All items from Basis Points

One Potato, Two Potato, Three Potato…Well Actually It’s All One Potato.

The Delaware Bankruptcy Court recently held that a third amendment to a lease agreement entered into for the purpose of leasing a second building could not be severed from the original lease agreement; and the debtor was not allowed to reject the lease on that second building under section 365 of the Bankruptcy Code. In In re Contract Research Solutions, Inc., (the decision can be found here) the debtor, Allied Research International, Inc., had originally leased one building from a third party, Golden Glades Associates, LLP. Allied and Golden amended the lease agreement twice, each time relating to the first building. A few years later, the lease agreement was amended a third time for purposes of leasing a second building located in the same building complex. The third amendment contained terms that applied to the first building, expanded the definition of premises to include both buildings, and provided that the terms of the original lease remained in full force and effect, except where modified by the third amendment. Allied commenced bankruptcy proceedings on March 26, 2012 and eventually ceased use of the second building, vacated it, and sent the keys to Golden. Golden quickly sent the keys back to Allied.



From Basis Points
Posted 1 week 20 hours ago

Collateral Damages: Secured Creditors, Turn Over Repossessed Collateral, Or Else!

It was just an old jalopy legally repossessed by his credit union . . . until he filed a bankruptcy petition and the red lights of the automatic stay started flashing. Smokey pulled the lender over and started issuing citations so be forewarned, put your hazard lights on and drive carefully through the postpetition fog, because this decision is relevant to all secured creditors under all Bankruptcy Code Chapters, not just car lenders under Chapter 13. In a recent Second Circuit decision, the Court affirmed the judgment of the United States District Court for the Northern District of New York, which concluded that a secured creditor violated the Bankruptcy Code’s automatic stay by refusing to return a 4-banger that it had legally repossessed several days before plaintiff filed for relief under Chapter 13 of the Bankruptcy Code. In re Weber (Weber v. SEFCU), No. 12-1632-bk (2d Cir. May 8, 2013). A copy of the decision can be found HERE.



From Basis Points
Posted 1 week 3 days ago

Delaware Bankruptcy Court Gives an “A+” to 37% Make-Whole Premium

On April 22, the Delaware Bankruptcy Court approved a 37% make-whole premium in In re School Specialty, Inc., No. 13-10152. A copy of the decision can be found here. As we have said before (see here and here), “not all make-whole provisions are created equal, and whether a particular make-whole really does ‘make-whole’ rather than ‘make a hole’ requires a close contractual reading.” In School Specialty, Judge Kevin Carey’s assigned reading was a $70 million prepetition credit agreement that provided for an “early payment fee” (i.e., a make-whole premium) under certain circumstances. Given that the loan interest rate was 12.5% and the make-whole formula made the customary comparison to T+50, the reading was compelling. Judge Carey concluded that the loan agreement was clearly written, the make-whole premium was clearly triggered, and the fact that application of the make-whole formula resulted in a 37% premium was not a reason to censor the results. Class dismissed.
Prologue



From Basis Points
Posted 3 weeks 5 days ago

Canadian Superpriority Bowl: CCAA – 34, Ontario Pensions – 31

We previously reported on Basis Points that the Ontario Court of Appeal (OCA) unanimously ordered that employer pension contributions required under Ontario’s Pension Benefits Act “prime” (rank ahead of) charges securing a company’s DIP financing in proceedings under the Companies’ Creditors Arrangement Act (CCAA) (see blog post: Canadian Court Cracks the Nut of a Priming DIP; Are Secured Claims Next?). We followed this with a second Basis Points update that the Québec Superior Court more reasonably held that DIP lenders primed the claims of pension participants (see blog post: A Priming DIP in Québec? Beau Dommage!). The stakes involved are considerable – were the OCA position ultimately to be victorious, the decision in favor of DIP liens would enable more pension-saddled Canadian companies to obtain CCAA financing, thereby substantially increasing their Vegas odds for restructuring. With the regular season over, the Ontario and Québec views squared off in the Canadian Superpriority Bowl, with the Supreme Court of Canada (SCC) serving as referee. While the first half favored the Québécois, the Ontarians staged a strong second-half comeback. In the end, however, a goal-line stand saved the day and the SCC awarded victory to the Francophones.



From Basis Points
Posted 14 weeks 6 days ago

Restructuring Support Agreements, Ad Hoc Committees And Non-Debtor Third-Party Releases Win by a Nose

In Ben Hur, Judah Ben-Hur’s team of white horses beat Messala’s black horses in the climactic chariot race. In a similar battle to the death in In re Indianapolis Downs, LLC, the white horses won again when Delaware Bankruptcy Judge Brendan L. Shannon confirmed Indianapolis Downs’ joint Chapter 11 plan of liquidation (the “Plan”) over a series of hard-fought objections focusing on the implications of a Restructuring Support Agreement and the propriety of third-party releases. The Bankruptcy Court also denied a motion to designate the votes of certain creditors on the Plan, without which the Plan would have pulled up lame leaving Plan confirmation to another jockey and another race. The Bankruptcy Court’s decision can be found HERE.



