The U.S. Bankruptcy Court for the Southern District of New York has granted debtors Lehman Brothers Holdings Inc.’s request to pursue a plan for developer SunCal Co., which is subject to a pending bankruptcy case in the Central District of California. Prior to LBHI’s bankruptcy filing, the debtors had provided SunCal with funding in an amount of approximately $2.2 billion. In January, SunCal commenced an adversary proceeding in its own bankruptcy case seeking to have LBHI’s claims subordinated. SunCal opposes LBHI’s filing a plan and has put forth its own plan in the case.

On October 2, the official committee of unsecured creditors in the chapter 11 cases of Lyondell Chemical Co. filed a motion for the appointment of an examiner in the U.S. Bankruptcy Court for the Southern District of New York. The committee asserts that an examiner is needed to investigate allegations of a conflicted rights offering sponsor, the debtors’ refusal to refinance the debtor-in-possession credit facility, and the debtors’ refusal to formulate a plan of reorganization with an appropriate reserve for unsecured creditors pending resolution of the committee’s adversary proceeding.

The Bankruptcy Court for the District of Delaware has issued a decision concluding that company-paid medical coverage offered as part of an employee severance package is a “retiree benefit” that cannot be unilaterally modified by the company in bankruptcy, except as provided under Section 1114 of the Bankruptcy Code.

latest Distressed Assets Opportunities lists prepared by our colleagues in the Business Reorganization and Bankruptcy Group and the Real Estate Group. The lists can be accessed by clicking the hyperlinks.

Introduction

The dearth of credit available for companies in financial distress means an asset sale may be the only way to save the business and jobs. It also presents unusually attractive investment opportunities for public and private companies, private equity and hedge funds, and other investors with capital and an ability to move expeditiously.

The Seventh Circuit U.S. Court of Appeals recently ruled that an environmental clean-up obligation under the Resource Conservation and Recovery Act (“RCRA”) is not dischargeable in bankruptcy, even when the debtor no longer has any internal clean-up operations and would have to contract a third party to provide such services at significant cost.

On August 11, 2009, Judge Gropper of the United States Bankruptcy Court for the Southern District of New York denied motions to dismiss bankruptcy petitions of several special-purpose entity subsidiaries (SPEs) of General Growth Properties, Inc. (GGP) that were solvent, financially healthy companies structured to be remote from the bankruptcy risks of GGP and its other affiliates.

In the last decade, commercial landlords have favored obtaining from tenants standby letters of credit over security deposits because standby letters of credit provided added security in the event of a tenant’s bankruptcy.

As if buying distressed debt is not challenging enough given the underlying business considerations, the possible, and perhaps likely, bankruptcy filing of your soon-to-be borrower presents a maze of issues the note purchaser should consider before acquiring the debt.

1. Know Your Seller

On April 8, 2009, the United States Court of Appeals for the Second Circuit found that "termination premiums" due under Section 4006(a)(7) of the Employee Retirement Income Security Act ("ERISA") are not "claims" under the Bankruptcy Code and are therefore not dischargeable in bankruptcy.