The battle in California municipal bankruptcies between bond investors and Calpers, the California public employee pension system, began in the Stockton Chapter 9 bankruptcy case and continues unabated in the

In a measured opinion hewing closely to standard principles of contract interpretation, the United States Court of Appeals for the Second Circuit in NML Capital, Ltd. v. Republic of Argentina, No. 12-105, slip op. (2d Cir. Oct. 26, 2012), rejected the notion that a sovereign may issue bonds governed by New York state law and subject to the jurisdiction of the state’s courts, and then restructure those bonds in a manner that violates New York state law.

Detroit’s increasingly distressed financial condition has created a dynamic and rapidly evolving situation where the potential of a Chapter 9 filing appears to be the subject of renewed discussion and legislative attention.  In particular, state legislation providing Detroit a menu of options for addressing its finances appears headed to enactment this month.  Although such legislation includes one option expressly protective of debt service payments on Detroit’s public debt, several of the options may lead to a Chapter 9 filing as a first or last resort. 

In a widely followed dispute, the Fifth Circuit Court of Appeals will soon render a decision on the appeal of a Texas Bankruptcy Court’s refusal to recognize non-debtor third party releases in the Mexican reorganization proceeding (concurso mercantil) of Mexican glass manufacturer Vitro SAB de CV. Wall Street and the capital markets will be watching this appeal closely as a reversal of the Bankruptcy Court would likely make lenders and bondholders extremely nervous about extending future credit to Mexican corporations.

In re Qimonda Richmond, LLC, 467 B.R. 318 (Bankr. D. Del. 2012)

CASE SNAPSHOT

Settlement of collection disputes over amounts and payment terms for bond-related claims, including in bankruptcy cases, involves issues of binding minority bondholders and releasing the indenture trustee, as well as straightforward determinations of collectability economics.   Bondholders unhappy with a proposed settlement can be bound nevertheless when the deal is incorporated into a bankruptcy plan of reorganization and majority bondholders out-vote them, but only if certain requirements are met.  A recent bankruptcy court decision, In re Lower Bucks Hosp., 471 B.R.

In two recent decisions,² the United States Bankruptcy Court for the Southern District of New York denied motions by large chapter 11 debtors to approve executive bonus plans designated as key employee incentive plans ("KEIP"), finding that the proposed KEIPs actually were disguised and impermissible retention or "pay to stay" bonus plans for insiders. These are the first opinions to reject so-called KEIPs following a recent line of cases that have approved KEIPs for insiders.

Most people are familiar with the two most common forms of bankruptcy protection under the Bankruptcy Code – Chapter 7 liquidations and Chapter 11 reorganizations. But like individuals and companies, municipalities can also file for bankruptcy protection under Chapter 9 of the Bankruptcy Code. Now the city of Stockton, California has become the largest city to file for municipal bankruptcy protection following major municipal bankruptcy filings in Jackson County, Alabama and Harrisburg, Pennsylvania.

Indentures often contain make-whole premiums payable upon early redemption of the debt, and term B loan agreements often include "soft call" protection in the form of prepayment premiums during the early life of the loan. If the debt issuer becomes subject to a chapter 11 proceeding after the debt issuance, the question then arises as to how this payment obligation is to be treated: Does the make-whole or prepayment premium constitute unmatured interest due as a result of the debt acceleration, which would be disallowed, or is it liquidated damages?

On March 9, 2012, Susheel Kirpalani, the court-appointed examiner for Dynegy Holdings LLC (Dynegy), concluded that the debtor's transfer of certain assets to its parent company, Dynegy Inc., prior to its bankruptcy filing may be recoverable as a fraudulent transfer. Kirpalani further determined that Dynegy's board of directors breached its fiduciary duty in approving the asset transfer. Dynegy Inc. vigorously disputes the examiner's findings.