FedNat files for Chapter 11 bankruptcy protection

BY Fraser Tennant

Three months after the liquidation of FedNat Insurance Company, regional insurance holding company FedNat and certain of its wholly-owned subsidiaries have filed for Chapter 11 bankruptcy.

The Florida-based FedNat filed for bankruptcy after an increase in severe weather events in the state weighed on its balance sheet. In 2021, catastrophe losses cost FedNat $800m on a gross basis, although reinsurance and other recoveries reduced that loss to $86m, according to bankruptcy court papers.

Listing $33.8m of assets and $171m of debts in its petition in the United States Bankruptcy Court for the Southern District of Florida, FedNat’s bankruptcy filing underscores Florida’s deepening home insurance crisis, where average premiums are nearly triple the national average.

As an industry, the Florida property insurance industry lost over $1.6bn in 2020 and over $1.5bn in 2021, thanks to losses from catastrophes, higher reinsurance costs and litigation abuse. In addition, at least five other Florida insurers have been put into receivership by the state’s regulator in 2022.

As part of the Chapter 11 process, the company has stated that it will evaluate all strategic alternatives to maximise value for stakeholders, whether that be a reorganisation of its business or a sale of its assets.

FedNat has approximately $6.5m of cash on hand, which will provide liquidity to support day to day operations during the Chapter 11 process, enabling the company to operate business uninterrupted, including the timely payment of employee wages and benefits and continued servicing of customers.

Additionally, the company will file customary “First Day” motions to allow it to maintain operations in the ordinary course. The company intends to pay its employees in the usual manner and continue their primary benefits and certain customer programmes without disruption.

FedNat expects to receive court approval for all these routine requests.

To manage the restructuring process, FedNat has engaged GGG Partners, LLC as financial advisers and Nelson Mullins Riley & Scarborough LLP as legal advisers.

FedNat is an insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through its subsidiaries, equity investments and contractual relationships with independent agents and general agents.

News: Three Months After Liquidation, FedNat Holding Co. Files Chapter 11 Bankruptcy

Cryptocurrency exchange FTX files for Chapter 11 protection

BY Richard Summerfield

Cryptocurrency exchange FTX has filed for Chapter 11 bankruptcy protection in the district of Delaware, the company said in a statement on Twitter. In addition to FTX, its affiliated crypto trading firm Alameda Research and about 130 of its other companies are also included in the filing.

In addition, the company’s founder Sam Bankman-Fried resigned has chief executive, but will “remain to assist in an orderly transition”, the company said. John J. Ray III has been named the company’s new chief executive. Mr Ray said bankruptcy protection will give FTX the chance to “assess its situation and develop a process to maximize recoveries for stakeholders”.

The company’s collapse came shortly after rival cryptocurrency exchange Binance walked away from a proposed acquisition of FTX, a move which left the company scrambling to raise about $9.4bn from investors and rivals amid a rush of customers withdrawing funds from the exchange.

FTX, a top five cryptocurrency exchange before its implosion, is reported by the Financial Times to have $9bn of liabilities and $900m in liquid assets.

The collapse of the company will likely have repercussions for the wider crypto industry, with growing calls for greater regulation of the space.        

FTX’s collapse has been as fast as it has shocking. Last week, crypto news website CoinDesk published an article based on a leaked financial document from Mr Bankman-Fried’s hedge fund, Alameda Research, which suggested that Alameda’s business was on unsure financial footing; namely, that the bulk of its assets are held in FTT, a digital token minted by Alameda’s sister firm, FTX. This was alarming for investors, as the companies were, on paper at least, separate. Alameda’s disproportionate holdings of the token, however, suggested the two were much more closely linked. Binance then announced it was liquidating $580m worth of FTX holdings, a move which sparked a rush of drawdowns that FTX did not have the cash to facilitate.

There will be implications for investor groups, such as the Ontario Teachers’ Pension Plan, which said it invested $95m in both FTX International and its US entity “to gain small-scale exposure to an emerging area in the financial technology sector”. In a statement Thursday, the plan noted that any loss on its investment would have “limited impact” as it represents less than 0.05 percent of its total net assets.

The collapse of the company will also be felt elsewhere in the crypto space. FTX, prior to its filing, had performed a lender-of-last-resort role for crypto firms that were struggling after a marked decline in the digital asset market since November last year – a period over which the collective value of crypto assets fell from $3 trillion to less than $1 trillion.

News: FTX to file for U.S. bankruptcy protection, CEO Bankman-Fried resigns

Once again Galeria Karstadt Kaufhof files for insolvency

BY Richard Summerfield

German department store chain Galeria Karstadt Kaufhof has filed for insolvency for the second time in the last two years.

The company, the last major German department store group still in operation, has announced plans to close more than 40 of its 131 remaining branches. The announcement was made by the group’s chief executive Miguel Müllenbach, in an interview with German newspaper Frankfurter Allgemeine Zeitung (FAZ).

Mr Müllenbach noted that to save the company, the number of its branches had to be “cut by at least a third” and that compulsory redundancies would be inevitable. In a letter to the group’s employees, Mr Müllenbach explained that the company needs to divest itself of branches that, given the slowdown in consumption and rising inflation and energy costs, “would no longer be able to operate profitably in the near future”. This is the only way to avoid the group’s total financial collapse. Galeria currently employs 17,000 people and operates across 97 German cities.

Prior to its insolvency filing, the company had negotiated with the federal government for additional financial assistance, on top of the €680m it had already received.

