The Restructuring Report

For decades, the Southern District of New York (SDNY) and the District of Delaware have reigned as the busiest commercial bankruptcy venues in the United States. Clients and attorneys alike have chosen to file commercial cases in these two venues for multiple reasons, including New York City’s standing as the country’s financial capital, the number of Fortune 500 and smaller companies incorporated or headquartered in Delaware or New York, and these venues’ experience handling complex bankruptcy filings. However, since the beginning of this decade, New York and Delaware’s status as the busiest commercial bankruptcy venues has been increasingly challenged by a trail-blazing competitor: the Southern District of Texas (SDTX).

From December 31, 2010, through December 31, 2012, 18,872 commercial chapter 11 bankruptcy cases were filed in the United States.

• U.S. Bankruptcy Courts—Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12 -Month Period Ending December 31, 2011
• U.S. Bankruptcy Courts—Business and Nonbusiness Cases Commenced, by Chapter of the Bankruptcy Code, During the 12­-Month Period Ending December 31, 2012

Of those cases, the SDNY received 1,271, and Delaware received 1,176, making them two of the three busiest commercial bankruptcy venues in the country along with the Central District of California. In contrast, the SDTX yielded only 478 such cases during the same time period. However, beginning in March 31, 2016, and extending through March 30, 2018, the tides turned in commercial bankruptcy filings. During that timeframe, the SDTX received 980 commercial chapter 11 cases, giving it the third largest commercial bankruptcy docket behind Delaware—1,246—and the SDNY—1,073.

Just how did the SDTX jump from the middle of the commercial bankruptcy court pack to a legitimate contender for commercial cases? The fact that the District includes Houston, the capital of the oil and gas industry, which recently experienced a historic downturn in oil and gas prices, is partly to blame. Since January 2015, 144 oil and gas exploration and production companies and 167 oilfield service companies, totaling approximately $90.2 billion in secured and unsecured debt, have filed for bankruptcy in the United States due to the downturn. 7th Annual AIRA/CFA Energy Summit, (Ass’n of Insolvency & Restructuring Advisors),Sept. 12, 2018, at 4. Of these cases, 152 filed in Texas, compared to a combined total of 53 in New York and Delaware, totaling approximately $64 billion in secured and unsecured debt being restructured within the SDTX’s borders. 7th Annual AIRA/CFA Energy Summit, (Ass’n of Insolvency & Restructuring Advisors),Sept. 12, 2018, at 6, 9.

Regardless of the severity in the oil and gas industries’ downturn, the District’s location does not fully explain the sizeable increase in commercial chapter 11 filings in the SDTX. Instead, other significant factors swayed these companies’ filing decisions, including:

• In March 2016, the SDTX instituted a work order—later converted into a General Order on January 29, 2018—assigning each complex commercial case filed in the district to one of two judges from the district’s entire panel of bankruptcy judges, both of whom hold complex case experience as judges and private practitioners. Based upon the most recent version of the General Order, a complex commercial case filed within the district will be assigned to one of these two judges irrespective of the exact division of the district in which the case was filed.
• The two judges offer their immediate availability to debtors and creditors alike for any hearings or emergency motions required by each case.
• The two judges offer parties technologically advanced courtrooms, including the ability for parties to attend hearings remotely and to view presentations or court orders remotely and in real time as they are being presented or drafted.

Together, these factors provide filing parties with a combination of predictability, accessibility and experience that make clients and their representatives confident and comfortable in filing their case in the SDTX.

As commercial oil and gas bankruptcy cases wind down with the recent stabilization in oil and gas prices, it remains to be seen if the SDTX will remain a competitor for commercial bankruptcy cases. From March 30, 2018, to June 30, 2018, the Southern District of Texas has seen only 52 commercial cases file within its jurisdiction in contrast to 136 and 109 for Delaware and the SDNY, respectively. However, the most recent commercial bankruptcy filings within the SDTX, including the complex chapter 11 case of iHeartMedia, Inc. (Case No. 18-31274), suggest that the SDTX’s strategy may allow it to remain one of the busiest commercial bankruptcy districts in the country.

Takeaway

The Southern District of New York and the District of Delaware have traditionally been the busiest commercial bankruptcy courts in the United States. However, the Southern District of Texas’ recent popularity in commercial filings, stemming from multiple factors, casts a doubt on New York and Delaware’s continued preeminence over such filings.