Filing Alert: Hallmark Financial Services Chapter 11

Update (Jun. 15, 2026): A comprehensive case summary is now available for the Chapter 11 bankruptcy filing of Hallmark Financial Services, Inc.

Hallmark Financial Services, Inc., a Dallas, TX-based insurance holding company engaged in the sale of property and casualty insurance products to businesses and individuals, filed for Chapter 11 protection on Jun. 15 in the U.S. Bankruptcy Court for the Northern District of Texas.

The filing—limited to the parent holding company, with the Insurance Subsidiaries and Managing General Agent Subsidiaries continuing to operate in the ordinary course outside of bankruptcy—aims to effectuate a value-maximizing balance sheet restructuring through a prepackaged plan that recapitalizes the Debtor while preserving the operating enterprise.

The Debtor attributes its distress to a cascade of underwriting and reserve deficiencies dating to late 2019, when greater-than-historical losses prompted a 2020 loss portfolio transfer ("LPT") to DARAG. A June 2023 arbitration award terminated the LPT and saddled the Debtor with an estimated $25 million to $35 million loss, triggering an AM Best financial strength downgrade from A- (Excellent) to ccc- (weak) and the Debtor's eventual withdrawal from the ratings—forcing it into margin-eroding fronting arrangements to continue underwriting. Elevated claims exceeding reserves, compounded by the 2022 exit from the specialty commercial segment (including the sale of its E&S operations to a Core Specialty affiliate), pushed the Debtor out of compliance with the 35% debt-to-capital covenant under its Senior Unsecured Notes Indenture; that ratio now exceeds 100%. Because the indenture bars distributions on junior-ranking debt while the covenant is breached, the Debtor—having deferred interest on its Junior Subordinated Debt Securities since Q1 2020—was prohibited from satisfying the deferred interest that came due in 2025, even after generating approximately $30.9 million in net proceeds from the June 2025 sale of its aviation MGA. Hildene delivered Notices of Acceleration on the 2035 Junior Subordinated Debt Securities and the Senior Unsecured Notes on Feb. 23 and March 2, 2026, respectively, precipitating the filing.

The prepackaged filing implements a Restructuring Transaction pursuant to a Restructuring Support and Forbearance Agreement (the "RSA") executed April 3, 2026 with Hildene, which holds approximately 72% of the Senior Unsecured Notes, 66.7% of the 2035 Junior Subordinated Debt Securities, and 50.1% of the 2037 Junior Subordinated Debt Securities. The RSA establishes a dual-track toggle structure under which the Hildene-backstopped transaction functions as the stalking horse while the Debtor concurrently runs a Raymond James–led go-shop soliciting an Alternative Restructuring Transaction at a minimum purchase price of no less than the approximately $51.2 million Initial Plan Value.

Under the pre-negotiated plan, non-Hildene Senior Unsecured Notes Claims receive New Senior Unsecured Notes at 100% of allowed claim, GUCs (estimated at approximately $400,000) are paid in full in cash, and non-Hildene Junior Subordinated Debt Securities Claims recover 10% of their claim in cash. Hildene equitizes its holdings: its Senior Unsecured Notes Claims convert into New Convertible Preferred Equity carrying an initial liquidation preference equal to 100% of the allowed claim, while its Junior Subordinated Debt Securities Claims receive non-voting membership interests in a special purpose entity holding 100% of the New Common Equity, subject to dilution. Existing equity is cancelled and receives no recovery. Both voting classes—Class 3 (Senior Unsecured Notes Claims) and Class 5 (Junior Subordinated Debt Securities Claims)—overwhelmingly accepted the Plan in prepetition solicitation concluding June 4, 2026, positioning the Debtor to consummate the Restructuring Transaction subject to any higher or better Alternative Restructuring Transaction.

Hallmark Financial Services, Inc. reports $10 million to $50 million in assets and $100 million to $500 million in liabilities. The filing indicates that there will be funds available for distribution to unsecured creditors. The case number is 26-80007.

Top Unsecured Claims

Key Parties

General Bankruptcy Counsel:

• Aaron M. Kaufman
  Gray Reed & McGraw LLP
  Email: akaufman@grayreed.com

Special Corporate and Litigation Counsel:

• Olshan Frome Wolosky LLP

Special Regulatory Counsel:

• Greenberg Traurig LLP

Financial Advisor:

• Oliver Wyman, LLC

Investment Banker:

• Raymond James & Associates, Inc.

Signatories:

• Chris Kenney – CEO and CFO

Claims Agent:

• Stretto, Inc.

Equity Security Holders:

• Charles Schwab & Co., Inc. – 13.6% Equity Interest
• NFS LLC – 11.5% Equity Interest
• Raymond James & Associates, Inc. – 36.29% Equity Interest

Bondoro Insights is continuing to monitor this case and will provide further coverage as appropriate.

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