On Wednesday, February 23, just after 5:00 p.m., Belk, Inc. – a North Carolina-based department store chain – and its affiliates filed voluntary petitions under Chapter 11 of the Bankruptcy Code. Less than 24 hours later, Bankruptcy Judge Marvin Isgur of the United States Bankruptcy Court for the Southern District of Texas entered an order confirming Belk's Chapter 11 plan. As a result, Belk "has received $225 million of new capital, significantly reduced its debt by approximately $450 million and extended maturities on all term loans to July 2025."1 Critically, the plan leaves all unsecured creditors unimpaired.
What was once little more than fodder for small talk and theorizing over drinks at ABI – a prepackaged bankruptcy concluded in a single day – has recently become more than a mere curiosity among restructuring professionals. Given the potentially significant reduction in administrative expenses that a one-day debtor can realize relative to a 60- or 90-day stay in bankruptcy (let alone a more traditional Chapter 11 case that can take many months or even years), this option may begin to receive more serious consideration from restructuring professionals and distressed companies. But make no mistake: the one-day bankruptcy is still a rarity. There are only a handful of examples, and for many debtors it is not an option. The Belk case, however, which has been called "the fastest case in modern bankruptcy history,"2 does reaffirm the possibility, provided certain key conditions are present. We posit a few of those here:
- Broad Creditor Support. It's not terribly insightful, but no less essential, to observe that no pre-packaged bankruptcy case can hope to win confirmation quickly, let alone in a single day, without broad creditor support. In Belk's case, 99% of the First Lien Term Loan Claims and 100% of the Second Lien Term Loan Claims – the creditors absorbing that $450 million debt reduction – supported the plan. Even a small minority of dissenting holders could have jeopardized the Debtors' plans: valuation fights and disputes over feasibility, to give just two examples among dozens of possible hurdles, are unlikely to be resolved on such an accelerated timeline.
- Protecting Trade. Bankruptcy judges are often and understandably the most protective of "the little guy" – the trade creditor who might not focus on or understand the significance of a notice from a faraway Bankruptcy Court. Leaving trade creditors unimpaired, while not legally required, is an essential pragmatic consideration. It not only frees the debtor from the pre-bankruptcy solicitation of potentially thousands of creditors, it allows the debtor to assure the Bankruptcy Court that ordinary trade creditors – vendors, current and former employees, customers – will not be affected by a financial restructuring carried out by sophisticated investors.
- Due Process. In the same manner that leaving ordinary trade creditors unimpaired may help alleviate concerns from the Bankruptcy Court, a debtor seeking to conclude its case quickly must satisfy the Court that the due process rights of all parties affected by the filing will be protected. In Belk's case, this was clearly Judge Isgur's most significant and singular concern. To resolve his concerns, he arrived at Wednesday's hearing with a draft "Due Process Preservation Order," that he prepared before taking the bench.3 The order ensures that, among other things, affected creditors have access to the Bankruptcy Court or another court of competent jurisdiction in the event of any dispute over their claim, provides a mechanism for creditors to opt out of the releases set forth in the plan, and ensures that the exculpation provisions of the plan do not go beyond what is permitted under Fifth Circuit law.
- Time. As any restructuring professional can tell you, Belk's case wasn't really a one-day bankruptcy case at all. It is true that less than 24 hours elapsed between the filing of the petition and the confirmation of the plan, but it no doubt required many months of work before the filing to achieve that all-important consensus. Potential debtors who face more exigent circumstances – an adverse judgment in litigation, enforcement by secured creditors, or insufficient liquidity, etc. – may not have the luxury of time to build the necessary consensus and set the stage for such a rapid Chapter 11 case.
These are hardly the only ingredients for a successful one-day prepack, but without any one of the foregoing, it is unlikely that Belk would have achieved confirmation so quickly. We will continue to watch this nascent trend to determine if it becomes more common or remains the rare exception to the rule.
1. "Belk Successfully Completes Pre-Packaged, One-Day Financial Restructuring with Backing of Majority Owner Sycamore Partners and Lenders Including KKR Credit and Blackstone Credit." (Company press release. February 24, 2021). (Available at: https://newsroom.belk.com/2021-02-24-Belk-Successfully-Completes-Pre-Packaged-One-Day-Financial-Restructuring-with-Backing-of-Majority-Owner-Sycamore-Partners-and-Lenders-Including-KKR-Credit-and-Blackstone-Credit).
2. "A One-Day Ch. 11 Turnaround? Belk Shows It Can Be Done," by Vince Sullivan, Law360 (March 2, 2021) (Available at: https://www.law360.com/bankruptcy/articles/1359420/a-one-day-ch-11-turnaround-belk-shows-it-can-be-done).
3. "Due Process Preservation Order," In re: Belk, Inc., Case No. 21-30630 (February 24, 2021)(ECF No. 62). Judge Isgur's thoughtful protection of due process rights in a manner that did not slow down the process – he drafted the order sua sponte overnight – reflects the creativity and flexibility that one-day debtors may need from bankruptcy judges in order to achieve their goals.
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