J. Paul Getty once said, “Formula for success: rise early, work hard, strike oil.” However, with crude oil prices nearly half of what they were a mere six months ago, Getty’s formula may not hold as true as it once did. In the latest EIA STEO Report (April 2015), the DOE projects oil prices for WTI to remain around or below $60 per barrel for the balance of 2015 and grow to $70 per barrel in 2016.
On May 30, 2014, hedge fund Moore Capital (Moore) brought suit against the Lehman Brothers bankruptcy estate (Lehman) in the Southern District of New York bankruptcy court, seeking a declaratory judgment that it acted properly when it terminated swap agreements and setoff termination amounts in the time between the filing of the parent company Lehman Brothers Holdings Inc. (LBHI) and the eve of bankruptcy filings weeks later of Moore’s Lehman counterparties1.
Following the Dec. 8 publication by the American Bankruptcy Institute (“ABI”) Commission to Study the Reform of Chapter 11 of a report (the “Report”) recommending changes to Chapter 11 of the Bankruptcy Code (“Code”),[1] we continue to analyze the proposals contained in the ABI’s 400-page Report. One proposal we wanted to immediately highlight would, if adopted, significantly increase the risk profile for secured lenders.
Setoff provisions are commonly found in a variety of trading related agreements between hedge funds and their dealer counterparties. Last November, Judge Christopher Sontchi of the United States Bankruptcy Court for the District of Delaware held that “triangular setoff” is not enforceable in the context of a bankruptcy case.[1] “Triangular setoff” is a contractual right of setoff that permits one party (“Party One”) to net and set off contractual claims of Party One and its affiliated entities against another party (“Party Two”).
The U.S. Court of Appeals for the Third Circuit held on July 30, 2013, that a reorganized Chapter 11 debtor could reopen its closed case, enabling the debtor assignee to enforce a purchase option in a real property lease despite the lease’s “anti-assignment provisions.” In re Lazy Days’ RV Center Inc., 2013 WL 3886735, *5 (3d Cir. July 30, 2013).
Cramdown Plan Stays Suits Against Corporate Parent
The U.S. Court of Appeals for the Fifth Circuit held on March 1, 2013, that a bankruptcy court had not erred in applying a prime plus 1.75 percent interest rate to a secured lender’s $39 million claim under a "cramdown" plan of reorganization. Wells Fargo Bank N.A v. Texas Grand Prairie Hotel Realty, LLC (In the Matter of Texas Grand Prairie Hotel Realty, LLC), __ F.3d __, 2013 WL 776317 (5th Cir. Mar. 1, 2013).
The U.S. Court of Appeals for the Fifth Circuit held on Feb. 28, 2013, that a secured lender’s full credit bid for a Chapter 11 debtor’s assets at a bankruptcy court sale barred any later recovery from the debtor’s guarantors. In re Spillman Development Group, Ltd., ___ F.3d ___, 2013WL 757648 (5th Cir. 2/28/13). A “credit bid” allows a creditor to “offset its [undisputed] claim against the purchase price,” a right explicitly granted by Bankruptcy Code (“Code”) § 363(k). 3 Collier, Bankruptcy, ¶ 363.06[10], at 363-59 (16th rev. ed. 2010).
The U.S. Court of Appeals for the Seventh Circuit, on Feb. 14, 2013, held that an insider of a Chapter 11 partnership debtor cannot avoid the “competition rule” in a new-value reorganization plan. The debtor’s equity owner arranged for his wife, also an “insider,” to contribute new value to obtain the equity of the reorganized debtor. In re Castleton Plaza, LP, — F.3d –––, 2013 WL 537269 at *1 (7th Cir., Feb. 14, 2013).
The SIPC Trustee for Lehman Brothers Inc. ("LBI") and the Joint Administrator of Lehman Brothers International (Europe) ("LBIE") today announced an agreement in principle to resolve all claims, approximately $38 billion in the aggregate, between their respective entities.
The proposed settlement is subject to approval by the bankruptcy court in the United States and the English High Court. According to the LBI Trustee, if approved, "the agreement sets the stage for distributions that will provide 100 percent recovery of customer property."