Monthly Archives: June 2021

As retail investors increase and find new opportunities in different financial markets, Los Angeles-based XCLAIM is hoping to bring the overlooked world of bankruptcy claims to the masses.

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The online marketplace for bankruptcy claims has closed a $6.6 million seed extension after launching its platform in the fall. The round was led by General Catalyst with participation from First Round Capital, Freestyle VC, Innovation Ventures, Luge Capital, Quiet Capital, Tribe Capital and strategic angels. Founded in 2018, the company has now raised $10.6 million.

XCLAIMs marketplace allows for both the buying and selling of bankruptcy claims. The theory behind buying a bankruptcy claim is that it eventually will be repaid, however the amount and timeline are uncertain. The uncertainty does create risk for the buyer, while the seller can receive a payout on the claim likely faster than waiting for the claim to be repaid.

Its a relatively hidden market, but it is huge, said Karim Gillani, general partner of Luge Capital. Its a market that is opaque to many.

The company has claims on the site ranging from $1,000 to $2 million and takes a one percent commission on each transaction to monetize the platform.

XCLAIM has managed to digitize the process of buying and selling claims through exclusive partnership agreements in place with five of the seven claim agencies that handle bankruptcies in the 94 federal courts, said founder and CEO Matthew Sedigh.

Sedigh sees the platform as a chance to bring more clarity to what is often a misunderstood process, and one that can now be open to more than just hedge funds and distressed asset investors combing through court records.

In the chase for better yield, people are turning to more alternative asset classes, he said.

The site currently lists more than 2 million creditors with claims of $3.5 trillion of unsecured debts and since launching trading volumes on the site have surpassed $20 million.

This is not the first time a company has tried to digitize the bankruptcy claim market. About a decade ago, SecondMarket which primarily tried to help employees at startups sell shares of private companies also attempted to buy and sell claims, Sedigh said. However, the company did not have integrations in place with claim agencies to keep supply up, Sedigh said.

Sedigh added that when the stock market became digitized in the 1990s, trading exploded. Something similar is happening currently in the bond market as companies such as MarketAxess and Tradeweb have taken it into the twenty-first century.

XCLAIM can have a similar effect on bankruptcy claims, he believes.

We look at ourselves as the NASDAQ of receivables, he said.

With a large and seemingly open market, Gillani said Luge was excited to invest.

When we did our due diligence, it was hard to find a comparable, he said. Its just such a hidden market. The average person on the street does not know bankruptcy claims can even be traded.

Illustration: Li-Anne Dias.

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Exclusive: XCLAIM Raises $6.6M To Democratize The World Of Bankruptcy Claims - Crunchbase News

A Hertz car rental location in Silver Spring, Md. Kristoffer Tripplaar/Sipa USA via AP

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Hertz Global Holdings is set to emerge from bankruptcy this week at a perfect time. And shareholders stand to gain.

The rental-car industry is capitalizing on both a domestic travel surge and a vehicle shortage this summer to raise prices. Vacationers are paying $275 a day or more for midsize sport utility vehicles from Hertz in popular locations and $100-a-day rentals are common, double what Hertz was getting in the first quarter. Used-car prices, meanwhile, have surged, benefiting the industry when they sell their fleets.

The rental-car market is on fire, and the companies have found pricing discipline, says Hamzah Mazari, an analyst at Jefferies. What used to be a dysfunctional oligopoly is now functional. Hertz (ticker: HTZGQ), Avis Budget Group (CAR), and privately owned Enterprise control about 95% of the domestic market.

The way to play Hertz is through its current stock, which has nearly doubled, to $7.15, since mid-May. Thats when a group led by Knighthead Capital Management, Certares Management, and Apollo Global Management (APO) won a bidding contest in bankruptcy court for the company. More upside is likely after Hertz exits bankruptcyexpected on June 30, with the new stock trading the next day. Hertz will emerge with little or no net corporate debt, while Avis has about $3.5 billion.

E=Estimate. Ebitda=earnings before interest, taxes, depreciation, and amortization.

Sources: Barron's calculations; company reports

Sources: Barron's calculations; company reports

Our plan for Hertz is to invest heavily in modernizing the companys technology and improving the customer experience, Greg OHara, senior managing director and founder of Certares, tells Barrons. Along with a right-sized capital structure and favorable economic tailwinds, we can turn Hertzwhich has always had a strong brandinto a stronger company, as well.

Andy Taylor, managing director at Carronade Capital Management, another firm involved in the restructuring, says, Its hard to overstate how well positioned Hertz is coming out of this restructuring. Hertz will emerge with the healthiest balance sheet in the rental-car sector into an unprecedented demand and pricing environment, which should persist through the second half of 2022, given that the industry cant increase supply due to a 50-year low in auto inventory.

Current Hertz shares are due to be exchanged for a package consisting of $1.53 a share in cash, 3% of the stock in the reorganized company, and warrantsa long-term call optionfor 18% of the new, postbankruptcy company. Holders of the current Hertz shares could realize $10 to $12 a share, Taylor says.

