Debt exchanges have long been utilized by distressed companies to address liquidity concerns and to take advantage of beneficial market conditions. A company saddled with burdensome debt obligations, for example, may seek to exchange existing notes for new notes with the same outstanding principal but with borrower-favorable terms, like delayed payment or extended maturation dates (a "Face Value Exchange"). Or the company might seek to exchange existing notes for new notes with a lower face amount, motivated by discounted trading values for the existing notes (a "Fair Value Exchange").
In a recent decision, In re Castleton Plaza, LP, 2013 WL 537269 *1 (Feb. 14, 2013), the Seventh Circuit held that the absolute priority rule – which requires that creditors be paid in full before equity holders receive anything on account of their equity interests under a plan of reorganization – applies equally to the “insiders” of a debtor.
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