This month’s issue of Debt Dialogue address make-wholes, debt-for-debt exchange offers, insider trading and a variety of other topics.
Topics covered in this issue include:
EFIH Secured Bondholders Win Make-Whole Appeal in Third Circuit
On November 17, 2016, the United States Court of Appeals for the Third Circuit held that noteholders of Energy Future Intermediate Holding Co. LLC that unwillingly had their secured notes repaid ahead of schedule in bankruptcy were entitled to receive a “make-whole” payment required under the indentures. The decision, which reversed the bankruptcy and district courts and explicitly disagreed with another closely watched decision from the Southern District of New York, has important implications for borrowers and lenders grappling with refinancing in Chapter 11 cases.
On the Continuing Viability of Debt-for-Debt Exchange Offers
A recent decision in the Southern District of New York, Waxman v. Cliffs Natural Resources, addressed a challenge to a secured-for-unsecured debt exchange offer. Ruling in favor of the issuer on all counts, the decision is a useful reminder of the continuing viability of debt exchange offers, notwithstanding the uncertainties sown by the recent TIA §316(b) cases and the pending Second Circuit appeal in Marblegate.
The Uniform Voidable Transactions Act: Old Law, New Name
Since 2014, the new Uniform Voidable Transactions Act (UVTA) has been enacted in nine states and introduced in another seven states. The Act is really a very old law with a new name.
Limits on Creditors’ Remedies Against Solvent Debtors Echoed in the Quadrant Litigation
In Quadrant Structured Products Company, Ltd. v. Vertin, the Delaware Supreme Court recently affirmed the Court of Chancery’s dismissal of a suit by a creditor against Athilon Capital Corp. and its sole shareholder, Merced Capital Partners. Despite seemingly egregious conduct, Merced escaped all liability. The case serves as a reminder of the limited recourse of creditors against controlling shareholders of a solvent debtor.
Bankruptcy Court Permission Required to Sue UCC Members
In a recent case, Blixseth v. Brown (In re Yellowstone Mountain Club, LLC), the Ninth Circuit held that the plaintiff needed the bankruptcy court’s permission to bring post-petition claims against the chair of the Unsecured Creditors Committee. The case is the first to apply the Barton doctrine, which requires plaintiffs to obtain authorization from the bankruptcy court before suing officers appointed by the court for actions taken in their official capacities, to UCC members.
Insider Trading and Remote Tippees
The Supreme Court’s decision in Salman v. United States left undisturbed the Second Circuit’s holding in U.S. v. Newman that, to be liable, remote tippees must know both that the information they traded on came from insiders and that the insiders received a personal benefit in exchange for the tips. Absent this knowledge, Newman seemingly protects the trader from liability, but caution and consultation with legal counsel are nonetheless advisable even when the source of the information is remote and unknown.