The initial trading in new Hertz stock could begin at $13.80, valuing it at $6.5 billion based on about 472 million shares outstanding. There is also $1.5 billion of preferred stock held by Apollo.

Assume no net debt and Hertz is valued at about nine times projected 2023 earnings before interest, taxes, depreciation, and amortization, or Ebitda, of $859 million. This projection was made by Hertz management in April and could prove conservative given the strong industry trends.

Many investors are confused by the package of securities that Hertz holders will get. As noted, holders will get $1.53 a share in cash, new stock, and warrants for each current Hertz share. The stock portion could be worth about $1.25 for a current Hertz share, based on the estimated issuance to Hertz holders of 14 million new shares, or nearly one-10th of a new share for each current Hertz share.

Current Hertz holders are expected to get nearly two-thirds of a warrant for each share with a strike price of $6.5 billion of new equity value, or $13.80 a share based on the new stock. The warrant is expected to account for the bulk of the package value.

The warrants are tricky to value. Their maturity of 30 yearsmost warrants mature in less than 10 yearsmakes them valuable. Based on option pricing models, each could trade around $8, assuming a stock price of $14, meaning that holders would get roughly $5 in warrant value.

Using these assumptions, the package of cash, stock, and warrants could be worth about $8 per current Hertz share: $1.53 a share in cash, $1.25 in stock, and $5 of warrantsa premium to the current stock price. If new Hertz gains, there would be additional upside. The risk is a lower price on the new stock and warrants.

The biggest risk that investors face is if the industrys discipline crumbles when the car shortage eases. Yet Hertz and Avis cut their fleets in the pandemic and have been slow to rebuild them as auto makers prioritize sales of vehicles to dealers. Hertzs U.S. fleet stood at 292,000 on March 31, down from 519,000 a year earlier.

One potential spark for Hertz would be a deal to sell cars to a large used-car retailer. There has been talk about a possible deal between Hertz and Carvana (CVNA), which would help Hertz on used-car sales and give Carvana a regular supply of vehicles. Carvana and Hertz did not respond to requests for comment.

Like its old ad slogan, Hertz puts investors in the drivers seat in a rapidly improving industry.

Write to Andrew Bary at andrew.bary@barrons.com

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Hertz Is About to Exit Bankruptcy. Why Its Stock Is a Buy. - Barron's

The application of sovereign immunity principles in bankruptcy cases has vexed the courts for decades. The U.S. Supreme Courts opinions on the matter have not helped much. Although they have addressed the issue in specific contexts, they have not established clear guidelines that the lower courts may apply more generally. The Third Circuit took a crack at clarifying this muddy but important area of the law in the case of Venoco LLC (with its affiliated debtors, the Debtors).

Background

The Debtors operated off-shore and on-shore drilling operations. As a result of environmental issues, they abandoned certain of their off-shore operations. Invoking its police powers, the California Land Commission (the Commission) ultimately took over the relevant off-shore facility at issue in the case.

After a chapter 11 plan was confirmed, the liquidating trustee (the Trustee) sued the Commission and the State of California (together California) for inverse condemnation in taking over the off-shore facility, seeking just compensation for its value. California moved to dismiss based on sovereign immunity. The bankruptcy court denied the motion and the district court affirmed.

Sovereign Immunity Prior to Katz

In Central Virginia Community College v. Katz, 546 U.S. 356 (2006), the Supreme Court held that, by ratifying the Constitution, the States waived their sovereign immunity with respect to matters characteristically fundamental to the administration of the bankruptcy process, particularly those that implicate the bankruptcy courts exercise of its in rem jurisdiction over the estate, the status of the debtor, and distributions to creditors. What has proven hard to quantify is exactly what that includes. Katz itself involved a preference action, so that much is certain. But what else?

Prior to Katz, courts in bankruptcy cases focused their sovereign immunity analysis on the meaning and proper scope of section 106 of the Bankruptcy Code. Section 106 purports to abrogate sovereign immunity in bankruptcy cases with respect to matters identified in the section. Granting certiorari in Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440 (2004) to review a circuit split on the constitutionality of section 106, the Supreme Court essentially ducked the issue. It determined that it did not have to decide the constitutionality of the provision because, at least with respect to disputes regarding the debtors discharge, principles of sovereign immunity simply did not apply. The Court reasoned that such matters involved the in rem status of the debtor, rather than a claim against a state entity, and so fall outside the scope of the Eleventh Amendment.

Third Circuits Framework for Applying Katz

Katz did not define with precision the kinds of proceedings or issues that may be resolved in bankruptcy without violating principles of sovereign immunity. According to the Third Circuit in Venoco, however, the relevant types may be described functionally: those involving (i) exercise of exclusive jurisdiction over property of the estate, (ii) equitable distribution among creditors and (iii) the discharge of debts enabling a debtor to obtain a fresh start.

