While many amendments to bond indentures can be made without consent from all bondholders, “non-impairment” clauses provide that the indenture may not be amended or restructured in any way that will affect or impair a bondholder’s right to receive principal and interest when due without unanimous consent.
A key consideration for investors in securities of bankrupt issuers is the extent to which the securities received upon consummation of a Chapter 11 plan will be freely transferable. While the trading restrictions may not change an investor’s determination to, for instance, participate in a backstop arrangement, or to receive an amount of securities that would result in potential affiliate status, the investor’s compliance and back-office functions will be responsible for monitoring reporting and implementing trades, and the potential slip-ups are many and varied.
The Bottom Line:
Over the last several weeks, Judge Allan L. Gropper of the United States Bankruptcy Court for the Southern District of New York has issued two rulings in the Northwest Airlines case that threaten to alter significantly the consequences to distressed investors of serving on ad hoc committees in bankruptcy cases.
The Third Circuit recently affirmed that a debtor in Chapter 11 can use a tender offer to settle claims without running afoul of the Bankruptcy Code. Although In re Energy Future Holdings Corp.is limited to its particular facts and circumstances, the decision could lead to increased use of tender offers prior to confirmation of a bankruptcy plan.
The Bottom Line:
On June 28, 2016, Judge Chapman of the U.S. Bankruptcy Court for the Southern District of New York ruled in Lehman Brothers Special Financing Inc. v. Bank of America National Association, et al.(Adv. Proc. No. 10-03547 (Bankr. S.D.N.Y.
The Bottom Line:
Borrowers, agent banks, syndicate members and secondary market purchasers incur, syndicate, sell and buy bank debt on the assumption that bank debt is not a “security.” However, a June 30, 2016, opinion in the General Motors preference litigation1shows that such an assumption may no longer be valid, at least under the Bankruptcy Code.
The Bottom Line: