Creditors have recently made some headway in collecting the full amount to which they are contractually entitled pursuant to various debt instruments. In In re Calpine Corp.,1 reported in our summer 2007 newsletter, the Bankruptcy Court for the Southern District of New York permitted a secured creditor to collect damages (albeit in the form of an unsecured claim) caused by dashed expectations due to the early repayment of its debt.

The U.S. Court of Appeals for the Seventh Circuit has held that a dragnet clause within a master security agreement was effective, even though a subsequent loan agreement remained silent as to whether pre-existing collateral secured the new advance. Universal Guaranty Life Ins. Co. v. Coughlin, 481 F.3d 458 (7th Cir., March 14, 2007).

In an issue the court notes is one of first impression, a Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Ninth Circuit has held that a bankruptcy court could grant an administrative priority to a claim which also may be secured. Brown & Cole Stores, LLC v. Associated Grocers, Inc., 375 B.R. 873 (9th Cir. BAP, Aug. 17, 2007).

A federal bankruptcy court in New York has concluded that the market price of a company’s stock is the most reliable valuation to determine whether disputed transfers were avoidable. In re Iridium Operating LLC (Statutory Committee of Unsecured Creditors of Iridium v. Motorola, Inc.), 373 B.R. 283 (Bankr. S.D.N.Y., Aug. 31, 2007).

Late last year, government responses to the subprime mortgage crisis proliferated but most attention focused on those measures that could be, and in some cases were, rapidly implemented — measures like the Treasury Department’s urging holders of certain subprime adjustable rate mortgages (ARMs) to freeze interest rates temporarily or the Federal Reserve’s proposed tightening of lending requirements.

A recent decision of the United States Bankruptcy Court for the Southern District of New York underscores the risk to junior creditors of not understanding fully the scope of consent given to a senior creditor to modify its senior lending arrangements with a debtor under the terms of an intercreditor agreement. In Buena Vista Home Entertainment, Inc. v.

By Order, dated January 14, 2008, United States Bankruptcy Judge Martin Glenn for the United States Bankruptcy Court for the Southern District of New York, granted the motion (the "Motion") filed by a group of creditors seeking transfer of venue of the Dunmore Homes, Inc. (the "Debtor") bankruptcy case from the United States Bankruptcy Court for the Southern District of New York (the "Court") to the Eastern District of California, Sacramento Division. A number of other creditors and the Official Unsecured Creditors Committee joined in the Motion.

The uncertain economic times and high leverage multiples on many loan transactions have combined to create distress in many commercial loan portfolios. An understanding of commercial loan workouts is integral to loan officers, portfolio managers and internal lenders’ counsel.

In the January 2008 issue, we reported on In re Solutia, Inc.,1 decided by the United States Bankruptcy Court for the Southern District of New York. The Solutia court demonstrated how contractual entitlements of debt instruments may be altered in bankruptcy. There, the original issue discount of certain secured notes was found to be interest, rather than principal, causing a significant portion of the noteholders’ claims to be disallowed. In In re Urban Communicators PCS, Ltd.

In a recent adversary proceeding brought by a chapter 7 trustee to recharacterize a creditor’s claim from a debt claim to an equity interest, the United States Bankruptcy Court for the District of South Carolina denied a creditor’s motion to dismiss for failure to state a claim where the trustee had alleged that the lender assumed control over the corporation after the date of the credit agreement.