Borrower beware: in times of distress, your credit documents may give your secured lenders an opportunity to “flip” control of your board

Distress happens, even at companies that once appeared financially solid. When it does, the company, its board (which may be controlled by a sponsor in a public or private equity scenario), and its lenders often enter into restructuring discussions in search of a consensual path forward, typically under the terms of a forbearance agreement.

In this article we consider how the current challenging environment is impacting M&A in the insurance sector

We are living in volatile times. As a consequence of the COVID-19 virus, our equity and high-yield markets have witnessed large swings, making it difficult to value assets. Uncertainty over the timing and extent of the recovery has also made it difficult to value income streams. Moreover, debt financing has become more challenging. All of these factors are contributing to a challenging environment for M&A.

Government interventions into economies as a result of the COVID-19 pandemic are now globally widespread. To date, in the UK, this has predominantly been focussed on relief measures targeted at financial support, including the creation of government backed loan schemes and the furlough scheme.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit has voided its previous near explicit declaration that make-whole provisions are always unmatured interest, and therefore subject to disallowance under section 502(b) of the Bankruptcy Code in Ultra Petroleum.

Judge Drain has now issued a long-awaited Order on Remand from the Second Circuit’s decision in Momentive Performance Materials determining the appropriate cramdown interest rate applicable to replacement notes issued by Momentive.

A recent chapter 15 decision by Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) suggests that third-party releases susceptible to challenge or rejection in chapter 11 proceedings may be recognized and enforced under chapter 15. This decision provides companies with cross-border connections a path to achieve approval of non-consensual third-party guarantor releases in the U.S.

Background

A recent chapter 15 decision by Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) suggests that third-party releases susceptible to challenge or rejection in chapter 11 proceedings may be recognized and enforced under chapter 15. This decision provides companies with cross-border connections a path to achieve approval of non-consensual third-party guarantor releases in the U.S.

Background

The United States Supreme Court recently declined to review the United States Court of Appeals for the Second Circuit’s opinion in Momentive Performance Materials Inc. v. BOKF, NA. BOKF and Wilmington Trust, indenture trustees for Momentive’s First Lien Notes and 1.5 Lien Notes (which we’ll refer to as the “Senior Notes”) respectively, each submitted certiorari petitions after the Second Circuit held that they were not entitled to receive make-whole premiums following Momentive’s bankruptcy.

What Is a Make-Whole?

Weil Summer Associate David Rybak contributed to this post

In Momentive Performance Materials, the Second Circuit declined to dismiss as equitably moot the appeals of certain noteholders.