TheChek News Flow

DAX:

MDAX:

SDAX:

Wall Street firms such as Fortress are backing legal showdowns against big companies

Johnson & Johnson has an enterprise value of $375bn. Yet it wants you to think of it as an underdog. Earlier this month, the healthcare titan announced that it had reached the outlines of a deal to settle liability over allegedly carcinogenic talcum powder. The terms would see the tens of thousands of claimants being paid $14bn over 25 years, or $6.5bn in present value terms.

The so-called mass tort case had been an ongoing, significant overhang for J&J. And the agreed deal was clever — a potential win-win for victims who would begin to get their money soon and closure for the company. But J&J in the press release took the opportunity to fire a broadside against its adversaries. It first singled out plaintiffs’ lawyers whom it said had “conflicted financial incentives”, amid the negotiations. 

And then in a remarkable subsequent line, it blamed what it said was frivolous litigation as a result, in part, of “the unregulated and surreptitious financing of product litigation by financial institutions, including private equity and sovereign wealth funds”. 

The release did not name the firms in question. But on Friday J&J told a federal court it sought the details on the plaintiffs’ backers and it was serving a subpoena on the $48bn alternative asset manager Fortress Investment Group, whose new owner is Abu Dhabi’s Mubadala Investment Company.  

Within Fortress’s private credit business is one of the most sophisticated litigation funding players in the world, known as Fortress Legal Assets. One plaintiff’s lawyer in the talc matter admitted last spring in a deposition that Fortress dollars were, at least in part, funding the multimillion-dollar pursuit of the claims.

Notwithstanding its agreement, J&J has maintained that the scientific evidence shows its talc did not cause either ovarian cancer or mesothelioma, a cancer that develops in the lining of some internal organs. And while it has unsurprisingly taken aim at the lawyers on the other side of the table, its real fury is trained on Fortress. J&J claims the firm’s funding has distorted the bargaining process, with lawyers taking extreme positions because of the financial return requirements of their client. In other words, the Fortress money — with a cost of capital of roughly 15 per cent — served as tax that prevented a settlement from being struck sooner, making both J&J and victims worse off.

Litigation finance is not new and has always been controversial. Plaintiff law firms have been derided as “ambulance chasers” and have stigma attached to them in the US. But they are increasingly backed by the Wall Street houses in mass tort cases, which is leading to showdowns with Fortune 500 companies like the J&J battle.

Litigation funders maintain that at their core they simply level the playing field. Corporate defendants have insurance policies that let them escape or cushion the consequences of their wrongdoing. Litigation finance is supposed to provide the counterbalance for victims of misconduct so they are not stymied in seeking justice by limited upfront cash.

Samir Parikh, a law professor at Wake Forest University who has studied mass tort litigation finance, says that, in fact, the quality of victim claims has little to do with how cases are ultimately resolved. He said in many cases, the most valuable service provided by attorneys is outside the courtroom. “Rather, the name of the game is really marketing, or ‘building inventory’,” he says.

Parikh was referring to the process of finding and accumulating thousands of claimants — meritorious and otherwise — in order to maximise pressure on companies to settle lawsuits. This marketing machine is ultimately what litigation finance is beginning to underwrite.

According to Fortress’s website, it has cumulatively funded $6.8bn in litigation finance. Industry participants say virtually every major private capital firm is involved in funding lawsuits, though often quietly and through affiliates. Centerbridge and Apollo both funded lawsuits of victims of PG&E while also being financial creditors and shareholders of the California utility that paid victims billions over its role in devastating wildfires.

Corporate general counsels and the US Chamber of Commerce advocacy group are now arguing that litigation finance has become a grave threat to many companies given the billions in firepower of mainstream private capital firms. Private capital firms are trying to shed their long-standing image as cut-throat vultures. Still, investing in legal brawls can be lucrative business and the Johnson & Johnson stand-off shows that managing this dilemma is very real.

Aby Rosen was New York real estate royalty. Is his office empire crumbling?