The company will file for what is known in Germany as protective administrative insolvency, Germany’s equivalent of the US Chapter 11 proceedings. Galeria filed for this kind of insolvency back in April 2020, at the beginning of the coronavirus (COVID-19) pandemic. As a result of this first filing, the company was forgiven more than €2bn worth of debt and 4000 jobs were lost. Galeria’s struggles predated the pandemic, however. In 2019, the company recorded losses of €78m. The company was acquired that year by Austrian real estate company, Signa, for an estimated €1bn.

After the 2020 filing, around 40 locations were closed. Other stores were renovated though and the original restructuring plan was to completely remodel 50 to 60 of the remaining department stores, bringing them back to profitability.

The size of Galeria’s chain of stores has been deemed unsustainable. According to German real estate weekly Immobilienzeitung, only 30 of Galeria’s 131 branches have reassuring prospects.

The company has enjoyed strong support from the German state. Galeria has received in excess of €680m from the government, which argued that the company’s stores have an important place in city centres. However, there is some doubt as to whether the company could be saved with government help – and whether this is even desirable given the current economic climate.

News: Galeria Karstadt Kaufhof Files for Second Insolvency, Inside Two Years

Vital Pharmaceuticals files for Chapter 11 protection

BY Richard Summerfield

Vital Pharmaceuticals (VPX) – the manufacturer behind the Bang Energy drinks brand – has filed for Chapter 11 bankruptcy protection in the Southern District of Florida, a move it claimed would allow it to reorganise and regain market share from domestic rivals.

VPX’s restructuring efforts are being supported by $100m of additional financing from the company’s syndicate lenders to help ensure operations continue uninterrupted during the restructuring process.

“We are excited about our future, and particularly the new distribution system that we have spent the better part of this year assembling,” said Jack Owoc, chief executive and founder of VPX. “Utilizing our new state-of-the-art decentralized direct store distribution (DSD) will allow Bang Energy to get back to our pre-Pepsi meteoric annual success of several hundred percent year over year growth.

“The primary objective of our new DSD network is to regain the massive market share we earned prior to Pepsi and continue to achieve double digit growth and progress vigorously beyond 20% market share in energy drinks,” he continued. “Bang Energy’s new DSD network will launch nationwide and be closer to 100% as it officially completes its exit from the Pepsi relationship this month. This will be a comprehensive transition with no impact to product availability.”

VPX has endured a difficult period of late. Recently, the company lost a lawsuit against Monster Beverage Corp. In September, the company was ordered to pay Monster nearly $293m for interfering with its rival’s dealings with retailers and falsely advertising the mental and physical benefits of Bang drinks. The filing brings Monster’s lawsuit against VPX to an immediate halt.

The brand was previously distributed by the carbonated soft drinks (CSD) giant PepsiCo, until a disagreement between the two companies ended with Mr Owoc claiming PepsiCo “engaged in a premeditated plan to destroy Bang from day one”. PepsiCo has since bought into another energy drinks company, Celsius Holdings.

Immediately prior to VPX switching to Pepsi in early 2020, Bang’s share of the energy drink market was roughly 9.7 percent. Under Pepsi’s distribution, roughly 3.4 percent of that market share was lost. At $200m per share point, that equates to $680 million in today’s energy drink market, according to a VPX statement. Bang Energy’s newly orchestrated and soon-to-launch direct DSD network currently covers nearly 95 percent of the US market.

In August, speculation was rife that another CSD company – Keurig Dr Pepper (KDP) – was in talks to buy the VPX, with a deal worth $2-3bn being suggested in the press. Mr Owoc later confirmed no deal was in the pipeline, adding he “would never sell Bang Energy” for that amount.

News: VPX Seeks Chapter 11 Protection as It Transitions to World Class Distribution Network

Carestream Health files for Chapter 11 bankruptcy protection

BY Richard Summerfield

X-ray and medical imaging company Carestream Health has announced that it has voluntarily filed for reorganisation under Chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the District of Delaware.

The company, founded by Eastman Kodak Co, filed for bankruptcy protection with a lender-backed proposal which would cut its debt by $470m. Under the terms of the proposal, there will be a total debt reduction of $250m more than the company’s previously announced recapitalisation agreement. This process will significantly strengthen Carestream’s balance sheet and position the company for continued success.

“We are commencing the final stage of our recapitalization process, which will significantly enhance our ability to navigate a dynamic market,” said David C. Westgate, chairman, president and chief executive of Carestream. “Since announcing our recapitalization process in April, our lenders have remained overwhelmingly supportive, and we have worked constructively with them to complete the transaction. As our talks evolved, we determined the best course of action was to implement the agreement through an expedited court-supervised process.

“With a clear path to completion, we expect to emerge from this process as a stronger partner to our customers, with significantly reduced debt and new owners who also continue to believe in the future of Carestream. Carestream has strong market opportunities ahead. I am confident in the strength of our core business and our ability to maintain market leadership moving forward,” he added.

According to a statement announcing the filing, Carestream expects to continue operating normally throughout the court-supervised process and remains focused on serving its customers and working with suppliers on normal terms. Carestream expects to move through the Chapter 11 process on an expedited basis and complete the recapitalisation in approximately 35-45 days.

Carestream has secured an $80m debtor-in-possession financing facility from some of its existing lenders to reinforce its liquidity and fund the costs of the Chapter 11 process. Carestream entities outside the US are not part of the Chapter 11 process and will continue operating as normal.

News: Medical imaging company Carestream Health files Chapter 11 bankruptcy