From Basis Points
Posted 15 weeks 16 hours ago

Bankruptcy Court Grounds American Airlines Noteholders’ Make-Whole Claim

Last week the United States Bankruptcy Court for the Southern District of New York approved debtor-American Airlines’ motion to enter into a secured financing transaction and repay certain pre-petition aircraft financing without paying make-whole premiums. The indenture trustee sought to ground the motion by asserting that the make-whole had to be paid, but it was the indenture trustee, not American, that crashed and burned. As we have blogged before, “not all make-whole provisions are created equal, and whether a particular make-whole really does ‘make whole’ rather than ‘make a hole’ requires a close contractual reading.”[1] Here, the Bankruptcy Court interpreted the contractual provisions against the indenture trustee, thus clearing American’s secured financing for take-off. A copy of the decision can be found here.



From Basis Points
Posted 16 weeks 6 days ago

Noteholders Shatter Vitro Subsidiaries in Texas

Last week, the Bankruptcy Court for the Northern District of Texas granted involuntary bankruptcy petitions against ten US subsidiaries of Mexican glassmaker Vitro S.A.B. de C.V. (the “New Debtor Subsidiaries” and “Vitro”, respectively). The ruling is a win in the multi-paned litigation involving certain petitioning noteholders (the “Noteholders”) in their fight against Vitro’s efforts to effect a non-consensual restructuring of their debt through a Mexican insolvency proceeding.
By way of background, in 2009, Vitro stopped making interest payments on $1.2 billion of notes (the “Notes”) guaranteed by its subsidiaries (including the New Debtor Subsidiaries). After failing to obtain creditor support for three restructuring proposals, Vitro announced in November 2010 that it would initiate a voluntary reorganization proceeding, or concurso, in Mexico. Soon after, the Noteholders filed involuntary chapter 11 petitions against the New Debtor Subsidiaries and five of Vitro’s other US subsidiaries. Those five US subsidiaries ultimately consented to chapter 11 relief, but the New Debtor Subsidiaries continued to resist the involuntary petitions.



From Basis Points
Posted 22 weeks 6 days ago

Chapter 11 Is No Trip to the Spa

Our Blogger-in-Chief can sure turn bankruptcy into visual poetry. While at the recent Marine Money Ship Finance Forum in New York, he and Chair of our Maritime Investment and Restructuring Practice, partner Bob Burns, were interviewed by a reporter from TradeWinds, who asked about bankruptcy and the shipping industry. When questioned about Chapter 11 as a strategic option, Flaschen and Burns emphasized that shipping companies need to figure out what else they can do, if at all possible, before going forward with filing for bankruptcy in U.S. court.
As the BIC noted of the Chapter 11 process, “It is an emergency room; it is not a health spa.”
You can see the poetry in motion here.



From Basis Points
Posted 24 weeks 6 days ago

This time Argentina gets the shot across the bow . . .

Earlier this year we wrote about the Argentine government’s nationalization of Repsol’s shares in YPF, warning investors in Argentina of the uncertainty of future nationalization activity in Argentina. (click here for our YPF blog entry) Holders of Argentine sovereign debt are quite familiar with the risks of investing in Argentina. However, recently the tide turned a bit in favor of those creditors. While it wasn’t the shot heard round the world, it was a shot across the bow of Argentina (or at least one of their naval ships) when The United States Court of Appeals for the Second Circuit held that Argentina had violated the “equal treatment” provision of one of their debt agreements. Affirming the District Court’s decision and injunction, the Second Circuit agreed with the Plaintiff-bondholders that Argentina had breached its promise to pay them back the debt on an equal and pari passu basis as all other debt. Earlier this week, the Republic of Argentina petitioned for a rehearing by the Second Circuit panel and a hearing by the full Second Circuit Court of Appeals (the “Petition for Rehearing”). 



From Basis Points
Posted 26 weeks 4 days ago

First, Second and Third Times are all the Charm…

A third court confirms that settlement payments are still settlement payments and early redemptions of notes prior to maturity are exempted from preference actions. Calling the case “easily decided” in light of the Second Circuit’s holding and analysis in Enron (the subject of an earlier Basis Points blog post), the United States District Court for the Southern District of New York affirmed the Bankruptcy Court’s decision (the subject of another Basis Points blog post), namely that the redemption of notes prior to maturity was exempt from preference actions under the safe harbor provision of Bankruptcy Code § 546(e). Official Comm. of Unsecured Creditors of Quebecor World (USA) Inc. v. Am. United Life Ins. Co., No. 11 Civ. 7530 (S.D.N.Y. Sept. 28, 2012). A copy of the decision can be found HERE.



From Basis Points
Posted 32 weeks 16 hours ago