the ‘chaos’ coming for chapter | USAEMALL.com

One Larry Fink op-ed to start: BlackRock’s Larry Fink is poised to soon close his $12.5bn acquisition of Global Infrastructure Partners. In an FT op-ed, he explains why he thinks private infrastructure investment can relieve massive debt burdens across the G7.

In today’s newsletter:

• ‘Chaos’: Supreme Court rules on Purdue

• Warning signs flash for leveraged loans

• VCs’ big bet on defence tech

Purdue’s Supreme Court decision upends US bankruptcy

The Supreme Court made waves in the US bankruptcy world on Thursday, with a ruling that upended a deal struck between Purdue Pharma’s owners — the Sackler family — and opioid victims.

The decision nullifies the keystone of the deal: in exchange for $6bn, the Sackler family would be shielded from future lawsuits.

The majority of the court thought that deal was bogus — you can’t get the benefits of bankruptcy without filing for bankruptcy yourself.

“Nothing in present law authorises the Sackler discharge,” Justice Neil Gorsuch wrote in the majority opinion, in which he was joined by Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson.

For months, all eyes in the restructuring world (well, especially lawyers) have been waiting anxiously for the decision in the case.

Upturning “non-consensual” third-party releases, as the court ended up doing, would mean months of trying to rehash deals that had taken ages to reach in the first place.

“There’s going to be chaos until parties figure out how to address the linchpin issue,” said Samir Parikh, a law professor at Wake Forest University, referring to the consequences of ending the practice of non-consensual releases in Chapter 11 bankruptcies.

The majority of opioid victims in the Purdue case actually were in favour of upholding the releases. They were exhausted by the legal process, and wanted monetary retribution.

It’s not just Big Pharma executives and family owners who are going to feel the effects of the ruling.

Third-party releases have become a common feature of many messy restructuring cases — private equity firms accused of fraudulent conveyance, for example, could contribute to a settlement and then be let off the hook for future lawsuits.

In many ways, it was a silver bullet. But legal experts say bankruptcy’s benefits in granting protection from liabilities may not be over just yet.

The high court stressed that its decision was a “narrow one”. It doesn’t question the use of consensual third-party releases — or similar agreements where every creditor agrees to the plan. (In Purdue, a small minority was against them.)

“The big brains of the bankruptcy bar are going to be thinking about how to do that, in a matter that’s consistent with this ruling,” said Daniel Shamah, a law partner at Cooley who specialises in restructuring.

Warning signs flash for private equity in the leveraged loan market

Leveraged loans are a hallmark of the private equity industry.

About 73 per cent of these loans — which are for riskier borrowers — are extended to companies owned by buyout groups.

But a report out from the Bank of England on Thursday shows there might be problems brewing for those loans, and in turn, for the private equity sector at large, DD’s Ortenca Aliaj reports.

Defaults on leveraged loans have surged 250 per cent since early 2022, from 2 per cent to about 7 per cent, according to the report, which is put out twice a year.

That is still way off from the peak of 12 per cent reached after the financial crisis, but the increase adds to pre-existing concerns regulators already have about an industry that heavily relies on debt.

The BoE seems concerned that institutions that cater to the private equity industry, namely banks, are not taking these risks seriously. The UK central bank said any turbulence in private equity could spill over to the rest of the economy.

And as we laid out yesterday, the sector has become an ever-important piece of the UK financial landscape, employing 10 per cent of workers.

“The global banking system has significant exposure to PE activity. Such exposures could lead to credit losses for banks,” said the report, which looks at the health of the UK economy as well as what the BoE considers to be the main risks.

The central bank also said private equity has played a “significant role” in funding UK companies. Businesses owned by the buyout groups make up about 5 per cent of the country’s private sector revenues.

“But there is growing unease about the use of clever financial engineering by private equity funds that allows them to free up cash without selling or listing the underlying businesses while piling on more debt. Layers of leverage expose lenders to risks at the portfolio company level, at the fund level, and at end-investor level,” it said.

