In light of recent court developments in Marblegate and Caesars, in which courts interpreted Section 316(b) of the Trust Indenture Act (“TIA”) as barring bond exchange offers at issue, the Wall Street Journal’s Bankruptcy Beat this month posted responses to this question: how does bondholders’ use of the Trust Indenture Act affect companies’ ability to complete out-of-court restructurings?
Mark Roe sees the recent decisions as properly interpreting the TIA (see The Voting Prohibition in Bond Workouts for further analysis). But he sees the TIA to be a poor statute for today’s institutionalized market and urges the SEC to use its power to exempt transactions from the TIA, so as to allow binding votes in non-coercive out-of-court restructurings.
Jay Goffman discusses negative consequences of broad minority bondholder power and predicts that companies will limit their use of out-of-court exchange offers. J. Scott Victor also predicts that more companies will file for Chapter 11 bankruptcy when minority bondholders hold out and prevent out-of-court restructurings.
Jack Butler concludes that the TIA’s legislative intent was not to grant bondholders more than the legal right to sue the debtor, even if an exit consent transaction ousted them of the practical capacity to be paid.
On the other hand, Richard Chesley argues that recent decisions should not affect the use of out-of-court restructurings, while Brett Miller expects further judicial opinions on the scope and reach of the Trust Indenture Act.
(This post was drafted by Jenny Choi, J.D. ’16.)