Just after 5:00 p.m. Central Time on February 23, 2021, Belk, Inc. and its affiliates filed chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of Texas, along with a proposed "prepackaged" plan of reorganization. Before midnight, the US Trustee objected to Belk's plan, and, by 8:00 a.m. the next day, the parties were in court to decide plan confirmation. Two hours later, Bankruptcy Judge Marvin Isgur confirmed the plan, and it became effective that afternoon, just 20 hours after the Chapter 11 cases were filed. Typically, chapter 11 debtors take many months, if not longer, to confirm a plan, and even prepackaged bankruptcy cases like Belk's often take several weeks from filing to confirmation. As we discuss in this post, Belk's swift bankruptcy case is part of a growing trend of bankruptcy courts confirming chapter 11 plans shortly after case filing where there is adequate notice and creditor buy-in prior to the filing.
Belk is, according to court filings, the nation's largest private department store chain, with 291 stores concentrated in the southeastern United States and approximately 17,000 employees.1 Like so many other retailers, Belk was trying to adapt to changing consumer patterns when the COVID-19 pandemic further hampered prospects for brick-and-mortar retailers. For Belk, this meant further strain on its liquidity to cover existing debt and operating expenses, so it needed a long-term solution before money ran out entirely.
Much like the 24-hour Sungard bankruptcy we previously discussed here, the success of Belk's plan was the product of extensive pre-bankruptcy planning and negotiation. Seeing its imminent financing needs, Belk negotiated with its equity sponsor, existing lenders, and new lenders, and, in January 2021, its efforts culminated with the execution of a restructuring support agreement ("RSA") among Belk, its equity sponsor, and the holders of nearly 100% of Belk's outstanding first- and second-lien term loan debt. Under the RSA, $225 million in new financing would be provided by Belk's equity sponsor and others and much of Belk's term loan debt would be eliminated or converted to equity, resulting in a net reduction to Belk's funded debt of about $450 million. Meanwhile, Belk's ABL facility would be reinstated or refinanced, claims of unsecured creditors would be fully paid, and Belk's equity sponsor would retain majority control over the company. But there was a catch: the RSA required both that Belk commence its chapter 11 case and that the court confirm its plan of reorganization on or before February 24, 2021.
With the RSA in hand, Belk provided notice to more than 90,000 potential creditors, using what Judge Isgur described as a "best-in-class" effort to ensure that all interested parties were aware of the impending bankruptcy filing and financial restructuring. This pre-filing notice process was essential, as even if the debtor didn't need additional votes to secure plan confirmation, constitutional due process requirements needed to be satisfied, such that creditors and other interested parties would be able to assert and protect any rights before the bankruptcy court took final action on the proposed plan.
A month after the RSA was executed and further support for the plan was garnered, Belk filed its chapter 11 petitions, its proposed chapter 11 plan, and a request to expedite confirmation of the plan. Within hours, the US Trustee objected to the plan on the basis that the expedited process deprived interested parties of due process, that the third-party releases under the plan were not truly consensual, that the exculpation provisions went beyond what was permitted under applicable Fifth Circuit law, and that counterparties to leases and executory contracts had not had sufficient time to contest the plan's purported assumption and assignment of their agreements.
Notwithstanding the US Trustee's objections, Judge Isgur confirmed Belk's plan of reorganization on the morning of February 24. To alleviate the US Trustee's concerns, as well as overarching concerns about the fairness of the rapid process, Judge Isgur conditioned his confirmation of the plan on a separate "Due Process Preservation Order."2 Under that order, parties were given approximately a month to opt-out of the releases contained in the plan and confirmation order, to object to the plan or confirmation order (provided that an objector could establish harm caused by denial of the opportunity to assert its rights), or to contest the terms of the assumption or assignment of any executory contracts or unexpired releases. Further, the plan's exculpation provisions were expressly limited to the extent permitted under governing law.3 Importantly, the Due Process Preservation Order prevails in the event of any conflict between its terms and the terms of the confirmation order.
With the quick confirmation of Belk's plan of reorganization and its immediate emergence, Belk has reduced its funded debt and improved its liquidity while avoiding the significant expense and uncertainty of protracted bankruptcy proceedings. The Belk chapter 11 case reflects the continued trend of ever-faster confirmation of prepackaged chapter 11 plans, provided there is sufficient creditor support in advance of the filing. And, while this is not the first rapid confirmation in the Southern District of Texas4, it demonstrates that an increasing number of jurisdictions are willing to fast-track commercial bankruptcy cases under the right circumstances.
1. Declaration of William Langley, Chief Financial Officer of Belk, Inc., In Support of Chapter 11 Petitions and First Day Motions, ECF No. 8, In re Belk, Inc., et al., No. 21-30630 (MI) (Bankr. S.D. Tex. Feb. 23, 2021).
2. Due Process Preservation Order, ECF No. 62, In re Belk, Inc., et al., No. 21-30630 (MI) (Bankr. S.D. Tex. Feb. 24, 2021).
3. See In re Pac. Lumber Co., 584 F.3d 229 (5th Cir. 2009) (limiting non-debtor releases to a creditor's committee and its members).
4. For example, the Mood Media chapter 11 case was filed on July 30, 2020, and the prepackaged plan of reorganization was confirmed the next day. In re Mood Media Corp. et al., No. 20-33768 (MI) (Bankr. S.D. Tex.).
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