This post is a joint post by Hon. Judith K. Fitzgerald (ret.)[*] and Adam Levitin
Here we go again. Precisely one hour and thirty-nine minutes after the dismissal of the bankruptcy filing of LTL, Johnson & Johnson’s artificially created talc-liability subsidiary, the company was right back at it again with the filing of a new chapter 11 case in New Jersey, again assigned to Judge Kaplan.
It took some fast work from our friends at Jones Day to get a second complex chapter 11 case out the door, albeit without any schedules! With the filing came, inter alia, a declaration, a statement by the Debtor regarding its second filing, and a new Adversary Proceeding that seeks the same preliminary injunctive relief for the benefit of some 700 J&J affiliates and favored customers that was achieved in the first LTL case.
The new case is supposedly engineered to comply with the strictures of the Third Circuit’s decision dismissing the original filing for not being in good faith on account of the debtor not being in financial distress. To recall, LTL found itself hoist on its own petard before the Third Circuit, which noted that its assets included a $62 billion funding agreement, vitiating any claim of financial distress.
To this end, what has changed in LTL 2.0 is the design of the funding agreement. The funding agreement in LTL 1.0 was for up to $62 billion, and the funding was to come from both LTL’s HoldCo (New JJCI) and J&J. Now in LTL 2.0, the funding agreement is just from HoldCo, and it is for only $8.9 billion. There is a proposed backstop from J&J, but that will require bankruptcy court approval, so LTL claims that it is not part of the good faith analysis. LTL’s thinking is that Judge Kaplan previously found that the HoldCo (or at least its predecessor) was in financial distress, so it must be so now, particularly because in January of this year it transferred most of its assets—the entire J&J consumer business!—to the J&J parent. The idea is that the new funding agreemen tisn’t really so valuable, so LTL must be in financial distress.
There are (at least) three flies in J&J's ointment.