Lease Payments. It is not uncommon for a retailer with financial problems to be past due on lease payments. Filing for bankruptcy often gives a debtor “breathing room” to evaluate its financial condition, including profitability (or not) of non-residential real-property leases. Depending on the applicable law, this “breathing room” may also free up some cash flow for the debtor.

A federal bankruptcy court in New York has concluded that the market price of a company’s stock is the most reliable valuation to determine whether disputed transfers were avoidable. In re Iridium Operating LLC (Statutory Committee of Unsecured Creditors of Iridium v. Motorola, Inc.), 373 B.R. 283 (Bankr. S.D.N.Y., Aug. 31, 2007).

Late last year, government responses to the subprime mortgage crisis proliferated but most attention focused on those measures that could be, and in some cases were, rapidly implemented — measures like the Treasury Department’s urging holders of certain subprime adjustable rate mortgages (ARMs) to freeze interest rates temporarily or the Federal Reserve’s proposed tightening of lending requirements.

Editor’s note: Success in the restructuring and insolvency arena requires more than an understanding of the law—it requires the ability to address issues specific to a debtor’s industry and business. Below, two Reed Smith partners with extensive experience representing health care institutions and creditors discuss issues unique to hospitals facing financial distress.

A New York bankruptcy court has determined that original issue discount (OID) on a note is effectively interest—and therefore even though the OID at issue was secured, the amount that accrued after acceleration is not recoverable. The decision has been appealed.

Creditors have recently made some headway in collecting the full amount to which they are contractually entitled pursuant to various debt instruments. In In re Calpine Corp.,1 reported in our summer 2007 newsletter, the Bankruptcy Court for the Southern District of New York permitted a secured creditor to collect damages (albeit in the form of an unsecured claim) caused by dashed expectations due to the early repayment of its debt.

The U.S. Court of Appeals for the Seventh Circuit has held that a dragnet clause within a master security agreement was effective, even though a subsequent loan agreement remained silent as to whether pre-existing collateral secured the new advance. Universal Guaranty Life Ins. Co. v. Coughlin, 481 F.3d 458 (7th Cir., March 14, 2007).

In an issue the court notes is one of first impression, a Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Ninth Circuit has held that a bankruptcy court could grant an administrative priority to a claim which also may be secured. Brown & Cole Stores, LLC v. Associated Grocers, Inc., 375 B.R. 873 (9th Cir. BAP, Aug. 17, 2007).

Determining a question of first impression within its circuit, the U.S. Court of Appeals for the First Circuit recently held that an oversecured creditor is entitled to collect a bargained-for pre-payment penalty from a solvent debtor, regardless of the penalty’s “reasonableness” under section 506(b) of the Bankruptcy Code.

In so holding, the First Circuit reversed the decisions of the U.S. Bankruptcy and District Courts for the District of Rhode Island. Gencarelli v. UPS Capital Business Credit, 50 F.3d 1 (1st Cir., Aug. 30, 2007).

In a recent decision, the United States Bankruptcy Court for the Southern District of New York (the “U.S. Court”) exercised its abstention powers and dismissed an involuntary chapter 11 petition filed against an Argentine company, Compania de Alimentos Fargo, SA (“Fargo”).1 Fargo, a debtor in an insolvency proceeding in Argentina, had moved to dismiss the involuntary petition principally because its Argentine bankruptcy case was still pending.