com/press-release/magnum-hunter-resources-corporation-receives-approval-for-restructuring-plan-otc-pink-mhrc-2116815.htm.

84 Declaration of Andrew Bruenjes, Chief Financial Officer of the Americas Division of Quiksilver, Inc. in Support of First Day Motion, Case No. 15-11880 (BLS) at 1-4, ECF No. 20 (Bankr. D. Del. 9 September 2015).

85 Id.

86 Id. at 9.

87 Id.at 14-15.

88 Steven Church ‘Quiksilver Files for Bankruptcy Protection in Delaware,’ Bloomberg (9 September 2015), available at www.bloomberg.com/news/articles/2015-09-09/quiksilver-files-for-bankruptcy-to-hand-control-to-oaktree.

89 Tom Corrigan, ‘Quiksilver Wins Court Approval to Exit Bankruptcy,’ Bloomberg (29 January 2016), available at www.wsj.com/articles/quiksilver-wins-court-approval-to-exit-bankruptcy-1454012044.

90 Declaration of Arden L. Walker, Jr., Chief Operating Officer of Linn Energy, LLC, in support of Chapter 11 petitions and first day motions, Case No. 16-60040 at 3, ECF No. 19 (Bankr. S.D. Tex. 11 May 2016).

91 Id. at 3-4.

92 Steven Church, ‘Linn Energy Files for Bankruptcy with Creditor Deal in Hand,’ Bloomberg (11 May 2016), available at www.bloomberg.com/news/articles/2016-05-11/linn-energy-files-for-bankruptcy-with-creditor-deal-in-hand.

93 737 F.3d 238 (2d Cir. 2013).

94 The 2014 Bankruptcy Yearbook and Almanac (see footnote 57, supra), at 16.

95 See Jon Hilsenrath, ‘Fed Keeps Rates Unchanged, Sees Eventual Rise in 2015, 2016’; see footnote 47, supra.

96 ‘Market Cap of U.S. Coal Companies Continues to Fall’ (23 march 2016), available at http://ieefa.org/market-cap-u-s-coal-companies-continues-fall.

97 Barbara Vergetis Lundin, ‘More major oil and gas bankruptcies’ (16 May 2016), available at www.smartgridnews.com/story/more-major-oil-and-gas-bankruptcies/2016-05-16.

98 Lynn Cook, ‘Despite Optimism, Oil Firms Keep Cutting Jobs,’ (22 July 2016), available at www.wsj.com/articles/despite-optimism-oil-firms-keep-cutting-jobs-1469209897.

99 Aaron Kuriloff, ‘U.S. Stocks Slip on Lower Oil Prices’ (25 July 2016), available at www.wsj.com/articles/global-stocks-mostly-flat-ahead-of-central-bank-moves-1469433804.

100 Lynn Cook, ‘Despite Optimism, Oil Firms Keep Cutting Jobs,’ (22 July 2016), available at www.wsj.com/articles/despite-optimism-oil-firms-keep-cutting-jobs-1469209897.

101 ‘So far, 2016 is a boom year for retail bankruptcies,’ PYMNTS (5 May 2016), available at www.pymnts.com/news/risk-management/2016/chapter-11-retail-bankruptcy-debt-
restructuring/.

102 J.D. Heyes, ‘Retail Tsunami of bankruptcies and closings now sweeping America,’ Natural News (24 April 2014), available at www.naturalnews.com/044840_retail_tsunami_bankruptcies_store_closings.html.

103 Treacy Reynolds, ‘National Retail Federation Upgrades 2016 Economic Forecast,’ National Retail Federation (26 July 2016), available at https://nrf.com/media/press-releases/national-retail-federation-upgrades-2016-economic-forecast.

104 Aaron A. Boschee, ’The Second Circuit’s General Motors Decision Defines Limits to ‘Free and Clear’ Sales,’ The National Law Review (14 July 2016), available at www.natlawreview.com/article/second-circuit-s-general-motors-decision-defines-limits-to-free-and-clear-sales.

105 Id.

106 In re DBSD North America, Inc., 634 F.3d 79 (2d Cir. 2011).

107 In re ICL Holding Company, Inc., No. 14-2709 (3d Cir. 2015).

108 478 F.3d 452 (2d Cir. 2007).

109 In Matter of AWECO Inc., 725 F.2d 293 (5th Cir. 1984).