The U.S. Court of Appeals for the Second Circuit has upheld a bankruptcy court’s decision enforcing indenture language providing for the automatic acceleration, without make-whole premium, of secured American Airline, Inc.

The Ninth Circuit has joined the majority of Circuit Courts in holding that bankruptcy courts have the authority to recharacterize alleged debts as equity. See Official Comm. of Unsecured Creds. v. Hancock Park Capital II, L.P. (In re Fitness Holdings Int’l, Inc.), No. 11-56677, --- F.3d ----, 2013 WL 1800000 (9th Cir. April 30, 2013). In doing so, the appellate court has explicitly reversed the contrary precedent of In re Pacific Express, Inc., 69 B.R. 112, 115 (B.A.P. 9th Cir. 1986).

A recent ruling in the American Airlines bankruptcy case enforcing an automatic acceleration upon bankruptcy provision serves as a reminder that the enforceability of so-called ipso facto provisions in debt instruments remains an unsettled, forum-dependent question.