In a short decision, In re that Certain Indenture Date as of April 1, 2010 (MN Ct. App. April 3, 2017), the Court of Appeals of Minnesota recently addressed a challenge to the award of trustee fees and legal expenses brought by a municipal bondholder.

Last year we reported (here) that Alberta’s Redwater Energy Corporation decision signaled good news for lenders and noteholders secured by Alberta O&G assets because the federal Canadian Bankruptcy and Insolvency Act (“BIA”) prevailed over conflicting provisions in the provincial regulations promulgated by the Alberta Energy Regulator (“AER”).

Last year, we reported that Australia had proposed significant insolvency reforms that, in our view, are long overdue ("A Major Leap Forward for Australian Insolvency Laws").

Part 1 of this series described the recent decision of the ISDA Americas Determinations Committee to declare that a “failure to pay” had occurred with respect to iHeartCommunications Inc., notwithstanding that the only non-payment had been to a wholly owned subsidiary. The non-payment was orchestrated to avoid a springing lien that would have been triggered had all the notes of a particular issue of iHeartCommunications debt been paid in full. It did not reflect on the creditworthiness of iHeartCommunications.

A recent decision by the U.S. District Court for the Southern District of New York in Cumulus Media Holdings Inc. v. JP Morgan Chase Bank, N.A. (SDNY Feb. 24, 2017) found that a proposed refinancing that was consented to by the company’s revolving credit lenders nevertheless violated the negative covenants in the company’s Credit Agreement.

The Proceedings

As the saga of the Paragon Offshore plc bankruptcy (Bankr. D. Del., No. 16-10386 (CSS)) continues, it is useful to reflect upon Judge Sontchi’s denial of confirmation of its bankruptcy plan last November. In a 70-page ruling examining the feasibility of the plan in detail, Judge Sontchi concluded that the plan proposed by the debtors was not feasible because their business plan was not reasonable, and Paragon would not be able to refinance its debt in 2021 at maturity. Balance sheet solvency upon exit was not prioritized in the court’s analysis.

In a much anticipated decision issued on March 22, 2017, the United States Supreme Court determined in Czyzewski v. Jevic Holding Corp. (Jevic) that a “structured dismissal” of a bankruptcy case cannot include a distribution scheme to creditors that does not comply with the priorities provided for under the Bankruptcy Code. The decision looks at the policy underlying “basic priority rules” in bankruptcy cases and, in doing so, throws into question the future use of negotiated settlements in bankruptcy cases where some, but not all, creditors receive a benefit.

On March 22, 2017, the Supreme Court, in Czyzewski et al., v. Jevic Holding Corp., et al., confirmed that the Bankruptcy Code does not permit “priority skipping” in Chapter 11 structured dismissals. In doing so, the Court held that, although the Code does not explicitly provide what, if any, priority rules apply to the distribution of estate assets in a Chapter 11 structured dismissal, “[a] distribution scheme in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the . . .

In January 2017, a divided panel of the United States Court of Appeals for the Second Circuit issued its widely reported opinion in Marblegate Asset Management, LLC vs. Education Management Corp., in which the majority held that the “right ... to receive payment” set forth in Section 316(b) of the Trust Indenture Act of 1939 (TIA) prohibits only nonconsensual amendments to an indenture’s core payment terms and does not protect the practical ability of bondholders to recover payment.

Background

A recent case in the Southern District of New York, U.S. Bank, NA v. T.D. Bank, NA, applied the so-called Rule of Explicitness to the allocation of recoveries among creditors outside of a bankruptcy proceeding. In the bankruptcy context, this rule requires a clear and unambiguous intention to turn over post-petition interest to senior creditors at the expense of junior creditors. The court in this case found the requisite documentary clarity to pay post-petition interest ahead of the distribution of principal.