[wakawaka28]

The Onion didn't have the cash. It was basically an IOU from one of the families, which is like saying "the very same guy going bankrupt is going to pay us money to buy this business from him" and that makes zero sense. There was also no transparency in the bidding. It should have been a simple auction, to get the maximum amount of money.

[ThrustVectoring]

> The Onion didn't have the cash.

Correct, it was given up by the majority creditors in exchange for non-monetary considerations (specifically, the moral victory of having The Onion own Infowars).

> It was basically an IOU from one of the families

This is fine, people are allowed to act against their own financial interests. That's one thing that having ownership means is that you can ruin the thing you own for any or no reason. The court has zero reason to intervene if a majority creditor is giving up their own share of the proceeds for any or no reason.

> There was also no transparency in the bidding. It should have been a simple auction, to get the maximum amount of money.

This is a non-issue, the trustee was given wide latitude to dispose of the assets in any way he deems fit.

[wakawaka28]

>This is fine, people are allowed to act against their own financial interests. That's one thing that having ownership means is that you can ruin the thing you own for any or no reason. The court has zero reason to intervene if a majority creditor is giving up their own share of the proceeds for any or no reason.

You're oversimplifying this. If someone owes you $1B and they owe me $2B, and they've got an asset worth $500M, I can't just pledge $2B of bad debt to buy the asset. The only fair way is to sell it for $500M in actual cash. Then it gets divied up accordingly.

>This is a non-issue, the trustee was given wide latitude to dispose of the assets in any way he deems fit.

Isn't it telling that the same judge said it was done improperly? Trustees have an obligation to follow standard practices which maximize cash flow or at least don't give the appearance of impropriety.

[ThrustVectoring]

> You're oversimplifying this. If someone owes you $1B and they owe me $2B, and they've got an asset worth $500M, I can't just pledge $2B of bad debt to buy the asset.

You actually can, so long as it's the best offer for the other creditors. So long as you can come up with sufficient cash for the minority creditors you're entitled to dispose of the asset in any way you see fit. The Pennsylvania families came up with the cash (via The Onion's cash offer and structuring the payout).

[Breza]

You are absolutely correct. Matt Levine wrote about this topic in his newsletter the other day. Well worth subscribing if corporate/legal shenanigans interest you.

[pclmulqdq]

In your theoretical framework you can. In real-life bankruptcy court, you almost certainly can't.

[johnnyanmac]

Says who? It was clearly going to work like that until more lawyer nitpicking intervened about the auction (not the sale itself).

[vizzier]

Honestly I don't see how this theoretical framework is much different from corporate leveraged buyouts.

[pclmulqdq]

This isn't a leveraged buyout. Also this structure is not at all like a leveraged buyout.

[wakawaka28]

My point is going over your head. Pledging money that you will never receive to get over the finish line is not the best offer. You could not consider such debt in any other purchase. Going back to that example, if the guy owed $2B pledged to buy the asset for $500M and the other one didn't even know about the auction, or instead pledged $501M, then the one who was owed less would be stealing from the one who was owed more. The fact that neither of them has any actual money is another very troublesome point on its own, as is the fact that the bidding was completely private. There might have been someone willing to pay 10x the winning bid for InfoWars in actual cash and been out of the loop.

Put it in any other context. Do you think a bank would issue a loan whose repayment was contingent on income from an individual who was seeking relief in bankruptcy? Obviously they would not. The court has an obligation to not accept fugazi money to buy real assets.

[edmundsauto]

My understanding is that the other (minor) creditors would get more cash in the Onion offer because the Sandy hook reps weren’t going to take their huge cut in the event their preferred bid was accepted. That means in any other deal, the other creditors would be strictly worse off. The families would be financially worse off but they were the ones driving the decision, so they clearly felt holistically better off.

I don’t see how they shouldn’t be able to take less money themselves as long as the other creditors also got more money.

[munk-a]

> Isn't it telling that the same judge said it was done improperly? Trustees have an obligation to follow standard practices which maximize cash flow or at least don't give the appearance of impropriety.

This is incorrect - trustees have an obligation to maximize the benefit to debtors. You'll see common examples of non-monetary benefit when it comes to wills - a cabinet that may be valued at 150$ but has immense sentimental value may be given to inheritors even if there is a 200k bid on it if that is what the beneficiaries all agree to.

You are treating debt discharging too literally like a numbers game - there are other important factors and in this case all the debtors were aligned and would have clearly preferred the deal with the lower monetary value.

[wakawaka28]

>This is incorrect - trustees have an obligation to maximize the benefit to debtors. You'll see common examples of non-monetary benefit when it comes to wills - a cabinet that may be valued at 150$ but has immense sentimental value may be given to inheritors even if there is a 200k bid on it if that is what the beneficiaries all agree to.

Probate court is different from bankruptcy court. You can only do something nonstandard if all creditors agree. Some of these creditors are almost certainly banks that are owed money by AJ.

>You are treating debt discharging too literally like a numbers game - there are other important factors and in this case all the debtors were aligned and would have clearly preferred the deal with the lower monetary value.

There are very few sentimental factors in bankruptcy. The few that do apply (such as protections of property with little value) exist to benefit the debtor and not the creditors.

[johnnyanmac]

>You can only do something nonstandard if all creditors agree.

As far as this NYT story goes, they all did agree. It's AJ's lawyer who intervened.

[wakawaka28]

Even if they all did agree, which I don't believe, someone might want to buy the business for a fair price using real cash. That counts for more than fantasy debt that is going away anyway. These processes exist for legitimate reasons no matter how you feel about it.

[timmaxw]

> If someone owes you $1B and they owe me $2B, and they've got an asset worth $500M, I can't just pledge $2B of bad debt to buy the asset. The only fair way is to sell it for $500M in actual cash

No, that's not the _only_ fair way. Suppose the $2B creditor bids $200M in cash and also agrees to forfeit their share of the proceeds from the sale. Then the $1B creditor would receive the entire $200M, which is more than the $167M they would have received from a $500M cash sale. The bid is effectively equivalent to $600M.

Isn't that what happened in the InfoWars case? The bankruptcy judge agreed that the structure of the Onion's bid was valid; he just said the auction would have continued for more rounds.

[patmcc]

>>You're oversimplifying this. If someone owes you $1B and they owe me $2B, and they've got an asset worth $500M, I can't just pledge $2B of bad debt to buy the asset. The only fair way is to sell it for $500M in actual cash. Then it gets divied up accordingly.

Except what if all the creditors prefer that outcome to the "more cash" outcome? If the way it would get divvied up is $499m to you and $1m to me, vs $350m to you and $50m to me (but you get some other benefit that you prefer), why shouldn't that be accepted?

[wakawaka28]

If literally every creditor agreed, maybe so. But I don't think that is the case even among the subset of creditors that is the families. If there are banks involved I'm sure they aren't interested in getting less money.

[patmcc]

The two groups of families are the only two creditors. The Connecticut families are owed ~$1bil, the Texas families are owed ~$50mil. Nobody else is getting any money.

The bid that was accepted would give the Texas families more than they would have gotten from the other bid, because the Connecticut families were willing to give it to them, because they valued stripping Jones of his platform higher than the cash.

The only people worse off are the people who submitted the losing bid (Alex Jones' cronies). The creditors, and the estate, were not. And they're the ones the bankruptcy Trustee has the highest duty to.

[pclmulqdq]

> Nobody else is getting any money.

It is impossible to infer this simply from the size of the debt. Debts have seniority ordering which dictates who gets paid first, just like liquidation preferences in startups.