Source: http://www.bankruptcyandrestructuringlawmonitor.com/
Timestamp: 2013-05-20 09:07:03
Document Index: 788065050

Matched Legal Cases: ['§ 18', '§ 18', '§ 1111', '§ 1111', '§ 562', '§ 502']

Bankruptcy and Restructuring Law Monitor | Chapter 11 | Cole Schotz Law Firm
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Latest Trends in the Enforceability of Make-Whole Premiums	By
Ryan T. Jareck on February 4th, 2013
Posted in Bankruptcy Litigation A lender’s entitlement to a make-whole premium, that is, a prepayment penalty designed to compensate the lender for the loss of interest payments it would have received had the borrower continued to service the debt through the maturity date of the loan, depends principally on the plain language of the bond indenture or credit agreement. See, e.g., HSBC Bank USA, N.A. v. Calpine Corp. (In re Calpine Corp.), No. 07 Civ 3088 (GBD), 2010 WL 3835200, at *4 (S.D.N.Y. Sept. 15, 2010) (after reviewing the debt instruments, the district court agreed with the bankruptcy court insofar as it held that the lenders were not entitled to make-whole premiums because the plain language of the debt instruments did not provide for the payment of premiums in the event of payment pursuant to acceleration); In re Solutia, Inc., 379 B.R. 473, 485 n.7 (Bankr. S.D.N.Y. 2007) (where the indenture provided for automatic acceleration upon the filing of a chapter 11 petition but was silent as to whether any make-whole amount would or would not be payable in connection with such an acceleration, the court refused to “read into agreements between sophisticated parties provisions that are not there,” and held that no make-whole amount was due); Premier Entm’t Biloxi, LLC v. U.S. Bank N.A. (In re Premier Entm’t Biloxi LLC), 445 B.R. 582, 625-27 (Bankr. S.D. Miss. 2010) (trust indenture that provided for automatic acceleration of notes upon default arising from debtors’ bankruptcy filing rendered the notes mature at time of their repayment as part of consummation of debtors’ confirmed chapter 11 plan, such that noteholders had no contractual right to prepayment premium).
Tags: aircraft financing, American Airlines, automatic acceleration clause, bond indenture, credit agreement, enhanced equipment trust certificate, ipso facto clause, make-whole premium, prepayment penalty Emergency Contact Information: Attorneys’ Cell Phone Numbers	By
Cole Schotz Alert Due to Hurricane Sandy – Contact Information Update for All Offices	By
Posted in Uncategorized All of our offices are open, however, we are experiencing problems with telephone communication in New Jersey. If you need to contact anyone in our New Jersey office via telephone, please dial our New York main line at 212-752-8000. Our Client Service Representative will then direct your call accordingly. You may also reach our attorneys on their cell phones.
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Lenders Beware: Delaware Supreme Court Holds Creditors of Insolvent LLC Lack Derivative Standing	By
Therese A. Scheuer on September 22nd, 2011
Posted in Bankruptcy Litigation, Business Bankruptcy Issues, Recent Developments The Delaware Supreme Court recently held that creditors lack standing to bring a derivative suit on behalf of an insolvent Delaware limited liability company (an “LLC”) under the Delaware Limited Liability Company Act (the “LLC Act”). CML V, LLC v. Bax, No. 735, 2011 WL 3863132 (Del. Sept. 2, 2011, corrected Sept. 6, 2011). In an opinion written by Chief Justice Steele, the Delaware Supreme Court affirmed the Court of Chancery’s dismissal of claims brought by a junior secured creditor against the LLC’s present and former officers directly and derivatively for breaching their fiduciary duties. The Delaware Supreme Court’s holding was based on a plain reading of 6 Del. C. § 18-1002 which requires that a plaintiff be a “member” or an “assignee” of a limited liability company interest to bring a derivative action on behalf of an LLC. Facts and Procedural History
Tags: 6 Del. C. § 18-1002, Court of Chancery, Derivative Standing, Fiduciary Duties, JetDirect, Limited Liability Companies, LLC Agreements Jason Realty’s Restrictions on Use of Rents as Cash Collateral Do Not Apply to a Debtor’s Use of Hotel Revenues	By
Jason R. Finkelstein on May 11th, 2011
Posted in Bankruptcy Litigation, Recent Developments The Bankruptcy Court for the District of New Jersey (Kaplan, J.) recently held that hotel revenues (including revenues generated from room occupancy, food and beverage sales, catering, gift shop purchases, spa, and related hotel services) do not constitute “rent” within the meaning of the Third Circuit decision of In re Jason Realty, L.P., 59 F.3d 423 (3d Cir. 1995). Therefore, even if they are absolutely assigned to the secured lender, hotel revenues can be used by the debtor as cash collateral to pay its ordinary and necessary operating expenses and to reorganize. In re Ocean Place Dev., LLC, No. 11-14295 (Bankr. D.N.J. Mar. 31, 2011).
Ocean Place Development, LLC (“Debtor”) owned a 254-room beachfront resort in Long Branch, New Jersey, which included a large conference center, three restaurants, a bar/lounge, a full-service spa, and numerous other amenities. Ocean Place owed approximately $58 million pursuant to the terms of its loan agreement with AFP 104 Corp., as successor to Barclays Capital Real Estate Inc. (“AFP”). Repayment of the loan was secured by, among other things, a Mortgage and an Assignment of Rents and Leases (the “Assignment of Rents”). Both the Mortgage and Assignment of Rents defined the term “rents” broadly, to include all “… revenues and credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreation facilities, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of the property or rendering of services by Borrower [Debtor] or any operator or manager of the hotel . . . .”
Following the Debtor’s default under the loan, AFP obtained a foreclosure judgment. The Debtor filed a Chapter 11 petition before the scheduled foreclosure sale, and sought authority to use cash collateral consisting of hotel revenues. AFP objected, and cross-moved for an order dismissing the Debtor’s case as a bad faith filing or, alternatively, for relief from the automatic stay to proceed with the foreclosure sale. The Bankruptcy Court granted the Debtor’s request to use cash collateral, and denied AFP’s motion.
In a case of first impression, the Bankruptcy Court commenced its opinion with an analysis of whether hotel room revenues constitute property of the estate within the meaning of Section 541 of the Bankruptcy Code. The Court framed its task as two-fold: (i) first, it had to decide whether a security interest in hotel room revenues constitutes an interest in realty or an interest in personalty that must be perfected and enforced under Article 9 of New Jersey’s version of the Uniform Commercial Code (“UCC”); and (ii) second, even if such interest was deemed personalty, whether the Debtor’s use of hotel revenues was consistent with Jason Realty. Article 9 governs transactions which create security interests in personal property or fixtures. The Court found that the loan transaction in this case clearly was a “secured” transaction, as the loan documents granted the lender a security interest in the rents and leases and further stated that “Borrower [Debtor] intends for the security instrument to be a ‘security agreement’ within the meaning of the UCC.” Additionally, the loan documents provided other indications of a secured transaction as they allowed: (i) the Debtor to collect rents as long as it was not in default of the mortgage; (ii) AFP to use post-default rents only to reduce the Debtor’s obligations to AFP; and (iii) for automatic termination of the Assignment of Rents after repayment of the loan. The Court then noted that Article 9 does not extend to interests in or liens on real property, including a lease or rents thereunder. However, based on a case from the Bankruptcy Court for the Southern District of New York, In re Kearney Hotel Partners v. Richardson, 92 B.R. 95 (Bankr. S.D.N.Y. 1988), the Official Comments to the UCC and an examination of New Jersey statutes, the Bankruptcy Court concluded that hotel room revenues are “accounts” or “payment intangibles,” and not “rents.” In so ruling, the Court adopted the distinction from those authorities between guests in hotel rooms, who are simply licensees, and tenants under a lease. Thus, Judge Kaplan held that despite the definition of “rents” in the loan documents, hotel revenues are personal property included in the definition of property of the estate.
The Court then examined whether classifying hotel room revenue as personal property conflicts with the Third Circuit’s precedent in Jason Realty. After discussing the background of Jason Realty, Judge Kaplan noted that case involved an absolute assignment of rents due from tenants of a two-story retail and office building, and not the assignment of receipts from a debtor’s operation of a hotel, restaurant or spa. Additionally, the Court distinguished Jason Realty on the basis that the Third Circuit was tasked with assessing the “treatment of an assignment under New Jersey property law and the ensuing rights of an assignee arising under an absolute assignment of rents.” Judge Kaplan, to the contrary, had to determine whether hotel room revenues should be treated as real property interests. Because he determined that interests in hotel revenues should be treated as personalty under Article 9, he was not required to address whether “the assignment of rents absolutely vested title in AFP.” Indeed, Judge Kaplan did not even necessarily dispute that the loan transaction evidenced both a security agreement and an absolute assignment of rents. Based on his distinction of Jason Realty from the case before it in Ocean Place, Judge Kaplan declined to extend Jason Realty to personal property security interests, and allowed the Debtor to use its hotel room revenues as cash collateral so long as AFP remained adequately protected.
Tags: adequate protection, Bankruptcy Code, Bankruptcy Code Section 541, cash collateral, hotel room revenues, Jason Realty, rents Third Circuit Holds a Plan Administrator in Debtor’s Second Bankruptcy was Not in Privy of Debtor in the First Bankruptcy for Res Judicata Purposes and 11 U.S.C. § 1111(b) Permits Non-Recourse Claims to Become Recourse for Distribution Purposes Only	By
Grant L. Cartwright on May 3rd, 2011
Posted in Recent Developments In In re Montgomery Ward, LLC, 634 F.3d 732 (3d. Cir. 2011), the Court of Appeals for the Third Circuit clarified the principles of res judicata in the context of a bankruptcy proceeding and further defined the scope of 11 U.S.C. § 1111(b). The decision is significant because it is the first appellate decision to determine what constitutes privity for res judicata purposes in the context of a bankruptcy proceeding and also because it held that section 1111(b) transforms non-recourse claims into recourse claims only for distribution purposes.
The parties also entered into a lease and sublease agreement (the “Lease and Sublease Agreement”) whereby Jolward subleased the land underlying the department store back to Montgomery Ward, and also leased the department store back to Montgomery Ward, for a period of thirty years. Jolward obtained construction financing by executing a mortgage (the “Mortgage”) in favor of State Farm Life Insurance Co. (“State Farm”). Montgomery Ward joined in the execution of the Mortgage, but assumed no personal liability. Thus, the Mortgage was without recourse to Montgomery Ward.
Some twenty years later, in 1997 and again in 2000, Montgomery Ward filed chapter 11 bankruptcy petitions. In the first bankruptcy proceeding (“Ward I”), State Farm filed a proof of claim for the outstanding balance of the Mortgage. The confirmed plan (“Ward I Plan”) provided for no distribution to State Farm on account of the Mortgage. However, State Farm retained its security interest. In addition, Montgomery Ward assumed the Lease and Sublease Agreement.
In the second bankruptcy proceeding (“Ward II”), a liquidating chapter 11, Dika-Ward, LLC (“Dika-Ward”), as assignee of the State Farm and Jolward bankruptcy claims, filed a proofs of claim for the full amount of the Mortgage and lease rejection damages based on the Lease and Sublease Agreement. Dika-Ward asserted that the Mortgage, although initially nonrecourse, had become recourse in Ward I under section 1111(b) of the Bankruptcy Code.
The Plan Administrator objected to both claims. Specifically, the Plan Administrator argued that the Lease and Sublease Agreement was merely a structured financing agreement and not a true lease. Dika-Ward argued that the confirmed Ward I Plan precluded the Plan Administrator from challenging the Lease and Sublease Agreement on principles of res judicata. The Delaware Bankruptcy Court granted summary judgment for Dika-Ward on the res judicata issue and summary judgment for the Plan Administrator on the Dika-Ward Mortgage claim. Both Dika-Ward and the Plan Administrator appealed.
The Third Circuit vacated the summary judgment for Dika-Ward regarding res judicata and remanded the issue to the Bankruptcy Court for a determination as to whether the Lease and Sublease agreement was a true lease or a structured financing. The Third Circuit observed that res judicata bars relitigation of a claim if there has been a final judgment on the merits in a prior suit involving the same claim and the same parties or their privies. Here, the Court focused on “whether the Ward II Plan Administrator, as successor in interest to the Ward II Estate, was the same party as, or privy of, the Ward I Debtor.” The Court found that the Plan Administrator in Ward II was not in privity with the debtor in Ward I and, therefore, was not barred by the doctrine of res judicata from contending that the arrangement was a structured financing agreement and not a true lease. The Court reasoned that the Ward I debtor was a party to the Ward I confirmation proceeding, and that upon confirmation, the Ward I debtor ceased to exist, and the reorganized Montgomery Ward succeeded to the Ward I estate. When the Ward II bankruptcy was filed, the Ward II debtor became the trustee of the new bankruptcy estate.
Moreover, the Court found that as trustee, the Ward II debtor was not the same party as the debtor in the first instance because it did not have the same incentives as the Ward I debtor had in the first proceeding. In Ward I, the debtor had an incentive not to bring the cause of action because it wanted Montgomery Ward to continue operating the store; however, in Ward II, the Plan Administrator had an incentive to challenge the lease because Montgomery Ward was liquidating, and a successful challenge would increase returns to the general unsecured creditors. Accordingly, the Court held that because the Plan Administrator was not in privy with the Ward I debtor, res judicata did not preclude the Plan Administrator from challenging the Lease and Sublease Agreement.
The Third Circuit next addressed Dika-Ward’s argument that the Mortgage had become recourse under section 1111(b) as a result of the first bankruptcy proceeding. Section 1111(b) provides that if a debtor elects to continue using encumbered property in its reorganization, the bankruptcy court will grant the nonrecourse creditor, whose claim is secured by an interest in that property, an allowed claim under section 502 as if its security interest had recourse. The Court found that “[s]ection 1111(b)’s language and purpose indicate that the recourse transformation is for distribution purposes only.” In affirming the Bankruptcy Court, the Third Circuit held that Dika-Ward possessed no claim against the Ward II debtor on account of the Mortgage because the security interest remained nonrecourse as to Montgomery Ward.
This case represents one of the first appellate decisions determining who constitutes a “party in privity” for res judicata purposes in a bankruptcy proceeding and establishes that in the Third Circuit for res judicata to bar relitigation of a claim in a bankruptcy proceeding the parties at issue must have aligned incentives.
In light of the Montgomery Ward decision, a trustee appointed in bankruptcy would not be barred by res judicata from challenging the actions taken by a debtor-in-possession prior to the trustee’s appointment as long the trustee can prove different incentives.
This case also represents one of the first appellate decisions finding that section 1111(b) transforms non-recourse claims into recourse claims only for distribution purposes. Affirming the Bankruptcy Court, the Third Circuit emphasized that while section 1111(b) provides recourse status to non-recourse claimants in bankruptcy, it does not alter the creditor’s legal and contractual rights outside of bankruptcy.
Tags: Non-recourse Mortgage, recent developments, Recourse Mortgage, Res Judicata, Section 1111(b), Third Circuit Application of the Common Interest Doctrine in Bankruptcy Proceedings	By
Gerald H. Gline on February 1st, 2011
Posted in Bankruptcy Litigation, Recent Developments The U.S. Bankruptcy Court for the District of Delaware recently extended the common-interest doctrine to pre-petition communications between the debtor and an informal committee of claimants in In re Leslie Controls Inc. Gerald Gline and David Kohane, Members of Cole Schotz, and Jason Finkelstein, an associate at Cole Schotz, recently wrote an article for the American Bankruptcy Institute Journal about the common-interest doctrine’s role in bankruptcy proceedings. Click here to read the article.
Tags: common-interest doctrine, In re Leslie Controls Inc. What Does “Commercially Reasonable Determinants of Value” Mean Under Section 562 of the Bankruptcy Code?	By
Ryan T. Jareck on July 27th, 2010
Posted in Recent Developments As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress added Section 562 to the Bankruptcy Code. Section 562 governs the timing of damage measurements with respect to swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements that are rejected or terminated in connection with a bankruptcy case. Section 562 provides, in relevant part, that:
(a) If the trustee rejects a…repurchase agreement,…or if a…repo participant… liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of –
(2) the date or dates of such liquidation, termination, or acceleration
Accordingly, damages are measured as of the earlier of the date of the debtor’s rejection of the contract or the date of the eligible party’s liquidation, termination, or acceleration of the contract. See In re Enron Corp., 354 B.R. 652 (S.D.N.Y. 2006). If commercially reasonable valuation data is not available as of that date, then Section 562(b) of the Bankruptcy Code requires that damages be measured as of the earliest subsequent date for which data is available. Realizing that such a valuation system could lead to parties attempting to improve their position by valuing the qualified contract in the future, Congress added a deterrent – if the damages are not measured as of the dates provided in Section 562(a), and either the trustee or the protected party objects to the timing of the measurement of damages, the burden falls on the non-objecting party to prove that there was no commercially reasonable method of calculating the value of the derivative as of the dates specified in subparts (1) or (2). See 11 U.S.C. § 562(c).
In conjunction with adding Section 562, Congress also added Section 502(g)(2) to the Bankruptcy Code, which provides that any claim for damages arising from the post-petition rejection, liquidation, termination or acceleration of a qualified contract under Section 562 shall be treated as a prepetition claim. See 11 U.S.C. §§ 502(g)(2) and 562.
In the approximately 5 years since BAPCPA, there has been very little case law interpreting Sections 562 and 502(g)(2) of the Bankruptcy Code. Recently, a Delaware bankruptcy court delivered the first decision applying Section 562 to a claim based on the termination of a repurchase agreement. See In re American Home Mortgage Corp., 411 B.R. 181 (Bankr. D. Del. 2009). In that case, certain American Home entities and Calyon New York Branch (“Calyon”) entered into a repurchase agreement pursuant to which Calyon purchased certain mortgage loans from American Home. Following American Home’s default, Calyon accelerated the repurchase agreement in accordance with its terms, thereby requiring American Home to repurchase the loans immediately for a price of approximately $1.14 billion (the “Repurchase Price”). Shortly thereafter, American Home filed for Chapter 11 bankruptcy protection. Calyon submitted a claim slightly in excess of the Repurchase Price. Calyon contended that it could not have obtained a “commercially reasonable price” for the loan portfolio on the acceleration date because, among other things, the market was distressed and, therefore, the only proper valuation methodology for its claim was the market or sale value. Therefore, Calyon measured its claim based on a subsequent market valuation. American Home argued, in turn, that Calyon could not prove that no “commercially reasonable determinants of value” existed on the acceleration date. Rather, Calyon’s claim should be measured based on a discounted cash flow valuation as of the acceleration date.
The Bankruptcy Court found that the phrase “commercially reasonable determinants of value” in Section 562 was ambiguous, and looked to legislative history for guidance. The Court remarked that the legislative history contains “an acknowledgement that the size of the portfolio or a dysfunctional market would make reliance upon the market price on a specific day unreasonable. . . Thus, where the market is dysfunctional it may be difficult or impossible to use a market price to assign value to an entire asset or asset pool on a single date – either because the nature of the market mandates that the asset be broken up and sold off in multiple pieces on multiple dates (thereby making it impossible to measure damages on a single date) or because the nature of the market at given time would result in having to sell or liquidate the asset in a commercially unreasonable manner.”
The Court then analyzed the purpose and intent of Section 562 and noted that the common thread for repurchase agreements in the Bankruptcy Code is liquidity: “the primary purpose of the Code provisions relating to repurchase agreements is to preserve the liquidity in the relevant assets, including mortgage loans and interests in mortgage loans. Section 562 serves to align the risk and rewards associated with an investment in those assets.”
The Court ultimately did not find significant assistance from the legislative history or purpose of Section 562, and returned to the fundamental inquiry of assessing an asset’s value. The Court agreed with Calyon that “commercially reasonable determinants of value” means evidence regarding what an asset could be bought or sold for in the marketplace. The Court disagreed, however, that the only pertinent determinants of value are “those that provide evidence of the asset’s actual market price.” Such a reading of Section 562, the Court concluded, was too narrow. The Court reasoned that nothing in Section 562 suggests a limitation on any particular methodology used to determine value, as long as it is commercially reasonable. Furthermore, waiting for the asset to become saleable and/or the market to correct itself might take a long time. In fact, in the case at issue, Calyon took more than a year before selling the asset. The Court opined that “[t]his creates exactly the moral hazard that section 562 was designed to prevent. In such an instance, the repo participant can sit back and monitor market conditions while being protected, at least in part, from market losses by its potential deficiency claim against the debtor.”
In sum, the Court held that the phrase “commercially reasonable determinants of value” is not circumscribed to the actual sale or market value of an asset, and that a discounted cash flow valuation is a valid method for determining the value of the loan portfolio at issue, which was an income-producing asset. Therefore, Calyon suffered no damages from the termination of the repurchase agreement.
Tags: BAPCPA, Commercially Reasonable Determinants of Value, Commodity Contracts, Forward Contracts, Liquidation, Master Netting Agreements, Rejection, Repurchase Agreements, Securities Contracts, Swap Agreements, Termination Third Circuit Holds Section 1129(b)(2)(A) of the Bankruptcy Code Does Not Provide Secured Lenders With a Legal Entitlement to Credit Bid at an Auction Sale Pursuant to a Plan of Reorganization	By
Ryan T. Jareck on March 25th, 2010
Posted in Recent Developments Does a secured creditor have an absolute right to acquire its collateral, which is sold pursuant to a plan of reorganization, by credit bidding its debt? The Third Circuit Court of Appeals, in a strict constructionist opinion, has just answered this question in the negative.
The Court of Appeals in In re Philadelphia Newspapers, LLC, No. 09-4266 (3d Cir. March 22, 2010) upheld the decision of the United States District Court for the Eastern District of Pennsylvania (which reversed the Bankruptcy Court’s ruling) that barred the prepetition secured lenders from credit-bidding their secured claim to purchase the assets of Philadelphia Newspapers L.L.C. (the “Debtor”) pursuant to the Debtor’s plan of reorganization. The Debtor and other related affiliate-debtors own and operate The Philadelphia Inquirer, Philadelphia Daily News, and philly.com (the “Assets”), which they acquired for $515 million in July 2006 with the proceeds of a $295 million loan from a syndicate of lenders (the “Lenders”). The Lenders hold a first priority lien on substantially all of the Debtor’s Assets, and are owed approximately $319 million. The Debtor proposed a Chapter 11 plan of reorganization (the “Plan”) providing for the sale of the Assets at a public auction free and clear of all liens, claims and encumbrances. Simultaneously, the Debtor entered into a stalking horse purchase agreement with Philly Papers, LLC, an insider of the Debtor, and sought, through its proposed bidding procedures, to preclude the Lenders from credit bidding at the public auction (i.e., all bids had to be in the form of cash).
The Third Circuit was asked to decide whether the District Court correctly held that Section 1129(b)(2)(A) of the Bankruptcy Code does not provide secured lenders with a legal entitlement to credit bid at an auction sale pursuant to a plan of reorganization. The Third Circuit, as did the District Court, relied on the plain language of the statute, which “provides three distinct routes to plan confirmation – retention of liens and deferred cash payments under subsection (i), a free and clear sale of assets subject to credit bidding under subsection (ii), or provision of the “indubitable equivalent” of the secured interest under subsection (iii).” These three alternatives were independent and, therefore, proceeding under either of them was sufficient for confirmation of a plan as “fair and equitable” under the Bankruptcy Code. Because subsection (iii), unlike subsection (ii), does not incorporate the right to credit bid, a debtor who seeks confirmation under the third alternative is not required to allow credit bidding.
In so ruling, the Third Circuit agreed with the Fifth Circuit’s decision in In re Pacific Lumber Co., 584 F.3d 229 (5th Cir. 2009), and distinguished its holding in In re SubMicron Systems Corp., 432 F.3d 448 (3d Cir. 2006). The Court found that SubMicron, which holds that a lender in a Section 363(b) sale could bid up to the full value of its loan and the credit bid sets the value of the lender’s secured interest in collateral, does not equate to a holding that a credit bid must be the successful bid at a public auction. Rather, a court is called at the plan confirmation stage to determine whether a lender has received the “indubitable equivalent” of its secured interest in the collateral. In other words, it is the plan of reorganization, and not the auction itself, that must generate the “indubitable equivalent.” The Third Circuit noted that, notwithstanding its ruling, secured lenders still retain their rights to argue at confirmation that the absence of a credit bid fails to provide them with the “indubitable equivalent” of their collateral.
Judge Thomas Ambro, a former bankruptcy judge, dissented. Judge Ambro reasoned that to read subsection (iii) to accomplish a sale free of liens, but without following the specific procedures prescribed by subsection (ii), undoubtedly places the two clauses in conflict. He expressed serious concern that the majority’s ruling effectively eviscerated the rights afforded to and expectations of secured lenders, and forecasted the adverse impact the ruling would have on the availability and pricing of future credit. Given the prevalence of credit bidding in Chapter 11 cases today, the Third Circuit’s opinion will have a significant ripple effect.
Tags: collateral, confirmation, credit bid, fair and equitable, free and clear, indubitable equivalent, plan of reorganization, sale of assets, secured lenders, stalking horse Older Posts
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