On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit issued a long-awaited ruling on whether Ultra Petroleum Corp.

In Short

The Situation: Courts have disagreed over whether a make-whole premium triggered by a borrower's bankruptcy filing must be disallowed as unmatured interest. They have also disputed whether the "solvent-debtor exception" requiring the payment of postpetition interest to unimpaired unsecured creditors of a solvent debtor survived the enactment of the Bankruptcy Code. Finally, courts have split on what rate of postpetition interest unimpaired unsecured creditors of a solvent debtor are entitled to receive.

In Short

The Situation: Bankruptcy courts have split on what rate of post-petition interest unimpaired creditors of a solvent debtor are entitled to receive. Bankruptcy courts have variously ruled that such creditors were entitled to the contractual rate of interest, interest at the federal judgment rate (about the rate on a one-year Treasury bill) as of the bankruptcy petition date, or an equitable rate. Another possibility is that no interest is payable at all.

These case summaries first appeared in LexisNexis’ Insolvency Case Alerter. They represent some of the more interesting insolvency decisions to have been published recently.

This summary covers:

This case arose from the ongoing administration of Lehman Brothers International (Europe) (‘LBIE’). The appeal considered the proper ranking of certain subordinated debt in the insolvency ‘waterfall’, among other matters.

Held

The first issue concerned the construction of debt instruments subordinated to amounts ‘payable in the insolvency’. It was held that such amounts included statutory interest and non-provable debts, and accordingly those liabilities must be met before any balance could be used to pay off the subordinated loans.