Our first update1 discussed various initial proceedings in the Chrysler bankruptcy cases. This update provides certain information on the Order Approving Bidding Procedures for the Sale of Substantially all of the Debtors’ Assets, which was entered by the court on May 7, 2009, and the Interim Order Approving a DIP Credit Facility and Authorizing the Debtors to Obtain Post-Petition Financing, which was entered by the court on May 4, 2009. The final DIP Financing and Sale hearings are scheduled for May 20, 2009, and May 27, 2009, respectively.

General Motors and Affiliates File for Chapter 11 Bankruptcy Protection

Visteon and Affiliates File for Bankruptcy Protection

Visteon Corporation and related affiliates (“Visteon”) filed voluntary bankruptcy petitions on May 28, 2009, in the United States Bankruptcy Court for the District of Delaware (“Bankruptcy Court”). Visteon intends to continue to operate its businesses while in bankruptcy. Although Visteon UK, Ltd., has already filed bankruptcy in Great Britain, it appears that Visteon’s other non-U.S. subsidiaries will not be filing separate proceedings and will not be part of Visteon’s U.S. bankruptcy proceeding.

In an unusual ruling recently entered in the Chapter 11 case of Yellowstone Mountain Club, LLC and certain of its subsidiaries, the United States Bankruptcy Court for the District of Montana equitably subordinated the claim of a non-insider senior secured lender. While the equitable subordination of a claim is rare, the Yellowstone decision may signal that courts will be looking at loan transactions with a highly critical eye.

On May 22, 2009, President Obama signed into law the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the “Credit CARD Act of 2009” or the “Act”), Public Law No: 111-24. The Act is intended to crackdown on certain credit card practices perceived as abusive – such as retroactive interest rate increases, "double cycle" billing and the offering of "fee harvester" cards. For credit counseling agencies and those that advertise and market debt management plan services to consumers, the Act is notable in three primary ways:

Lear Corporation and related U.S., Canadian, and Cayman Island affiliates (“Lear”) filed voluntary bankruptcy petitions on July 7, 2009 in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”). Lear intends to continue to operate its businesses while in bankruptcy. Other than certain Lear related entities based in Canada and the Cayman Islands, Lear’s non-U.S. subsidiaries do not appear to be included in Lear’s U.S. bankruptcy filing and apparently will continue to operate outside the supervision and jurisdiction of the Bankruptcy Court.

Under section 363(f) of the bankruptcy code, a trustee may sell assets of the bankruptcy estate free and clear of liens and other interests. Generally, absent consent of the lienholder, a trustee may only sell assets free and clear of liens under one of the following conditions:

In a harshly worded decision, a federal bankruptcy judge concluded that a syndicated loan product was so one-sided in favor of the lender as to "shock the conscience" of the court. The judge therefore equitably subordinated the secured lender's claim. See In re Yellowstone Mountain Club, LLC, No. 08-61570, 2009 WL 1324950 (Bankr. D. Mont. May 12, 2009).

Yellowstone Mountain Club

The U.S. Court of Appeals for the Fifth Circuit has issued a case useful for credit bidders that successfully bid on their own collateral at a bankruptcy sale, which goes forward without a specific agreement "carving out" expenses. Borrego Springs Bank N.A. v. Skuna River Lumber L.L.C., (In re Skuna River Lumber, LLC), 564 F.3d 353 (5th Cir. 2009).

Credit agreements typically provide that any amendment permitting the release of “all or substantially all” of the collateral requires the unanimous consent of the lenders. Many market participants expect that this provision provides protection against the agent and other lenders from consenting to the sale of the collateral and releasing the corresponding liens without the consent of all lenders.