LEHMAN BANKRUPTCY
In re: Lehman Brothers Holdings, Inc., et al., No. 08-13555
On March 6, 2012, Lehman Brothers Holdings Inc. and its affiliated debtors announced that their Modified Third Amended Joint Chapter 11 Plan, which had been confirmed by the United States Bankruptcy Court for the Southern District of New York on December 6, 2011, had become effective. Distributions under the Plan will begin on April 17, 2012.
In a recent Michigan Court of Appeals case, Wells Fargo Bank N.A. vs. Cherryland Mall Limited Partnership et al., (2011 WL 6795393), the court found that the borrower’s violation of a solvency covenant triggered the conversion of the borrower’s and guarantor’s non-recourse obligations to full- recourse obligations. In light of the decision, when negotiating a non-recourse loan, parties would be well advised to pay close attention to the recourse covenants and to be very clear about which covenants, if breached, would trigger full recourse.
Background
On December 12, 2011, the Supreme Court granted a petition for certiorari in a case raising the question of whether a debtor's chapter 11 plan is confirmable when it proposes an auction sale of a secured creditor's assets free and clear of liens without permitting that creditor to "credit bid" its claims but instead provides the creditor with the "indubitable equivalent" of its secured claim. RadLAX Gateway Hotel, LLC v. Amalgamated Bank, No. 11-166 (cert. granted Dec. 12, 2011).
In their study published in February's issue of The Quarterly Journal of Economics, “Long-Run Impacts of Unions on Firms: New Evidence from Financial Markets, 1961–1999,” Princeton University Professor David Lee and University of California Professor Alexandre Mas estimated that an “average union effect on the equity value of the firm equivalent to $40,000 per unionized worker.” The professors noted that the loss was a combination of a transfer of wealth to workers and inefficiencies caused by the unions.
On the surface, Irving Picard, the trustee of Bernard L. Madoff Investment Securities LLC (“BLMIS”), had a very good day. Judge Jed S.
2011 did not begin with a bang for bankruptcy professionals. Commercial bankruptcy case filings were infrequent and so too were the release (or publication) of major bankruptcy court decisions. The second half of the year was a different story.
This discussion is being provided to our clients and friends to analyze the challenges presented in this difficult economic environment when an FDICinsured institution experiences a capital difficulty and is directed by the Banking Regulators1 to restore the institution's capital adequacy.2 In the past four years, the FDIC has closed approximately 400 insured institutions—as of January 1, 2012, the FDIC has indicated that there were over 800 banks on its "problem bank list." The difficulties experienced by many of these institutions are summarized in this analysis—
About two years ago, decisions were issued by different circuit court of appeals that addressed the fundamental issue of whether a plan proponent can deny a secured creditor the right to credit bid on collateral of the secured creditor when the sale is made pursuant to a plan of reorganization. Both circuit courts, including the Third Circuit in the much heralded Philadelphia Newspapers LLC decision, found that a debtor could deny a secured creditor that opportunity. See In re Philadelphia Newspapers, 599 F.3d 298 (3rd Cir.
News reports in 2011 suggested that municipal bankruptcy filings were frequent and substantial. Each of Central Falls, Rhode Island, Harrisburg, Pennsylvania, and Jefferson County, Alabama filed for bankruptcy protection in the second half of 2011. Even a state-owned local monopoly on (legal) gambling was not safe from financial turmoil in 2011: Suffolk County’s Off-Track Betting Corporation filed for bankruptcy on March 18. Indeed, 2011 seemed to be the year of chapter 9, which governs municipal bankruptcy filings.