The corporate bankruptcy practice faced some headwinds in 2024, including higher interest rates, an unsettled political environment and the judicial romance scandal that rocked the complex bankruptcy panel in the Southern District of Texas.
But the world of business restructuring found its balance in the second half of 2024, which led to the Northern District of Texas seeing its corporate bankruptcy docket jump 140 percent year-over-year and the Southern District bounce back to nearly reach its 2023 caseloads.
The Texas Lawbook talked with Haynes Boone corporate bankruptcy and restructuring partner Ian Peck about trends in the world of complex business Chapter 11s in Texas.
Texas Lawbook: In the past three months, we have seen some big filings — J&J, CareMax, Vroom, WellPath, Vertex Energy and now Stoli’s. Why do you think we have seen a spike in business Chapter 11s?
Ian Peck: The timing of some of these filings is coincidental and tied to unique challenges that the companies are currently tackling — J&J, for example. Others are facing tough new post-pandemic norms, including inflation, decreased customer demand in certain segments, increased labor cost and new competition. Higher costs of goods and services coupled with continued interest rate pressure have also added strain to struggling businesses.
Lawbook: How busy has your bankruptcy practice been compared to one year ago?
Peck: 2023 was the busiest year in our restructuring team’s history, even surpassing the tidal wave of projects during the early stages of the pandemic. Then, after a slow start in early 2024, activity consistently began to build. Business filings from mid-2023 to mid-2024 were up significantly over the previous 12-month period. More importantly, larger cases (those with over $1 billion in assets) are at their highest level since the pandemic. Heading into 2025, the need for restructuring advice, both in and out of court, is on the upswing, and we are definitely feeling the burn.
One interesting trend is the rise in prepackaged and pre-negotiated Chapter 11 cases, and I expect we may see many more speedy trips through Chapter 11 during 2025.
Lawbook: Obviously, one year ago, we all worried about the viability of the SDTX after the Judge Jones scandal. What was your thinking back then about companies and firms’ willingness to file in SDTX (obviously there was a drop off for a few months with Kirkland filing no cases), but what do you think the analysis was for firms to start filing in SDTX again?
Peck: Despite the challenges that the Southern District of Texas faced last year, the “state of the union” of the Southern District is incredibly strong. With the appointment of Judge Alfredo Pérez by the Fifth Circuit, and the dynamic duo of Judge [Christopher] López and Judge Pérez on the complex case panel, the jurisdiction has moved on. Debtors facing the prospect of a complex Chapter 11 case observe the efficient, consistent manner in which these judges tackle complicated situations and like what they see. I expect the Southern District will be an active venue for years to come.
Lawbook: What are the major considerations now for law firms and debtors in deciding whether to file in NDTX, SDTX, Delaware or New Jersey?
Peck: The venue decision is a complicated one for Chapter 11 debtors. Often, lawyers advise clients to file in a jurisdiction where case law is favorable on legal issues relevant to the case at hand, such as the standard applied in the jurisdiction to third-party releases or the court’s view of mass tort strategies, such as the controversial “Texas Two-Step.” In addition, each of the popular jurisdictions that you mention has its unique strengths. For example, in the Northern District of Texas, each and every one of the five judges serving Dallas-Fort Worth worked on large, complex Chapter 11 matters before taking the bench, so they are uniformly adept at tackling the most complicated issues in Chapter 11 issues. All things being equal, Chapter 11 debtors generally desire a forum where they can address their debt efficiently and avoid surprises from the bench.
Lawbook: What are the trends regarding kinds of restructurings, business sectors (energy, restaurants, etc.) that you are seeing out there?
Peck: Many retailers, particularly in the discount space and home goods space, continue to struggle. It will be interesting to watch for potential filings in Q1 of 2025 following the conclusion of the holiday season — the most sluggish time of the year for these industries. Additionally, while some segments of the restaurant space are growing, other segments, including many focused on low-cost meals, are struggling to keep customers as rising food and labor costs result in increased customer pricing. Other areas showing elevated signs of distress include healthcare, real estate and various service businesses.
Lawbook: What are you seeing for 2025?
Peck: Conditions seem ripe for substantial restructuring activity during 2025. One indicator for this prediction is the stark increase in liability management transactions during 2024, many of which may result in bankruptcy filings next year. Also, there is a significant debt maturity wall in 2025, most notably in the commercial real estate space. There is an estimated $1.5 trillion of commercial real estate debt maturing in 2025. Many experts believe a meaningful amount of this debt will be difficult to refinance. In today’s world of remote work and online shopping, owners of commercial real estate need to collaborate with their lenders now more than ever.