💰 Bankruptcy, interrupted

Plus: Highest-paid CEOs | Tuesday, January 31, 2023

Open in app View in browser   Presented By MOXY   Axios Markets By Matt Phillips and Emily Peck · Jan 31, 2023 Happy Tuesday. Earnings reports from blue chips like McDonald's, Pfizer, Exxon and General Motors are due this morning. Let's get to it. Today's newsletter is 879 words, 3.5 minutes.     1 big thing: If it ain't broke... Johnson & Johnson's baby powder. Photo: Justin Sullivan/Getty Images   You have to actually be broke to file for bankruptcy protection — at least that's what a federal appellate court ruled yesterday, Axios' Nathan Bomey writes. Driving the news: The court dismissed the bankruptcy filing by a subsidiary of corporate giant Johnson & Johnson. J&J created the unit — dubbed LTL Management — for the express purpose of holding legal liabilities and then filing for Chapter 11. Why it matters: The ruling undercuts the emerging corporate strategy of using bankruptcy to excise costly liabilities when the organization itself is perfectly solvent. "Because LTL was not in financial distress, it cannot show its petition served a valid bankruptcy purpose and was filed in good faith," a three-judge panel said in its unanimous ruling. The big picture: Organizations and companies — like the NRA and 3M, for example — have been getting more creative about how they attempt to leverage the U.S. Bankruptcy Code to their advantage. The Third Circuit said it doesn't intend to "discourage lawyers from being inventive." But, it said that J&J's finances mean it has no right to access the tools of bankruptcy court — which allow debtors to restructure and slash liabilities without facing further legal attacks. What they're saying: "This is a vindication of the rule of law and the role of the civil justice system," University of North Carolina bankruptcy law professor Melissa Jacoby tells Axios. "Bankruptcy plays a very important role in our legal system, but it's for extraordinary circumstances." State of play: J&J faces some 38,000 lawsuits from people and their survivors claiming that the company's talc-based powder caused cancer. J&J has repeatedly denied the allegation. At the time it put the new LTL unit into bankruptcy in October 2021, J&J had an equity value of more than $400 billion, a AAA credit rating, and $31 billion in cash and marketable securities. That means it almost surely had ample liquidity to pay LTL's obligations — and can't instead use the bankruptcy process, the court ruled. When LTL filed for bankruptcy, J&J was worth at least 25 times more than its estimated total product liabilities over the next 24 months, the ruling stated. How it works: When an organization files for bankruptcy, creditors have to negotiate collectively with the debtor in pursuit of a settlement — often for pennies on the dollar in the case of litigants, who are considered unsecured creditors. J&J had agreed to provide $2 billion through a trust to pay claims — an amount the alleged victims said was insufficient. For the record: J&J said in a statement that it will appeal the ruling, rejecting the Third Circuit's contention that the company did not file the case in good faith. What's next: If the Supreme Court doesn't agree to hear J&J's appeal, the company will be forced to address its liabilities on a case-by-case basis in court, out of court, or through a massive civil settlement. Go deeper     2. Catch up quick ⬆️ IMF lifts global growth forecast for 2023. (Axios) 🇨🇳 China's economic activity swings back to growth in January. (Reuters) 😷 COVID-19 health emergencies to end in May. (Axios)     3. German economy contracts Data: FactSet, Destatis; Chart: Axios Visuals Europe's largest economy shrank slightly in the final months of 2022, as reverberations of Russia's war on Ukraine continue, Matt writes. Why it matters: It shows that Germany's industry-heavy economy may not be able to avoid a recession after all. The latest GDP data comes after other recent economic reports had shown Germany to be resilient in the face of the worst inflation and energy shock to hit the country in decades. For the record: Germany's economy ministry recent recently expressed confidence that a recession could be avoided. 💭 Our thought bubble: Even if Germany does fall into recession with another quarter of economic contraction, the country has done an enormous amount to avoid the worst outcomes of the energy shock, from rapidly stockpiling gas supplies, to quickly finding new, non-Russian suppliers of the crucial fuel.     A message from MOXY Real political savvy at your fingertips     Tired of the ranting echo chambers? MOXY has smarter discourse via issue-based forums, a broad-spectrum newsfeed, personalized politician directory, legislation, ballot info, surveys and more. Try MOXY Free for 30 days or get a MOXY Premium 60-day upgrade using code AXIOS2023. Learn more.     4. Man power Data: S&P Global Market Intelligence: Note: Total adjusted compensation represents the sum of cash-equivalent compensation, stock awards, option awards and non-equity incentive plan compensation; Chart: Axios Visuals Women and girls have advanced in so many ways in recent years. Yet the top of the corporate food chain remains stubbornly male, Emily writes. There was only one woman among the top 20 highest-paid CEOs in the S&P 500 in 2021, per a new analysis from S&P Global Intelligence. This year there are 37 women chief executives leading S&P 500 firms. That's up slightly from 2021.   Share Axios and earn rewards If you like this newsletter, your friends may, too! Refer your friends and get free Axios swag when they sign up. Be a good friend and share   5. BP sees a future with less fossil fuel Illustration: Sarah Grillo/Axios   BP, one of the world's largest oil and gas producers, is cutting projections of long-term global oil and gas consumption, finding Russia's war in Ukraine is "likely to accelerate the pace of the energy transition," Axios' Ben Geman writes. Why it matters: The energy disruption caused by the war has prompted calls for countries to refocus on their own domestic energy production — which in the short term often translates to demand for more fossil fuels (see: President Biden calling for U.S. oil producers to boost output). Yes, but: The disruption has also strengthened the view — even among oil and gas producers like BP — that over the longer term, developing clean energy sources is critical to national security. 🔍 Zoom in: BP says that based on the current global trajectory, it revised its outlook for oil and gas demand in 2035 downward by 6% and 5%, respectively, compared to last year's outlook. Read BP's full report     A message from MOXY Tired of the Ranting Echo Chambers?     MOXY puts real political savvy at your fingertips with: Issue-based forums. Personalized politician directory. Legislation And much more. Try MOXY Free for 30 days or get a MOXY Premium 60-day upgrade with our compliments using code AXIOS2023. Get started.   One last thing from Matt: I'm not much of a musical theater guy. But my 5-year-old daughter is obsessed with the soundtrack to Netflix's "Roald Dahl's Matilda the Musical," which we've been playing in the car on the way to school. Highly recommend it to any parents out there. The music is great. But I'll admit, I got a little choked up yesterday, hearing her little voice singing "When I Grow Up" from the back seat. Today's Axios Markets was edited by Kate Marino and copy edited by Mickey Meece. Why stop here? Let's go Pro. 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