This month’s issue of Debt Dialogue offers a mix of recent case law and other topics. It looks at fraudulent conveyance, the common interest privilege, cancellation of debt, TIA Section 314(d) and some cases with fact specific circumstances of interest.
Topics covered in this issue include:
In In re Lyondell Chemical Co., the court recently reinstated an intentional fraudulent conveyance claim seeking to claw back $6.3 billion in distributions to Lyondell’s shareholders in its failed LBO. The decision may reopen a door — which many had believed was all but closed — for disgruntled creditors seeking to challenge failed LBOs as fraudulent conveyances.
This summer, the New York Court of Appeals ruled that the common interest doctrine, which allows parties to share communications of counsel without waiving the attorney-client privilege, applies only to pending or reasonably anticipated litigation. The decision may have implications for shared legal communications among funds and others jointly participating in financing transactions.
Incremental loan provisions in non-investment grade syndicated credit agreements contain MFN pricing protection that increases the interest rate on the original loan in certain circumstances. This can result in COD income to the borrower and may also have tax consequences for lenders.
In Orchid Hill Master Fund Ltd. v. SBA Communications Corp., the Second Circuit held that convertible noteholders who exercise their conversion rights just prior to maturity were not entitled to interest for the last payment period, contrary to what the noteholders alleged was market expectation.
TIA Section 314(d)(1) requires issuers of secured bonds to provide the trustee with a fair value report when collateral securing the bonds is released. Issuer compliance with this requirement is worth a look, if circumstances suggest something may be amiss with a collateral disposition.
Particularly in municipal bond financing, payment of debt service, and the security for the indebtedness, is typically limited to a defined source of funds. If the issuer becomes distressed, holders of the bonds often seek to reach beyond the prescribed funding source, but the documentation may well foreclose them from doing so.