National Bankruptcy Conference Proposed Amendments to Bankruptcy Code to Facilitate Restructuring of Bond and Credit Agreement Debt

posted in: Workouts and Pre-Packs | 0

By National Bankruptcy Conference, Richard Levin, Chair

While chapter 11 facilitates prepackaged plans that substantially reduce the cost, expense, and disruption of an ordinary chapter 11 case, it can still be an expensive and cumbersome process compared to an out-of-court workout. Recent court decisions under the Trust Indenture Act (Marblegate Asset Mgmt. v. Education Mgmt. Corp., — F. Supp. 3d —, No. 14 Civ. 8584, 2014 U.S. Dist. LEXIS 178707 (S.D.N.Y. Dec. 30, 2014), and Meehancombs Global Opportunities Funds, L.P. v. Caesars Entertainment Corp., — F. Supp. 3d —, No. 14 Civ. 7091 (SAS), 2015 U.S. Dist. LEXIS 5111 (S.D.N.Y. Jan. 15, 2015), can be viewed as making out-of-court restructurings involving bonds covered by the TIA by a less than unanimous bondholder vote more difficult than previously thought by requiring affected lenders’ unanimous consent to an out-of-court workout.

The NBC has prepared proposed legislation that would facilitate court supervision of bond restructurings under a new chapter 16 of the Bankruptcy Code. The proposal is a result of the NBC’s Committee to Rethink Chapter 11, a project that the NBC initiated in 2009 to examine how chapter 11 could be modernized to accommodate substantial changes in finance, economics, and law since it was first adopted in 1978. Chapter 16 proposes a middle ground, preserving both the flexibility of chapter 11’s collective action and super-majority voting rules for a workout involving only borrowed money and court supervision of the process to protect the minority while reducing the expense and complexity of using chapter 11’s prepackaged plan process.

For the full proposal, see here.