In an eagerly-awaited decision, the Second Circuit Court of Appeals has vacated the district court's decision in Marblegate Asset Management, LLC v. Education Management Finance Corp. The district court's decision had created much uncertainty and confusion in the restructuring and indenture trustee community. The Court of Appeals has now held that Section 316(b) of the Trust Indenture Act (“TIA”) is not violated by a restructuring merely because it makes payment to dissenting holders unlikely or impossible.

The law on debt restructurings and liability management is back to where it was. Yesterday, the Second Circuit Court of Appeals reversed the controversial District Court decisions in the Marblegate-Education Management bondholder litigation. The case attracted wide-spread attention in financial markets, and we discussed it in an earlier client alert.

The U.S. Supreme Court heard oral argument Tuesday in Midland Funding v. Johnson. A primary issue before the Court is whether the federal Fair Debt Collection Practices Act is violated by the filing in a Chapter 13 bankruptcy case of a proof of claim representing a debt subject to an expired limitations period. The case originated from the Eleventh Circuit Court of Appeals, which along with its earlier decision in Crawford v. LVNV, held the FDCPA is violated in those instances. Every other Circuit Court of Appeals has since found otherwise.

January 19, 2017

Second Circuit Overturns Marblegate, Rejecting Expansive Interpretation of Section 316(b) of the Trust Indenture Act

In Split Decision, Appeals Court Rules That Section 316(b) of the Trust Indenture Act of 1939 Prohibits Only Formal Non-Consensual Amendments to a Qualified Indenture's Core Payment Terms

SUMMARY

On November 17, 2016, the US Court of Appeals for the Third Circuit in Delaware Trust Co. v. Energy Future Intermediate Holding Co. LLC, No. 16-1351 (3d Cir. Nov. 17, 2016) clarified the often-muddy interplay between indenture acceleration provisions and "make-whole" redemption provisions, holding that Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc. (collectively, "EFIH") were unable to avoid paying lenders approximately $800 million in expected interest by voluntarily filing for bankruptcy.

The Second Circuit issued its much anticipated decision in Marblegate Asset Management LLC v. Education Management Corp., holding that “Section 316(b) prohibits only non-consensual amendments to an indenture’s core payment terms.” At issue is whether the phrase “right . . . to receive payment” forecloses “more than formal amendments to payment terms that eliminate the right to sue for payment.” The Second Circuit held that it does not.

In its highly anticipated Marblegate Asset Management LLC v. Education Management Corp. decision,[1] the U.S.

Imagine that while a bankruptcy case is pending, the debtor-in-possession or bankruptcy trustee files a state law claim against one of the estate's creditors. Presumably, if the debtor wins its state law claim, that recovery augments the bankruptcy estate and increases the amount available to pay the debtor's creditors.[1] The creditor, seeking to avoid litigating the action in the debtor's home state court, timely removes the lawsuit to federal court as permitted under 28 U.S.C.

Precipitous commodity price declines and high volatility, coupled with high operating costs and high levels of borrowing, led to a wave of restructuring in the energy industry. In the frenzy of restructuring, a company is consumed with legal issues, employee layoffs, salary cuts, asset sales, and workload reassignments, to name a few. When the company emerges out of restructuring, the focus turns to healing.

On January 17, 2017, the Court of Appeals for the Second Circuit issued its long-anticipated opinion in Marblegate Asset Management, LLC v. Education Management Finance Corp., 1 ruling that Section 316(b) of the Trust Indenture Act of 1939, 15 U.S.C. § 77ppp(b) (the “Act”), prohibits only non-consensual amendments to core payment terms of bond indentures.