Judge Drain’s recent bench rulings in Momentive Performance Materials in 2014 generated a great deal of controversy in the distressed debt world.  Distressed investors, lenders, and commentators have questioned whether the Momentive rulings will lead to an industry trend in which debtors seek to cram down their secured lenders to take advantage of the ability to do so at below market interest rates.  

2014 has been a tumultuous year, filled with tragedy and interstellar triumphs: Ebola; Sochi; Ukraine; Flight 370; ISIS; Flight 17; Comet 67P. Life in the corporate bankruptcy and restructuring world was considerably more sedate than in the world at large. Now five and six years removed, some of the mega cases of the 2008 and 2009 era linger on and continue to generate interesting legal developments. 

“Life is not about perfect information. Life is about choices, which is why you have elections.”

We previously covered the Meridian Sunrise Village case on the Bankruptcy Blog here.

If only it were as simple as swishing your wand and chanting "Wingardium Leviosa" in your best Hermione Granger voice. The question of whether a fixed charge is susceptible to being recharacterised as a floating charge has challenged the legal community since before Ms Granger was even born. In fact some of the case law would not be out of place in the Hogwarts library (although it wouldn't have done anything for JK Rowling's sales figures).

What's the difference between a fixed and a floating charge?

On August 26, 2014, Judge Drain concluded the confirmation hearing in Momentive Performance Materials and issued several bench rulings on cramdown interest rates, the availability of a make-whole premium, third party releases, and the extent of the subordination of senior subordinated noteholders.

On August 26, 2014, Judge Drain, of the Bankruptcy Court for the Southern District of New York, concluded the confirmation hearing in Momentive Performance Materials and issued several bench rulings on cramdown interest rates, the availability of a make-whole premium, third party releases, and the extent of the subordination of senior subordinated noteholders. This four-part Bankruptcy Blog series will examine Judge Drain’s rulings in detail, with Part I of this series providing you with a primer on cramdown in the secured creditor context.