This framework requires courts to examine the function of the proceeding to determine whether a particular matter is exempt from sovereign immunity concerns. The first category concerns proceedings that affect property of the debtor or the estate, i.e., affect the res. Applying this part of the analysis, courts have found that states lack sovereign immunity in turnover actions, preference and fraudulent transfer matters, and contract disputes.

The second category involves matters that bear on the equitable distribution of the estate to creditors. Courts have held that violations of the automatic stay impact this function.

The third category simply encompasses the Courts analysis in Hood, determining that States are bound by the bankruptcy discharge, whether or not they chose to participate in the bankruptcy case.

Application of the Framework

Applying the foregoing framework to the Trustees inverse condemnation claim, the Third Circuit found that it implicated two of the three relevant functions. First, it involved property of the estate the off-shore facility at issue and the estates rights therein. While the Trustee sought a money judgement for the value of the facility, the form of judgement is not controlling; it is the substance that counts.

Second, the claim implicated the equitable distribution of the Debtors property. In support of its analysis, the Third Circuit cited references in prior proceedings in the bankruptcy court in which the parties acknowledged the significant value of the off-shore facility. And it noted that California filed a large claim in the bankruptcy case. If California were allowed to recover on its claim but avoid scrutiny over its actions regarding property of the estate, it would improve its position versus other creditors, thus impacting equitable distribution.

Finally, the Court rejected Californias argument that the bankruptcy courts in rem jurisdiction ended on the effective date of the Debtors chapter 11 plan on the theory that the relevant res ceased to be property of the estate at that time. The Court held that the bankruptcy courts in rem jurisdiction did not end on the plans effective date because the trust remained in existence and its primary function was to facilitate the equitable distribution of the value of the estates property to creditors.

California State Law Immunity Rejected as well

As a backup to its Eleventh Amendment claim, California also attempted to assert sovereign immunity under its own state constitution. The Third Circuit rejected this theory on two basic grounds. First, it rejected the argument because it has not been raised in the bankruptcy court and was therefore waived. Second, the Third Circuit observed that, because California was not immune from suit in its own courts, the issue was not one of immunity, but of forum selection.

Conclusion

The Third Circuits opinion in Venoco helps illuminate the rather murky area of sovereign immunity in bankruptcy proceedings. Whether it is adopted by courts outside of the Third Circuit, and whether the Supreme Court ultimately endorses its approach, remain to be seen.

Read theVenocoopinion >>

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The Third Circuit Seeks to Clarify Sovereign Immunity in Bankruptcy - JD Supra

Actor Kabir Bedi, reflecting on a 'traumatic' chapter in his life when he went bankrupt, has said that it was 'very humiliating'. The actor recently released his autobiography, titled Stories I Must Tell: The Emotional Journey of an Actor.

In the book, Kabir Bedi writes about his youth, his career in journalism, and his subsequent move to the film industry. Kabir also worked in Hollywood and saw the greatest professional success as a star in Europe, particularly Italy.

In an interview with Brut India, he was asked if his spirituality gave him the strength to overcome life's difficulties. He said, "I went through traumatic experiences with my son's suicide, with my bankruptcy in Hollywood. It's very humiliating for a celebrity to be bankrupted. But you have to find ways of rising, and resurrecting yourself."

He continued, "All through my life, I've reinvented myself. A lot of the meditation I learned in my you, a lot of the spiritual underpinnings my parents gave me through their remarkable traditions of Sikhism and Buddhism, and my own inner sense of self gave me the strength to say, 'no, I will fight back'."

During his Hollywood years, Kabir appeared in The Bold and the Beautiful, one of the most-watched shows in the world. He also appeared in Dynasty, Murder, She Wrote, Magnum, PI, Hunter, Knight Rider and Highlander: The Series.

Some of the most difficult subjects that Kabir wrote about in his book include the death of his son Siddharth to suicide, and his relationship with actor Parveen Babi, who suffered mental illnesses herself.

Also read: Kabir Bedi reveals how he ended open marriage with Protima Gupta to be with Parveen Babi: 'She burst out crying'

Parveen died in 2005 after suffering a multiple organ failure. Writing about her death, Kabir wrote, "In the end, I learned how Parveen had died. Her body was found in her Juhu flat four days after she died, a leg rotted by gangrene, a wheelchair by her bed. A lonely and tragic end of a star who had once been the fantasy of millions. Three men who had known and loved her Mahesh, Danny and I came for her funeral at the Muslim cemetery in Juhu. It was a solemn burial with Islamic rites and chants. We carried her body with relatives to a dimly lit grave. I felt for all she had suffered with a sorrow that came from my depths. Each of us had known her in ways not many knew. Each of us had loved her as only each one knew."

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Kabir Bedi reflects on his 'bankruptcy' in Hollywood, says it was 'very humiliating' - Hindustan Times