The current cycle of Chapter 11 corporate bankruptcies involves many cases where the debtor seeks to achieve a balance-sheet restructuring by converting debt into equity. When consensus cannot be achieved, junior stakeholders (i.e., second lien creditors, unsecured creditors and/or equity) will often contest plan confirmation on the grounds that the proposed plan provides more than 100% recovery to the senior creditors. Valuation plays the central role in these cases.

A New York bankruptcy judge held on October 4, 2010, that second lien lenders could object to a debtor’s bid procedures approved by the first lien lenders despite the terms of an intercreditor agreement inIn re Boston Generating, LLC, No. 10-14419 (SCC) (Bankr. S.D.N.Y. Oct. 4, 2010).1 The intercreditor agreement provided the first lien lenders with the “exclusive right to…make determinations regarding the…sale” of the collateral. According to the court, however, the agreement did not expressly preclude the second lien lenders from objecting to bid procedures.

On March 15, 2010 Lehman Brothers Holdings, Inc. and its affiliated debtors (the “Debtors”) filed a motion (the “Motion”) with the Bankruptcy Court overseeing the Debtors’ Chapter 11 cases (the “Court”) seeking authorization to establish certain claims and alternative dispute resolution procedures designed to expedite the process of reconciling claims filed against the Debtors’ estates.

The procedures, set forth in detail in an exhibit to the proposed order filed with the Motion, are summarized as follows:

On 18 November 2009, the Commission approved a restructuring and asset relief package for KBC under the EC State aid rules. KBC is a Belgian integrated banking and insurance group, based primarily in Belgium and Central and Eastern Europe. KBC has received three aid measures to support it during the economic crisis: in December 2008 a recapitalisation of €3.5 billion; in June 2009, a second recapitalisation of €3.5 billion and an asset relief measure on a portfolio of Collateralised Debt Obligations (“CDO”). Approval of these measures was subject to KBC submitting a restructuring plan.

On 13 November 2009, the Commission approved a restructuring plan for ING Groep NV under the EC State aid rules. ING is a Dutch financial institution, offering its services in over 40 countries. In October 2008, the Commission approved the liquidity guarantees of €12 billion offered by the Dutch government to support ING during the economic crisis.

On the 12 November 2009, the OFT launched a market study into corporate insolvency. The investigation was prompted by concerns raised with the Government and the Insolvency Service, and also following a recent World Bank report which showed that the costs of closing a business in the UK are higher than in other countries.

The United States Court of Appeals for the Second Circuit held on Nov. 5, 2009, that a creditor was entitled to its post-bankruptcy legal fees incurred on a pre-bankruptcy indemnity agreement. Ogle v. Fid. & Deposit Co. of Md., __F.3d __, No. 09-0691-bk, 2009 U.S. App. LEXIS 24329 (2d Cir. Nov. 5, 2009). Affirming the lower courts, the Second Circuit explained that the Bankruptcy Code (“Code”) “interposes no bar . . . to recovery.” Id. at *8-9 (citing Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S.

On Nov. 10, 2009, a Pennsylvania district court held that secured creditors do not have an absolute right to credit bid1 their debt under the Bankruptcy Code (the “Code”) in an asset sale conducted pursuant to a “cramdown” plan of reorganization that proposes to provide the secured creditors with the “indubitable equivalent” of their claims. In re Philadelphia Newspapers, LLC, Civil Action 09-00178 at 57 (E.D. Pa. Nov. 10, 2009). This decision is on appeal to the Third Circuit Court of Appeals.

Facts

A Florida bankruptcy court, on Oct. 13, 2009, issued a 182-page decision after a 13-day trial, among other things, avoiding on fraudulent transfer grounds (a) secured subsidiary guarantees of $500 million and (b) $420 million pre-bankruptcy payments. In re Tousa, Inc., et al., Case No. 08-10928; Adv. P. 08-1435 (S.D. Fla. Oct. 13, 2009). The decision is on appeal to the district court.  

Relevance  

The U.S. Court of Appeals for the Seventh Circuit held on May 5, 2009, that a group of secured lenders were fully secured and “entitled to a full recovery” from the debtor despite the bankruptcy court’s improper valuation of the collateral (improved airport terminal space) securing the lenders’ underlying $60 million loan. In re United Airlines, Inc., ___ F.3d ___, 2009 U.S. App. LEXIS 9648 (7th Cir. 5/5/09) (Easterbrook, Ch. J.). The lower courts had valued the lenders’ collateral at $35 million, leaving them with a $25 million unsecured claim.