A decision this month out of the Bankruptcy Court in Manhattan (SDNY) could have a significant impact on the market for student loan securitizations. Student loan asset-backed securities (SLABS) are unsecured, but market participants typically assume that the underlying student loans are not dischargeable in bankruptcy. A new ruling by the chief judge of the SDNY’s Bankruptcy Court challenges this assumption.

The consequences of an order or judgement being final or interlocutory are enormous. An order from an interlocutory order requires leave since these orders are not appealable as of right. In addition, a failure to obtain leave may result in the issue becoming moot. This is especially so when motions to lift the stay are involved: if the motion is denied and is not immediately appealable, by the time the case is concluded, the issues will most likely be moot.

In LNV Corporation v. Ad Hoc Group of Second Lien Creditors (In re La Paloma Generating Company, LLC, Adv. Pro. No 19-50110 (JTD) (D. Del. January 13, 2020), a Delaware bankruptcy court recently held that actions taken by a senior secured creditor to enforce its rights under an intercreditor agreement did not constitute a breach of the duty of good faith and fair dealings owed to the junior lienholders. The circumstances in La Paloma are not uncommon.

Background

In a unanimous decision affirming the Sixth Circuit, the Supreme Court held that creditors have 14 days to appeal a bankruptcy court’s denial of relief from the automatic stay. In one of the term’s first decisions, Justice Ginsburg’s opinion in Ritzen Group, Inc. v.

FERC proceeding to restrict rejection of a power purchase agreement may be subject to the automatic stay. The debtor had entered into several agreements to purchase power it no longer needed because its reorganization contemplated its exit from the business of selling electricity at retail. The contracts constituted a minimal portion of the debtor’s power contracts and were an insignificant portion of the power market.

When negotiating forbearance agreements with borrowers, lenders should consider including a pre-petition waiver of the debtor’s right to oppose a motion for relief from the automatic stay. In a recent decision, the Northern District of Georgia Bankruptcy Court found that a pre-petition waiver of the right to oppose a motion for stay relief was enforceable. A closer examination of this opinion provides guidance to lenders and secured creditors in negotiating these provisions with borrowers.

In a unanimous opinion released last week, the Supreme Court provided guidance as to how to determine the finality of an order in a bankruptcy case for purposes of an appeal under 28 U.S.C. § 158(a). The Court held that the adjudication of a creditor’s motion for relief from stay is properly considered a discrete and independent proceeding within a bankruptcy case and is immediately appealable.

In Short

The Situation. In Ritzen Group, Inc. v. Jackson Masonry, LLC, the U.S. Supreme Court considered whether bankruptcy court orders conclusively denying relief from the Bankruptcy Code's automatic stay are immediately appealable.

The Result. On January 14, 2020, the Court unanimously ruled that an order conclusively resolving a motion for relief from the automatic stay was immediately appealable, such that a later-filed appeal was untimely and must be dismissed.

The question of does a lien exist without a debt for it to secure is a complicated issue that unfortunately does not have a universal answer. This post will use two recent cases to explore concerns that counsel should examine if presented with this question.

Key Takeaways: