Hogan Lovells Publications | 17 February 2020

"The Net Short": U.S. and European High-Yield Covenant Trends in Response to Net Short Activism

A creditor’s “later-in-time reclamation demand is ‘subject to’ [a lender’s] prior rights as a secured creditor,” held the U.S. Court of Appeals for the Seventh Circuit on Feb. 11, 2020. In re HHGregg, Inc., 2020 WL 628268 (7th Cir. Feb. 11, 2020). And “[w]hen a lender insists on collateral, it expects the collateral to be worth something,” said the U.S. Court of Appeals for the Third Circuit on Feb. 11, 2020, when rejecting a guarantor’s “novel reading” of his security agreement. In re Somerset Regional Water Resources, LLC, 2020 WL 628542 (3d Cir. Feb. 11, 2020).

The Bottom Line

The United States Supreme Court recently issued a unanimous decision in Ritzen Group, Inc. v. Jackson Masonry, LLC, No. 19-938 589 U.S. __ (2020), which held that a bankruptcy court’s unreserved denial of a motion for relief from the automatic stay is a final, immediately appealable order within the meaning of 28 U.S.C. 158.

What Happened

California law allows a commercial lender to recover default interest from a borrower under certain circumstances. Separately, bankruptcy law permits a secured creditor with a lien on collateral valued more than the debt to recover its default interest from the bankruptcy estate. Both state and federal law mandate that the default rate of interest should not be a penalty. However, these principles do not address what happens when the borrower or bankruptcy trustee objects to a lender’s recovery of its default interest on the grounds that such interest constitutes an unenforceable penalty.

The world of bankruptcy law has been divided into nine parts since the Bankruptcy Code was enacted in 1978. But is that number fixed by nature? Could there be ten? That would be like discovering another planet! But that may happen.

We currently have nine chapters:

Last summer, my colleague C.J. Summers and I posted a report about Saccameno v. U.S. Bank National Association, a Seventh Circuit case in which we had filed an amicus brief on behalf of the Chamber of Commerce of the United States.

Introduction

As society’s technology continues to grow more and more complex, bankruptcy attorneys find themselves on the front lines of an ever-evolving legal practice. One such emerging technology, cryptocurrency, has only just begun to become a new thorn in the sides of bankruptcy attorneys and requires their increased attention.

What is Cryptocurrency?

There has been considerable progress towards resolution in two of the largest bankruptcy cases pending in the United States: the Commonwealth of Puerto Rico and the California utility, Pacific Gas & Electric.[1]

The Bottom Line

In the July/August 2019 issue of the Business Restructuring Review, we discussed a landmark decision by the U.S. Court of Appeals for the Fifth Circuit in In re Ultra Petroleum Corp., 913 F.3d 533(5th Cir. 2019) ("Ultra I").