And there’s increased borrowing in other corners of the economy. The report also said hedge fund leverage has hit a four-year high, particularly among firms that trade in US Treasuries.

Fixed-income, relative-value strategies are particularly levered up, making them vulnerable if repo markets tighten or other firms quickly unwind positions.

The central bank report is another factor for voters to weigh as they head to the polls on July 4 for the UK’s election, with private equity and their executives’ “carried interest” tax benefit one of the biggest issues — at least for the financial world — at stake.

VCs play offence with big bet on defence

The venture capital industry is desperately searching for new sectors where it can invest some of the billions in funds it has raised.

Outside of the red-hot artificial intelligence market, it’s been slow.

But there does seem to be one other bright spot: the burgeoning field of defence technology.

The latest mega-deal was revealed on Thursday by the FT: Silicon Valley VCs including Accel and Lightspeed Venture Partners are set to participate in an almost $500mn fundraising round for the European defence tech group Helsing at a $4.5bn valuation — triple its previous level in just nine months.

Accel, an early backer of Facebook and Spotify, has not previously invested in a defence tech company. Lightspeed is also joining Helsing as a new investor while existing backer General Catalyst is likely to join the round.

Founded in 2021, Helsing specialises in AI-based software for defence. For example, the company’s software is being used to develop AI capabilities for drones in Ukraine.

It’s one of Europe’s most highly valued start-ups, but still smaller than the likes of the US entrepreneur Palmer Luckey’s Anduril Industries. Anduril is set to close a $1.5bn fundraising round next month from investors including Peter Thiel’s Founders Fund at a $12.5bn valuation.

Helsing’s rise mirrors the increase in European defence spending, and comes alongside Nato’s move to begin investing into start-ups out of its own €1bn “innovation fund”.

After ill-fated booms in areas such as crypto investment and scooters, VCs will hope their latest strategy is bulletproof.

Job moves

• Hakluyt has promoted Sir Olly Robbins to its partnership. The former senior UK civil servant has led coverage of corporate clients across Emea since joining the company in 2023 from Goldman Sachs. 

• Freshfields has hired Steven Matays as a tax partner in New York. He previously worked for Skadden. 

• Goldman Sachs has hired Darius Adamczyk as chair of private asset investments, Bloomberg reports. He was previously the chief executive of Honeywell.

• Blue Owl has hired Antonia O’Connor as managing director and credit product specialist in London. She previously worked at Magnetar Financial. The company also hired Johan Stromberg as managing director to lead institutional business development for Nordic countries. He joins from Arcmont Asset Management.

• Valley Capital Partners has hired Stephen Wong as a managing partner, Bloomberg reports. He joins from Goldman Sachs, where he was formerly the chair of Hong Kong investment banking and co-head of real estate for Asia.

• Apollo Global Management has hired Nino Cordoves for its credit unit, tasking him with building out the firm’s business with rival alternative asset managers. He was previously head of origination and sponsor coverage for Carlyle’s direct lending business.

Smart reads

Laundering network There’s a new global network — spanning from China to Mexico — of crime groups fuelling the fentanyl crisis, the FT investigates.

Newspaper in crisis The real story of the tumult engulfing The Washington Post doesn’t start with its new chief Will Lewis, The Atlantic writes. It begins with the newspaper’s absent billionaire owner: Jeff Bezos.

Star cooperator Gery Shalon worked with the FBI in its investigation into the infamous JPMorgan hack. But new evidence suggests he was running another massive fraud at the same time, Bloomberg reports.

News round-up

UBS shakes up wealth business to align more closely with investment bank (FT)

North Sea tax regime as complex as a ‘war zone’, warns oil group (FT)

Tata Steel threatens to shut Port Talbot blast furnaces early over strikes (FT)

‘Let’s not go overboard’ on worries about AI energy use, Bill Gates says (FT)

US regulators sanction Boeing over disclosures about door panel inquiry (FT)