On January 25, 2010, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York ruled that provisions in a CDO indenture subordinating payments due to Lehman Brothers Special Financing Inc., as swap provider, constituted unenforceable ipso facto clauses under the facts and circumstances of this case. The Court also held that, because the payment priority provisions were not contained in the four corners of a swap agreement, the Bankruptcy Code’s safe harbor protections, which generally permit the operation of ipso facto clauses, did not apply.

Part One of this article, published in the last edition of the Restructuring Review, examined recent developments in the gaming industry, focusing on strategies employed by gaming companies to increase liquidity and avoid insolvency. Part Two focuses on how potential buyers can use the bankruptcy process to purchase gaming facilities, free and clear of prior liens, and describes certain complications inherent in the acquisition of this type of asset.

Acquiring Gaming Facilities through Chapter 11

Sale Process

On Thursday, August 6, 2009, the United States Senate confirmed Justice Sonia Sotomayor to the Supreme Court of the United States. As a former Judge on the Court of Appeals for the Second Circuit, Judge Sotomayor’s jurisprudence includes a number of decisions involving noteworthy bankruptcy cases. This article provides a brief survey of these decisions.

Earlier this year, Courts from the Bankruptcy Courts for the Southern District of New York to the United States Supreme Court issued a number of rulings approving the asset sales by Chrysler and General Motors. Although popular and industry media have been replete with stories regarding the facts of these cases, this article provides an in-depth analysis of the Courts’ rulings on several key issues of interest to debtors and creditors in future bankruptcies.

Summary of Key Rulings

Last month, in a significant ruling in the General Growth Properties, Inc. (“GGP”) bankruptcy case, the United States Bankruptcy Court for the Southern District of New York denied motions to dismiss, as bad faith filings, the bankruptcy cases of 20 purported bankruptcyremote special purpose entity (“SPE”) subsidiary debtors.1

In a recent ruling from the bench, Judge James M. Peck of the United States Bankruptcy Court for the Southern District of New York held that Metavante Corporation’s suspension of payments under an outstanding swap agreement with Lehman Brothers Special Financing Inc.

A Delaware bankruptcy court recently delivered the first decision applying section 562 of the Bankruptcy Code to a claim based on the termination of a repurchase agreement. In re American Home Mortgage Corp., Bankr. Case no. 07-1104, Dkt. no. 8021 (Bankr. D. Del. Sept. 8, 2009). The court’s ruling creates additional uncertainty in the calculation of bankruptcy claims, not only with respect to repurchase agreements but also with respect to other safe harbored financial contracts.

As is now well known, General Motors, Inc. and Chrysler LLC financially restructured themselves with the help of the United States Treasury. These restructurings occurred very quickly – Chrysler and GM each filed for bankruptcy and sold substantially all of their automobile-producing assets to newly created companies2 within approximately forty days. Each company used the bankruptcy process to massively deleverage and free itself from personal injury liability claims.

Introduction

The High Court1 in England has confirmed the validity under English law of contractual provisions common in structured finance transactions which subordinate payments to a swap counterparty in circumstances where the swap counterparty has defaulted on its obligations under the terms of the relevant swap agreement.

The Judgment

Parties

On August 11, 2009, in one of the most significant rulings to date in the GGP bankruptcy proceeding, the Bankruptcy Court denied motions to dismiss as bad faith filings the bankruptcy cases of 20 GGP property-level subsidiaries. In denying the motions, the court stated that the fundamental creditor protections negotiated in the special purpose entity structures at the property level are in place and will remain in place during the pendency of the chapter 11 cases.