Last Fall, the United States Court of Appeals for the Second Circuit issued a decision in the Charter Communications bankruptcy case which will create additional significant challenges for those seeking to appeal confirmation of plans of reorganization that have been implemented. See 691 F.3d 476. Upon implementation (or “substantial consummation”) of the plan, the Second Circuit presumes that the appeal of such plan is equitably moot. Appellants bear the burden of overcoming that presumption.
While fears of another downturn loom, the European financial markets have innovated, evolved and grown.
Following the collapse of Lehman Brothers and the period that followed, the markets have more understanding of the credit risk spectrum. This includes jurisdictional risk, available restructuring options and the complexity involved in any enforcement process.
The credit default swap (“CDS”) has never been tested in bankruptcy proceedings on any significant scale, particularly under recent amendments to the Bankruptcy Code. In part, this is because the CDS market is a very recent phenomenon. CDS market participants also make considerable efforts to avoid holding a credit default swap where the counterparty has gone into bankruptcy.
As has been widely reported, on September 15, 2008, Lehman Brothers Holdings, Inc. ("Lehman") filed for protection under chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). Except for LB 745 LLC which is the Lehman entity that was formed to own Lehman's headquarters in New York, the other subsidiaries (the "Lehman Subsidiaries") of Lehman have not filed for bankruptcy protection as of the time of publication of this Alert.
Many clients have asked us for guidance as to the basic mechanics of dealing with the Lehman bankruptcy. Although this list is not exhaustive, we have set forth below some of the issues that you may want to think about. (This guidance is with respect to transactions entered into under the 1992 ISDA Master Agreement, and capitalized terms used herein are defined in that agreement.
On September 15, 2008, Lehman Brothers Holdings Inc. filed a voluntary petition for bankruptcy protection, commencing the largest bankruptcy case in U.S. history. Initially, it appeared that many of the operating subsidiaries would remain outside of bankruptcy, but during the past several days, many of them have filed bankruptcy petitions as well. As of this writing, a complete list of the bankrupt Lehman entities (collectively, “Lehman”) is as follows:
The collapse of Lehman Brothers was a major test of the procedures developed by market participants to address counterparty credit risk and has uncovered deficiencies in risk management policies and their application.
Today, the House Financial Services Committee, chaired by Representative Barney Frank (D-MA), held a hearing on the effects of the Lehman Brothers bankruptcy on state and local governments and other publicly-funded entities.
Testifying at the hearing were the following witnesses:
Panel One:
On September 17, 2009 Judge Peck of the United States Bankruptcy Court for the Southern District of New York issued two orders that may significantly impact parties who held, or still currently hold, derivative contracts with Lehman Brothers Special Financing Inc. (LBSF) or any of the other debtors in the Lehman Brothers bankruptcy cases (the Debtors).