This month’s issue of Debt Dialogue addresses recent developments and recurring issues that debt-focused investors commonly encounter in connection with enforcement of rights, interpretation of documentation and other relevant matters.
Topics covered in this issue include:
The U.S. Court of Appeals for the Second Circuit recently issued a long-awaited decision in In re MPM Silicones, LLC (Momentive), holding that, with one important exception, the plan of reorganization confirmed by the bankruptcy court comports with Chapter 11. The Second Circuit held that the bankruptcy court had erred in the process that it used to determine the proper cramdown interest rate, and that use of the market rate is appropriate where an efficient market exists. The court also ruled that senior lien noteholders were not entitled to a make-whole premium, introducing a split with the Third Circuit.
With the U.S. Government Accountability Office’s (GAO’s) letter ruling on Oct. 19, 2017, that the 2013 Interagency Guidance on Leveraged Lending (Leveraged Lending Guidance) constitutes a “rule” for purposes of the Congressional Review Act (CRA), participants in the leveraged lending markets are inquiring as to what the current status of the Leveraged Lending Guidance is and what the likely procedural next steps under the CRA will be.
In July 2017, the U.K. Financial Conduct Authority (FCA), announced that it will discontinue the London interbank offered rate (LIBOR) at the end of 2021. A phaseout of LIBOR will be a major undertaking raising many issues, including the treatment of existing floating rate indentures with maturities past 2021 and preparation of new indentures that will be executed prior to the phaseout of LIBOR.
The Bankruptcy Code limits in many ways the rights of nondebtors under contracts of a debtor in bankruptcy. However, agreements governing securities repurchase (or repo) transactions involving a financial institution may be terminated and liquidated notwithstanding the bankruptcy filing of the repo seller. The termination and liquidation of these transactions are not subject to the automatic stay or the unenforceability of “ipso facto” provisions, and payments made pre-filing are not subject to the avoidance power of the trustee.
The U.S. Court of Appeals for the First Circuit recently held that an official creditors’ committee had an unconditional statutory right to intervene in an adversary proceeding. However, the First Circuit also held that the scope of intervention may be qualified, with limits set by the trial court on a case-by-case basis.
As cases from the sea of failed residential mortgage-backed securities (RMBS) trusts from the first decade of the millennium continue to wind their way through the courts, the corpus of case law on duties and liabilities of trustees continues to accumulate data points. In Phoenix Light SF Limited v. The Bank of New York Mellon, which was decided in the Southern District of New York in September 2017, the court addressed issues relating to knowledge of the trustee, entitlement to indemnity, noteholder direction and more.