Why Johnson & Johnson Is in Bankruptcy Court Even Though It’s Not Bankrupt

Johnson & Johnson is among the wealthiest and most successful businesses on the planet. With a stock market value of about $430 billion, it’s one of 30 constituents of the Dow Jones Industrial Average. The health-care and consumer-products giant holds about $25 billion in cash, and it’s one of just two companies with a perfect credit rating from both S&P and Moody’s. Which is why it’s so unusual that it decided to lean on the protection of a federal bankruptcy court in Charlotte.

J&J itself isn’t bankrupt—instead, it has split off a new unit essentially designed to go broke paying legal liabilities. It’s part of a maneuver to deal with about 38,000 lawsuits, mostly filed by women who claim one of the company’s oldest products, baby powder, causes ovarian cancer. J&J already paid $2.5 billion to about 20 women earlier this year. The new subsidiary, called LTL Management, was created to take responsibility for resolving the baby-powder lawsuits. Almost immediately after it was formed LTL filed for Chapter 11.