RFR Holding has billions of dollars in debt coming due at a time when valuations are down and financing costs up

By the time property developer Aby Rosen bought New York’s Seagram Building in 2000, both the mid-century Midtown tower and its namesake Canadian distiller were past their prime.

But the building was the making of Rosen’s real estate empire. Together with his longtime business partner Michael Fuchs, their company RFR Holding and a vast collection of modern art, Rosen renovated, rebranded and remarketed unloved landmarks at higher rents.

“Rosen brought an art collector’s eye to real estate,” said Bob Knakal, who heads brokerage firm BK Real Estate Advisors and has worked on deals for Rosen in the past. “He looked at buildings and saw things that other people missed.”

The 375 Park Avenue tower, never officially named the Seagram Building, was completed in 1958 as the first Manhattan skyscraper with floor to ceiling windows. At the start of its fifth decade, it was draughty and energy inefficient with a fire-prone electrical system and leaky fountains in its plaza. The building’s famed Four Seasons restaurant was in its twilight.

The German émigré bought the property for $375mn and spent tens of millions more on upgrades. Over the next decade, it was rarely anything other than full. By 2013, it was a $1.6bn testament to Rosen’s acuity at wringing fortunes from faded landmarks as well as his spot in the top tier of New York developers.

Now it only produces about half the income it did before the pandemic, and Moody’s Analytics last month included it on a list of properties that may be difficult to refinance. RFR refinanced a $400mn debt tied to the building in December, but still owes $750mn on a 2013-vintage loan.

Since 1991, Rosen has bought more than 50 buildings across Manhattan — including a half stake in the Chrysler Building. He has sold a few along the way, as well as diversified by buying buildings in Seattle, Tel Aviv and elsewhere.

But the flashy purchases of a man with an equally showy social life may now be starting to catch up with him.

Billions that Rosen has borrowed on the Seagram Building and other properties are either coming due in the next year or already have, at a time when higher interest rates and the post-Covid realities of office have cut commercial real estate valuations and made refinancing more difficult.

RFR said the Seagram Building was “fully leased with an investment grade tenancy” and that operating profits are set to more than double this year.

Even so, similar stress is being replicated across the RFR portfolio.

In 2018, Rosen told the Financial Times that the value of RFR’s portfolio had climbed to $14bn. Since then, the global real estate market has not been kind.

He has already been forced out of some of his marquee properties, including the Lever House, and a high profile office-to-condo project in Midtown Manhattan.

Last week, he had $470mn in debt come due on 285 Madison, a 26-storey building near New York’s Grand Central Station worth $610mn when he took out the loans in 2018. In 2022 it was valued at $60mn less than the debt.

RFR is far from the only New York developer feeling the pain from a post-Covid real estate downturn. Still, the developer and his partners have to reckon with at least $2.5bn in debt either coming due in the next year or already past due, a FT analysis of publicly available loan data shows.

The analysis found 16 loans connected to more than 20 properties that RFR owns, by itself or with partners. Collectively, those buildings generated just over $26mn last year after interest payments, nearly three-quarters less than the $97mn they were expected to when RFR and its partners took out the debt.

Twelve of the loans are in some state of distress, whether flagged by mortgage servicers as at risk of default, delinquent or still outstanding despite the maturity date having passed.

Four of the buildings are not bringing in enough rent to cover mortgage expenses. Another two are either empty or about to be: one of which being a Brooklyn office building that was fully occupied by WeWork before the bankrupt co-working company broke its lease last year.

Lawsuits and mortgage filings point to a growing pile of unpaid bills.

Earlier this month, a former top executive of Rosen’s RFR Holding sued Rosen and Fuchs for $20mn, alleging they had missed two deadlines this year on payments tied to a 2019 exit package.

A Blackstone venture is separately pursuing the developers for nearly $50mn, one of a number of outstanding loans that the private equity group and its partners bought from the failed bank Signature.

RFR has also missed mortgage payments and a property tax bill totalling just over $9mn on 522 Fifth Avenue. The building facing foreclosure is a Miami retail property Rosen’s group bought in 2019 for $20.5mn.

“Aby is at the top of the game in being astute, but even the people who were astute with their leverage are falling to these higher interest rates and being unable to refinance,” said Knakal at BK Real Estate Advisors.

With his other Midtown Manhattan landmark, the Chrysler Building, Rosen faces a distinct challenge. RFR co-owns the building with Signa, the insolvent Austrian property group founded by the one-time billionaire René Benko.

Signa’s administrator is now seeking to sell its half of the 77-storey art-deco skyscraper to raise cash. Although the building is 90 per cent let, the building comes with an expensive ground lease, limiting its attractiveness. A fire sale price could crystallise a depressed valuation — as well as leaving Rosen with a partner not of his choosing.

RFR declined to comment on the lawsuits, but said that the vast majority of its nearly 100 properties were “well leased and performing well”. The company was actively working to restructure the debt of those on its properties experiencing stress, it added.

“No one invested in real estate is immune to the pressures from fluctuating capital markets or the changing trends in work and lifestyle that we are currently seeing,” RFR said. “We’re confident in our ability to work through these obstacles as we have in the past.”

Rosen has also used unpaid bills as a negotiating tactic before. In a fight over the currently closed Gramercy Hotel, RFR stopped paying its lease in mid-2020, claiming the pandemic had made the property worthless.

But with $929bn in US commercial mortgage debt set to come due this year according to the Mortgage Bankers Association — about $180bn of which is tied to office properties — investors are watching not just to see what happens to Rosen, but what his challenges herald for the rest of the property industry.

“Any office owner is under significant pressure, so it is not a matter of if, but when maturities are coming up,” said an investor in distressed real estate loans.

“RFR has a lot of high-profile stuff needing to be refinanced right now, but there are a lot of developers all over the country with loans that are going to have to get worked out.”

May 20 (Reuters) - Certain genes may identify patients with obesity who are most likely to respond strongly to Novo Nordisk's (NOVOb.CO), opens new tab weight-loss drug Wegovy, researchers reported on Monday.

The study, released at the Digestive Disease Week meeting in Washington, found a 95% likelihood that patients with this genetic profile would be strong responders to the treatment.

Given the expense of Wegovy, the findings might be used to identify the patients most likely to get the greatest benefit from it, according to Dr. Andres Acosta of the Mayo Clinic in Rochester, Minnesota, one of the researchers.

Some people with obesity have a genetic profile that contributes to what is called a "hungry gut" - that is, they feel full during a meal but become hungry again shortly afterward because food leaves their stomach more quickly than in most other people, Acosta said.

The study involved 84 patients prescribed Wegovy for treatment of obesity. Those with the genetic variants associated with "hungry gut" lost an average of 14.4% of their total body weight after nine months on the drug and 19.5% after a year, the study found.

By comparison, study participants without this genetic profile lost 10.3% of their body weight after nine months and nothing more by 12 months.

Acosta said the researchers previously saw a similar pattern in patients taking the weight-loss drug liraglutide, which is marketed under the names Victoza and Saxenda by Novo Nordisk.

While patients without the "hungry gut" genes did lose some weight on Wegovy, they might be able to lose similar amounts with less-expensive therapies, Acosta said. The list price for Wegovy, also called semaglutide, is $1,349.02 per month.

"When you're going to spend this much money," Acosta said, "you have to ask, 'Is there a cheaper approach that will yield the same results in some patients, maybe other medications or surgery?'"

Larger studies are needed to assess the reliability of the "hungry gut" genetic profile in more diverse populations, the researchers said.

If the new results are confirmed, Acosta said, doctors can finally tell some of their patients, "'We know why you are struggling with obesity,' and we can say with confidence, 'This expensive drug will help you,' or, 'Hey, this might not be for you.'"