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    Fifth Circuit holds that supply agreement is a "forward contract" for bankruptcy avoidance protection
    2012-08-14

    On August 2, 2012, the United States Court of Appeals for the Fifth Circuit issued a decision in the bankruptcy case for MBS Management Services, Inc. (the “Debtor”). The Fifth Circuit affirmed the district court’s opinion finding that an electric requirements agreement was a “forward contract” and, therefore, that payments made on the agreement were exempt from avoidance under the Bankruptcy Code.

    I. Factual Background

    Filed under:
    USA, Energy & Natural Resources, Insolvency & Restructuring, Litigation, Orrick, Herrington & Sutcliffe LLP, Bankruptcy, Debtor, Maturity (finance), Fifth Circuit
    Authors:
    Jonathan P. Guy , Kathleen Orr , James W. Burke
    Location:
    USA
    Firm:
    Orrick, Herrington & Sutcliffe LLP
    Effect of acceleration upon a Chapter 11 filing on enforceability of make-whole or prepayment premiums
    2012-05-14

    Indentures often contain make-whole premiums payable upon early redemption of the debt, and term B loan agreements often include "soft call" protection in the form of prepayment premiums during the early life of the loan. If the debt issuer becomes subject to a chapter 11 proceeding after the debt issuance, the question then arises as to how this payment obligation is to be treated: Does the make-whole or prepayment premium constitute unmatured interest due as a result of the debt acceleration, which would be disallowed, or is it liquidated damages?

    Filed under:
    USA, Banking, Insolvency & Restructuring, Litigation, Jones Day, Bond (finance), Debtor, Interest, Debt, Maturity (finance), Liquidated damages
    Authors:
    Vanessa G. Spiro , Noopur N. Garg
    Location:
    USA
    Firm:
    Jones Day
    Bankruptcy court in Illinois holds that a mortgage is avoidable in bankruptcy if the mortgage as recorded does not state the maturity date and interest rate of the underlying debt
    2012-05-15

    In a decision that potentially has serious implications for mortgage financing transactions in Illinois, the Bankruptcy Court for the Central District of Illinois recently held that a mortgage is avoidable in bankruptcy if it fails to include the maturity date and the interest rate of the underlying debt within the mortgage document as recorded. In re Crane, Case No. 11-90592, U.S. Dist. Ct. C.D. Ill., February 29, 2012; Supplemental Opinion and Order, April 5, 2012.

    Filed under:
    USA, Illinois, Banking, Insolvency & Restructuring, Litigation, Reed Smith LLP, Bankruptcy, Mortgage loan, Maturity (finance), Conveyancing, Constructive notice, United States bankruptcy court
    Authors:
    Daniel J. Slattery
    Location:
    USA
    Firm:
    Reed Smith LLP
    U.S. Bankruptcy Court holds Illinois mortgage may be avoided for failure to state interest rate and maturity date
    2012-04-20

    In a ruling on February 29, 2012, the U.S. Bankruptcy Court for the Central District of Illinois allowed a bankruptcy trustee to avoid an Illinois mortgage as to other creditors of the estate because the mortgage failed to expressly state the maturity date of and interest rate on the underlying debt (In Re Crane, Case 11-90592, U.S. Dist Ct, C.D. IL, February 29, 2012).

    Filed under:
    USA, Illinois, Banking, Insolvency & Restructuring, Litigation, Dykema Gossett PLLC, Debt, Mortgage loan, Maturity (finance), Title insurance, Constructive notice, United States bankruptcy court
    Authors:
    Michael S. Kurtzon , Gary P. Segal , Diana Tsai
    Location:
    USA
    Firm:
    Dykema Gossett PLLC
    Illinois mortgages subject to avoidance in bankruptcy absent strict adherence to Illinois mortgage statute
    2012-04-20

    The United States Bankruptcy Court for the Central District of Illinois recently held that an Illinois mortgage is subject to avoidance in bankruptcy pursuant to 11 U.S.C. § 544(a)(3) unless the mortgage contains among other things, (i) the amount of the debt, (ii) the maturity date of the debt, and (iii) the underlying interest rate. Richardson v. The Gifford State Bank (In re Crane), Adv. Pro. No. 11-9067 (Bankr. C.D. Ill.).

    Filed under:
    USA, Illinois, Banking, Insolvency & Restructuring, Litigation, Barnes & Thornburg LLP, Bankruptcy, Mortgage loan, Maturity (finance), Constructive notice, US Code, United States bankruptcy court
    Authors:
    Michael Campbell , John T. Gregg , Patrick E. Mears
    Location:
    USA
    Firm:
    Barnes & Thornburg LLP
    General Growth Properties bankruptcy court upholds ipso facto loan provisions and awards secured creditors postpetition default interest
    2011-10-20

    In two recent decisions in the General Growth Properties, Inc., et al. chapter 11 cases, the United States Bankruptcy Court for the Southern District of New York upheld certain loan provisions which provided for an automatic event of default and imposition of a default rate of interest upon the commencement of a bankruptcy case, and held that certain creditors were entitled to receive postpetition interest at the contractual default rate.  General Growth Properties, Inc. and its affiliated debtors own, develop, and operate regional shopping malls across the United States.

