The primary investment thesis of a private credit lender is simple — get the loan repaid at maturity. Private credit lenders do not make loans as a means to acquire their borrower’s business. There are circumstances, however, where private credit lenders must be prepared to take ownership when the borrower is distressed and there is no realistic prospect of near-term loan repayment. Becoming the owner of a borrower’s business may very well be the loan recovery option of last resort.
The Situation: In Homaidan v. Sallie Mae, Inc., et al., the U.S. Court of Appeals for the Second Circuit recently affirmed that certain types of private student loans are not "obligation[s] to repay funds received as an educational benefit, scholarship, or stipend" that are exempt from discharge in bankruptcy absent an undue hardship.
Chapter 11 plans of reorganization provide creditors with recoveries (cash or new securities) in exchange for a release and discharge of all claims against the debtor. Many Chapter 11 plans go a step further to release claims against related entities and persons who are not debtors in the case. Members of Congress have recently proposed legislation that could prohibit such nonconsensual third-party releases.
SEPTEMBER 2021 THE PRACTICAL REAL ESTATE LAWYER | 49 JOSHUA STEIN, one of the most prolific contributors to The Practical Real Estate Lawyer in its history, handles a wide range of commercial real estate transactions and regularly serves as an expert witness. He is a member of the American College of Real estate Lawyers and author of five books and over 300 articles on commercial real estate law and practice. Many appear on his website, www.joshuastein.com.
Priming transactions have grown in frequency during the pandemic, and with them, new ways to test the limits of credit agreement provisions. In a recent example, lenders to struggling restaurant-supplier TriMark entered into a transaction whereby they provided new money to TriMark, primed non-participating existing lenders, and then amended the existing credit agreement to broaden the contract’s “no-action clause” to make it difficult for non-participating lenders to bring suit under the credit agreement. It didn’t work.
In its August 5th, 2021 VeroBlue Farms decision,[1] the Eighth Circuit lent its voice to a growing body of criticism of the equitable mootness doctrine contending that its use to bar challenges to confirmed reorganization plans should be circumscribed.
The Bankruptcy Protector
Many describe the United States as Canada's most important trade partner. Cross-border insolvency proceedings between the two jurisdictions are frequent and the recognition by one country's court of the other's bankruptcy orders is an important tool in facilitating the restructuring of companies with operations that spread across North America. A recent decision from the Ontario Court of Appeal (leave to appeal of which was denied by the Supreme Court of Canada) invites us to reflect on the delicate balance between comity for foreign orders and Canada's sovereignty over domestic laws.
On August 17, 2021, Basic Energy Services, L.P., along with several affiliates that provide operational support for oil and gas wells located in several US states, filed a petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of Texas (Case No. 21-90001). The company reports $100 to 500 million in assets and $500 million to $1 billion in liabilities.
On May 24, 2021, the U.S.