On April 8, 2009, the Second Circuit Court of Appeals issued a ruling that creates an additional hurdle for companies providing single-employer pension funds when seeking to reorganize through a bankruptcy. In general, the termination of a pension plan can give rise to a per-employee termination premium (a “Termination Premium”) owed by the company terminating the plan to the Pension Benefit Guaranty Corporation (“PBGC”), the quasi-governmental entity that insures pension plans.

In a recent decision, the Bankruptcy Court for the District of Delaware allowed the collateral agent for senior lenders to credit bid for the debtors’ assets even though all of the senior lenders had not authorized the bid. One of the senior lenders had objected to the group’s acquisition of the debtors’ assets by the credit bid. In re GWLS Holdings, Inc., 2009 WL 453110 (Bankr. D. Del. Feb. 23, 2009) (Walsh, J.).

The U.S. Court of Appeals for the Seventh Circuit held on May 5, 2009, that a group of secured lenders were fully secured and “entitled to a full recovery” from the debtor despite the bankruptcy court’s improper valuation of the collateral (improved airport terminal space) securing the lenders’ underlying $60 million loan. In re United Airlines, Inc., ___ F.3d ___, 2009 U.S. App. LEXIS 9648 (7th Cir. 5/5/09) (Easterbrook, Ch. J.). The lower courts had valued the lenders’ collateral at $35 million, leaving them with a $25 million unsecured claim.

In a recent decision, the Ninth Circuit Bankruptcy Appellate Panel (BAP) changed the legal landscape of bankruptcy asset sales. Prior to Clear Channel Outdoor, Inc. v. Knupfer, 391 B.R. 25 (B.A.P. 9th Cir. 2008), courts routinely stripped liens from assets purchased in a bankruptcy sale. Moreover, appeals of these sales were generally considered non-reviewable. The BAP in Clear Channel overturned these two longstanding features of bankruptcy asset sales, and, if followed, this decision could result in enforcement of existing property liens against asset purchasers.

The following is a list of some recent larger U.S. bankruptcy filings in various industries. To the extent you are a creditor to any of these debtors, or other entities which may have filed for bankruptcy protection, you as a creditor are entitled to certain protections under the Bankruptcy Code.  

AUTOMOTIVE

Mark IV Industries, affiliates file Chapter 11; reach “agreement in principle” with lenders.  

GAMING  

Following several weeks of speculation about how pending cash collateral, cash management, and debtor-in-possession financing motions might affect basic principles of structured finance, the bankruptcy court deferred a final ruling on the motions and extended the interim cash collateral order. In so doing, Judge Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York suggested that CMBS lenders organize themselves so that common issues can be identified and resolution expedited.

A recent court decision, Thermal Supply, Inc. v. Big Sky Beef,LLC, 195 P.3d 1227 (Mont. 2008) underscores the importance of filing Uniform Commercial Code (“UCC”) continuation statements to prevent the lapse of financing statements even during bankruptcy or litigation.

In an order dated May 7, 2009, Judge Arthur Gonzales approved Chrysler’s proposed bidding procedures for the sale of substantially all of the Company’s assets to a newly formed entity that would continue business under Chrysler’s name.

We sent to you earlier this week an Alert on "Chrysler Bankruptcy Filing and Preliminary Impact on Suppliers." As we promised, below is an update based upon our review of the case and observations at the hearings.

Essential Supplier Motion

The Court approved treatment of essential suppliers on a temporary basis. Here is a summary of the Interim Order:

The Chapter 11 bankruptcy filing by Chrysler, LLC and its affiliates, as well as General Motors' struggle to reach an out-of-court reorganization with its creditors, is likely to create a ripple effect that could cause all tiers of the automotive supply chain as well as businesses connected to the supply chain to stretch payables or seek their own bankruptcy protection.