In re Lehman Brothers Holdings, Inc., Case No. 08-13555 et seq. (JMP)(jointly administered)
In this US decision, the Bankruptcy Court held that the "safe harbour" protections of the US Bankruptcy Code only protect a non-defaulting party's right to liquidate, terminate or accelerate a swap, to offset and to net termination values and payment amounts and to foreclose on collateral, but do not permit the withholding of performance under a swap if the swap is not terminated.
Intercreditor agreements between first and second lien lenders are created all the time and are therefore not usually glitzy topics for client updates. But the recent intercreditor dispute between Donald Trump and corporate raider Carl Icahn over control of Trump's Atlantic City casinos had all the drama and glamour of the gambling dens and billionaires involved, including two competing but confirmable plans and senior and junior creditors vying for ownership of a gaming empire and its attendant upside.
Bankruptcy-related developments during the first half of this year have sent shock waves
through the secured lending, derivative, and distressed debt trading communities. Several
notable decisions may significantly affect the way these entities operate and calculate risk,
and result in changes to standard documentation. Until recently, a proposed overhaul of
Bankruptcy Rule 2019 threatened to discourage distressed debt investors, including hedge
funds, from participating in bankruptcy proceedings as part of an ad hoc committee or group.
Receiverships are becoming a popular tool for creditors to manage distressed real estate and to realize upon their collateral. Lenders are looking at receiverships as a faster and more efficient and cost effective strategy than forcing a debtor into bankruptcy. They offer the lender flexibility as opposed to well established procedures under bankruptcy. The current economy is also resulting in increased use of receiverships to complete unfinished buildings.
In Marathon Petroleum Co. v. Cohen (In re Delco Oil Co.),1 the Court of Appeals for the Eleventh Circuit recently held that a trustee could avoid a debtor's post-petition transfers of funds that were cash collateral, notwithstanding that the payments had been made in good faith and in the ordinary course of business.
IN RE: AIRADIGM COMMUNICATIONS, INC. (August 4, 2010)
The recent bankruptcy filings by infrastructure companies Connector 2000 Association Inc., South Bay Expressway, L.P., California Transportation Ventures, Inc., and the Las Vegas Monorail Company have tested the structures utilized to implement public-private partnerships (P3s) in the United States in several respects. It is still too early to draw definitive conclusions about the impact of these proceedings on P3 structures going forward, but initial rulings in two of the cases are already focusing the minds of project participants on threshold structuring considerations.
On Tuesday, the FDIC held the first in a series of proposed roundtable discussions on the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which is intended to bring transparency to the rulemaking process. Government officials, industry executives, academics and investors were invited to participate in the discussion.
It is no surprise that there are risks inherent in doing business with a debtor in bankruptcy, including, of course, the risk that the debtor may not have the money to pay for goods sold to it on credit. Businesses can manage those risks by, for example, shortening trade credit terms, obtaining the debtor’s agreement to pay on delivery or in advance for product, or obtaining a deposit or letter of credit as security. But, once a debtor has paid for goods or services it actually received, most vendors would probably assume that the transaction cannot be challenged.
Suppliers to chapter 11 debtors-in-possession should always ensure that they are not being paid from the debtor’s “cash collateral” without court approval. Marathon Petroleum Company supplied products to debtor Delco Oil in the ordinary course of its business during the bankruptcy case, but was forced to return all of the postpetition payments it received from Delco, pursuant to section 549 of the Bankruptcy Code. Marathon was required to return these payments because they were deemed part of the cash collateral that was secured by Delco’s pre-petition creditor, CapitalSource Finance.