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Financial Restructuring & Insolvency

  • A Decision of Interest: U.S. Court of Appeals for the Second Circuit Opines on the Proper Interest Rate Under the Cramdown Provisions of Chapter 11

    13 Nov 2017

    On October 20, 2017, the United States Court of Appeals for the Second Circuit issued an important decision regarding the manner in which interest must be calculated to satisfy the cramdown requirements in a chapter 11 case. The Second Circuit sided with Momentive’s senior noteholders and found that “take back” paper issued pursuant to a chapter 11 plan should bear a market rate of interest when the market rate can be ascertained, as opposed to a rate set using the “formula approach” (generally the prime rate plus 1% to 3%). In so holding, the Second Circuit found that the United States Supreme Court’s decision in Till v. SCS Credit Corp. (which determined the rate of interest in the context of a cramdown in an individual debtor chapter 13 case) did not conclusively require the use of a formula approach in a chapter 11 context, and agreed with other courts, including the United States Court of Appeals for the Sixth Circuit, that a market rate should apply in circumstances in which it can be established.

  • (Make) Wholly Moly: U.S. Court of Appeals for the Second Circuit Upholds Ruling Denying Noteholders’ Entitlement to a Make-Whole Payment

    13 Nov 2017

    On October 20, 2017, the United States Court of Appeals for the Second Circuit issued a decision which, among other things, affirmed the lower courts’ holding that certain noteholders were not entitled to payment of a make-whole premium. The Second Circuit held that the make-whole premium only was due in the case of an optional redemption, and not in the case of an acceleration brought about by a bankruptcy filing.

  • Final Rule Issued on Qualified Financial Contracts: What You Need to Know

    8 Nov 2017
    On September 1 2017 the Board of Governors of the Federal Reserve System adopted a final rule requiring US global systemically important banking institutions (GSIBs), their subsidiaries and the US operations of foreign GSIBs (covered entities) to amend many of their qualified financial contracts (QFCs) in order to restrict their counterparties' ability to immediately terminate such contracts in the event that the covered entity or an affiliate enters into bankruptcy or resolution proceedings.
  • We, the Releasees: Delaware Bankruptcy Court Holds That It Had Constitutional Authority to Approve Nonconsensual Third-Party Releases

    1 Nov 2017

    On October 3, 2017, Bankruptcy Judge Laurie Selber Silverstein of the United States Bankruptcy Court for the District of Delaware issued a decision holding that the Bankruptcy Court had constitutional authority to approve third-party releases in a final order confirming a plan of reorganization. 

  • Taxation of Restructuring Profits in Germany - Tax Administration and Legislator Swiftly React to a Recent Detrimental Decision of the German Federal Fiscal Court

    5 May 2017
    A recent decision by the German Federal Fiscal Court (BFH) has caused significant concerns in the restructuring community because it will severely complicate future restructurings in Germany or even make them impossible overall.
  • Roust’s Rapid Road to Confirmation: Confirmation of a Prepackaged Plan in the Southern District of New York in Less Than a Week—Have the Floodgates Opened?

    31 Jan 2017

    In less than a week after its bankruptcy filing, a debtor was able to obtain confirmation of its prepackaged plan of reorganization in the Bankruptcy Court for the Southern District of New York. In allowing the case to be confirmed on a compressed timeframe that was unprecedented for cases filed in the Southern District of New York, the Bankruptcy Court held that the 28-day notice period for confirmation of a chapter 11 plan could run coextensively with the period under which creditor votes on the plan were solicited prior to the commencement of the bankruptcy case.

  • Appeals Court Overturns Marblegate, Citing Analysis by Shearman & Sterling Partner

    18 Jan 2017

    The law on debt restructurings and liability management transactions is back to where it was. Yesterday, the 2nd Circuit Court of Appeals reversed the controversial District Court decisions in the Marblegate-Education Management bondholder litigation. The case attracted wide-spread attention in financial markets. The District Court interpreted the non-impairment provision in section 316(b) of the Trust Indenture Act, a Depression-era statute governing bond indentures. The provision prohibits a bondholder’s right “to receive payment” of principal and interest on the respective due dates expressed in the bonds from being “impaired or affected” without the bondholder’s consent. According to the District Court, the provision prohibited not just amendments to payment terms, but also other transactions that affected a bondholder’s practical ability to recover–at least when they occurred in connection with a “debt restructuring.”

  • EFIH Noteholders Find Redemption for the Payment of Make-Whole Premiums

    21 Nov 2016

    On November 17, 2016, the United States Court of Appeals for the Third Circuit issued a decision in which it held that holders of first lien notes and second lien notes of Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. (together, “EFIH”) are entitled to payment of make-whole claims. In its reversal of the Delaware Bankruptcy Court and Delaware District Court, the Third Circuit focused largely on the distinction that the payment in question was tied to a “redemption” of the bonds, and was not a “prepayment” premium. The Third Circuit held, among other things, that while a premium based on “prepayment” cannot take effect after the debt’s maturity upon an automatic acceleration, a premium tied to a “redemption” before a fixed date is unaffected by the acceleration of the debt’s maturity. 

  • Halbhuber Authors Opinion Piece on Congressional Intent in Debt Restructurings

    26 Sep 2016
    Counsel Harald Halbhuber (New York-Capital Markets) wrote an opinion piece, titled “Congress Never Intended Windfall for Bond Holdouts,” that was published by Forbes on September 23.
  • FINRA Capital Acquisition Broker Proposal Approved

    20 Sep 2016

    In August 2016, the SEC approved FINRA’s proposal to permit firms conducting only enumerated corporate financing activities (“capital acquisition brokers” or “CABs”) to operate under a more limited FINRA rule set, a move intended to relieve those limited purpose firms from certain regulatory burdens. The implementation date will be no later than February 14, 2017.

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