On June 13, 2012, the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”) published an opinion ruling on whether the Mexican Plan of Reorganization (the “Concurso Plan”) of the Mexican glass-manufacturing company, Vitro, S.A.B.

In our last issue, we reported that the Supreme Court was poised to resolve a split between judicial circuits over the right of a secured creditor to credit bid in a Chapter 11 plan context. Specifically, the Third, Fifth and Seventh Circuits split on the issue of whether a Chapter 11 plan can be crammed down over the secured lender’s objection, where the plan provides for the sale or transfer of the secured lender’s collateral with the proceeds going to the secured lender without the secured lender having the right to credit bid for its collateral up to the full amount of its claim.

The Issue  

The issue is whether the insolvency of a borrower under a non-recourse loan can trigger recourse liability for itself and its “bad boy,” non-recourse carve-out guarantors.  

The recently decided case of RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S. ____ (2012), puts to rest a conflict among the Third, Fifth, and Seventh Circuits as to the right of secured creditors to credit bid at a proposed sale of their collateral under a plan of reorganization that the secured creditor opposes. The practice of credit bidding is codified in the Bankruptcy Code at 11 U.S.C. §363(k) and is the right of a secured creditor to bid the amount of its secured debt at a debtor’s sale of the creditor’s collateral in bankruptcy.

Recent technological innovations and advancements in drilling and completion techniques have led to an unprecedented expansion of natural gas production by large and midsize exploration and production companies. This expansion created competition for wild cat acreage as well as producing properties, putting lessors and co-owners (the “non-operators”) at a distinct advantage in negotiating the terms of leases, farmout agreements and joint operating agreements (“JOAs”).

In what it described as “an easy decision,” the U.S. Supreme Court issued its eagerly anticipated decision in RadLAX Gateway Hotel, LLC et al. v. Amalgamated Bank¹ on May 29, 2012.

Buying natural gas assets from financially distressed companies is an inherently risky proposition.  Even when an attractive prospect is identified, the purchaser has to overcome a number of issues such as clearing up title, including mechanic and materialman liens and getting assignments of contracts and lessor consents.  Assuming these hurdles can be managed, the purchaser is also faced with legacy liability problems ranging from plugging and abandonment and decommissioning costs, unknown claims from interest owners under joint operating agreements, general claims from oil field

Technological innovation has changed the landscape of domestic natural gas production from shortage to surplus. The result: a glut of natural gas and historically low prices. While many producers have successfully hedged against this risk to date, as older hedges roll off, many companies are unable to obtain replacement hedges at attractive prices. Some have even resorted to monetizing their in-the-money hedges to raise capital today (and borrowing against the future).

The Issue

The issue is whether a Chapter 11 plan can be crammed down over the secured lender’s objection where the plan provides for the sale or transfer of the secured lender’s collateral with the proceeds going to the secured lender without the secured lender having the right to credit bid for is collateral up to the full amount of its claim.  

Can a U.S. patent licensee whose license has been rejected by a licensor under foreign law in a foreign bankruptcy rely on the protections of § 365(n) of the U.S. Bankruptcy Code? On October 28, 2011, the United States Bankruptcy Court for the Eastern District of Virginia issued an opinion addressing this in the Chapter 15 case of Qimonda AG (“Qimonda”).⁵ The bankruptcy court held that the application of § 365(n) to executory licenses to U.S. patents was required to sufficiently protect the interests of U.S.