    Filed under:
    USA, New York, Insolvency & Restructuring, Litigation, Cadwalader Wickersham & Taft LLP, Bankruptcy, Debtor, Interest, Limited partnership, Joint venture, Maturity (finance), Default (finance), Secured creditor, Accrued interest, Title 11 of the US Code, United States bankruptcy court, US District Court for the Southern District of New York
    Location:
    USA
    Firm:
    Cadwalader Wickersham & Taft LLP
    ZING VII —implications for the bankruptcy remoteness of special purpose entities
    2011-09-28

    In re Zais Investment Grade Ltd. VII1 is the latest in a recent line of bankruptcy cases challenging bedrock assumptions regarding securitization special purpose entities (SPEs) and bankruptcy considerations in securitization transactions.2 Zais establishes precedent allowing a senior noteholder of a collateralized debt obligation (CDO) to place the CDO issuer in an involuntary chapter 11 bankruptcy in order to advance an asset management plan that would otherwise require supermajority approval of all noteholders (including all junior classes) under the related indenture.

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Securitization & Structured Finance, Katten Muchin Rosenman LLP, Bankruptcy, Debtor, Unsecured debt, Collateral (finance), Asset management, Debt, Asset-backed security, Maturity (finance), Liquidation, Bad faith, Cashflow, Default (finance), Collateralized debt obligation, Title 11 of the US Code, United States bankruptcy court
    Authors:
    Chris DiAngelo
    Location:
    USA
    Firm:
    Katten Muchin Rosenman LLP
    Enron’s prematurity redemptions of commercial paper are not avoidable in bankruptcy
    2011-09-13

    The U.S. Court of Appeals for the Second Circuit recently held that prematurity redemptions of commercial paper made by Enron Corp. shortly before it filed for bankruptcy were protected from avoidance by 11 U.S.C. § 546(e)’s safe harbor for securities transaction settlement payments. In re Enron Creditors Recovery Corp. v. Alfa., No. 09-5122-bk (2d Cir. June 28, 2011). In so doing, the Second Circuit resolved a clash between the Bankruptcy Code’s interest in avoiding preferential debt repayment and the securities industry’s interest in preserving transaction finality.

    Filed under:
    USA, Capital Markets, Insolvency & Restructuring, Litigation, Chadbourne & Parke LLP, Bankruptcy, Security (finance), Safe harbor (law), Debt, Maturity (finance), Fair market value, Broker-dealer, Line of credit, Accrued interest, Coercion, Commercial paper, Enron, US Code, Second Circuit, United States bankruptcy court
    Authors:
    Scott S. Balber , Marcelo M. Blackburn
    Location:
    USA
    Firm:
    Chadbourne & Parke LLP
    Second Circuit's opinion may insulate payments previously beyond bounds of Bankruptcy Code Section 546(e)
    2011-09-07

    On June 28, 2011, the Second Circuit, in a 2-1 decision, held that Bankruptcy Code section 546(e) shields from avoidance in bankruptcy cases an issuer's payments to redeem its commercial paper prior to maturity. See Enron Creditors Recovery Corp. v. Alfa, S.A.B. de CV, Enron Creditors Recovery Corp. v. ALFA, S.A.B. de C.V., Nos. 09-5122-bk(L), 09-5142-bk (Con), 2011 U.S. App. LEXIS 13177 (2d Cir. June 28, 2011). The decision marks the first time an appeals court has considered whether redemption payments constitute "settlement payments" under section 546(e).

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Seyfarth Shaw LLP, Unsecured debt, Security (finance), Discovery, Commodity broker, Maturity (finance), Systemic risk, Debenture, Commercial paper, Enron, Second Circuit, United States bankruptcy court
    Authors:
    Gus A. Paloian , Ryan Pinkston
    Location:
    USA
    Firm:
    Seyfarth Shaw LLP
    Fifth Circuit: recharacterization, it’s not just for insiders anymore
    2011-08-17

    The Bottom Line:

    Filed under:
    USA, Insolvency & Restructuring, Litigation, Kramer Levin Naftalis & Frankel LLP, Royalty payment, Bankruptcy, Conflict of laws, Debtor, Interest, Debt, Legal burden of proof, Maturity (finance), United States bankruptcy court, Fifth Circuit, Fourth Circuit
    Authors:
    Matthew Ziegler
    Location:
    USA
    Firm:
    Kramer Levin Naftalis & Frankel LLP

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