Delaware Chapter 11: Boy Scouts of America

On February 18, 2020 (the ” Petition Date “), the Boys Scouts of America (the “BSA”) and the Delaware BSA, LLC (collectively, the “Debtors”) each filed a voluntary petition for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware.

 

The Debtors are represented by Sidley Austin LLP as lead counsel and Morris, Nichols, Arsht & Tunnell LLP as Delaware counsel. The case has been assigned to the Honorable Laurie Selber Silverstein. A hearing on the Debtors’ first day motions was held on February 19, 2020. A meeting to form the unsecured creditors’ committee will be held on March 4, 2020.

 

Headquartered in Irving, Texas, the BSA was chartered by Congress in 1916 as a non-profit corporation with the mission “to prepare young people to make ethical and moral choices over their lifetimes…” The BSA trains young men and women in responsible citizenship, character development, and self-reliance through participation in a range of outdoor activities, educational programs, and career-oriented programs in partnership with community organizations. Another core function is to provide services critical to the delivery of Scouting opportunities, including providing core program content; procuring and selling uniforms and equipment; maintaining IT and digital resources; training adult professional and volunteer “Scouters” to serve in local councils; coordinating Scouting communications and publishing periodicals for Scouts, their families, adult leaders and alumni; organizing national events; operating and maintaining registration systems, and implementing quality control measures. The BSA is funded by membership fees, donor contributions, legacies and bequests, corporate sponsorships, grants from foundations, and supply sales. In 2019, the BSA’s gross revenues were approximately $393 million.

 

The BSA is currently a defendant in numerous lawsuits relating to historical acts of sexual abuse in its programs. There are currently approximately 275 lawsuits pending in state and federal courts across the U.S., plus approximately 1,400 additional claims that have not yet been filed. The number of claims has sharply increased in recent years, coinciding with state legislation allowing claims that would previously have been barred by statutes of limitations. From 2017 to 2019 alone, the BSA spent more than $150 million on settlements and related costs.

 

Declining membership and revenue in recent years has been another challenge for the BSA. As of December 2019, the BSA had approximately 2.2 million registered Scouts, down from approximately 2.6 million as of 2012. Compounding the decline, as of December 2019, the Church of Jesus Christ of Latter-day Saints concluded its 105-year relationship as a chartered organization with all Scouting programs around the world, the impact of which is expected to remove approximately 400,000 Scouts from the BSA’s programs.

 

The BSA recognized that it could not continue to address abuse litigation on a case-by-case basis and in late 2018, began to explore strategic options for global resolution of abuse claims. Restructuring efforts involved several meetings with attorneys representing many abuse victims, but the mediation was unsuccessful. Attorneys for abuse victims believed certain local councils with significant abuse liabilities have significant assets that could also be used to compensate victims. Further, attorneys for abuse victims would only accept information about the nature and extent of the BSA’s available assets if provided through a court-supervised process.

 

As a non-profit that relies on member fees and donations to sustain its operations, the BSA believes that delays caused by protracted litigation and discovery would negatively impact revenue sources and ultimately jeopardize the BSA’s ability to carry out its mission. Furthermore, the victims’ attorneys have indicated a strong preference for the BSA to file for relief under chapter 11 so they can compel the production of information regarding the BSA’s and local councils’ liabilities and assets, as well as other data relating to abuse claims ( See Brian Whittman Affidavit in Support ).

 

The Debtors’ secured debt consists of about $36,462,317 in loans and $185,799,375 in bonds from JPMorgan Chase Bank, N.A. (“JPM”), plus $105,842,463 in undrawn letters of credit from JPM. In addition to the litigation claims listed amongst the Debtors’ top unsecured debts, unsecured trade debt is estimated at $20 million. The BSA also sponsors a pension plan with an underfunding of approximately $183 million as of February 2019, which has since been reduced by contributions and investment return. Also as of the Petition Date, the BSA owes approximately $16 million in outstanding benefits under certain non-qualified retirement benefit plans and an estimated $30 million for ordinary-course accrued liabilities such as payroll and benefits, self-insured medical claims, and taxes.