Puerto Rico Files For Bankruptcy Protection

The Commonwealth of Puerto Rico is seeking the largest municipal bankruptcy filing in U.S. history, after failed negotiations with creditors over its $70 billion debt crisis. That is more than four times the debt Detroit collapsed under.

As previously reported, U.S. territories were barred from filing for a traditional bankruptcy, permitted for most U.S. cities or states. As a result, the U.S. Congress last year approved the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) to address the impending financial crisis Puerto Rico was already facing.1 Continue Reading

Recent Important Insider Trading Trial

On Friday, April 7 of this year, the famed Las Vegas sports gambler William T. “Billy” Walters was found guilty in the U.S.  District Court for the Southern District of New York in Manhattan of 10 charges of securities fraud, wire fraud and conspiracy, the most serious of which carry a potential sentence of up to 20 years in prison. This was one of the biggest insider trading trials in recent years.

At issue in the trial was whether the relationship between Mr. Walters and his source, Thomas C. Davis, a former chairman of the board of Dean Foods of Dallas was sufficiently close to find that tips about Dean Foods were a gift in violation of the insider trading laws.1 Continue Reading

Commentary On Nortel Networks Inc. Bankruptcy Court Ruling Re Trustee Fee Application

As previously reported in the article by Tina N. Moss and Yasamin N. Oloomi on March 31 of this year entitled “Nortel Court Rejects Noteholder Objection to Indenture Trustees’ Fees,” the United States Bankruptcy Court for the District of Delaware in In re Nortel Networks Inc., No. 09-10138(KG), 2017 WL932947 (Bankr. D. Del. Mar. 8, 2017) largely overruled certain noteholders’ objections to the indenture trustee fees.

Two hedge fund noteholders purporting to hold 90% of the outstanding 7.875% senior notes issued pursuant to an indenture qualified under the Trust Indenture Act of 1939, as amended, opposed the attorneys’ fees and sought to reduce the $8 million fee request roughly in half arguing that the indenture trustee did not properly discharge its duties. The two noteholders asserted that (1) the indenture trustee did not act prudently in assigning work to and supervising its attorneys, and (2) the attorneys’ fees charged were unreasonable. Continue Reading

Nortel Court Rejects Noteholder Objection to Indenture Trustees’ Fees

On March 8, 2017, the United States Bankruptcy Court for the District of Delaware in In re Nortel Networks Inc., No. 09-10138(KG), 2017 WL 932947 (Bankr. D. Del. Mar. 8, 2017) largely overruled certain noteholders’ objections to an indenture trustee’s fees and further clarified that the indenture trustee could recover the fees that it incurred in defending its attorneys’ fees, notwithstanding the Supreme Court’s recent decision in Baker Botts LLP v. ASARCO.  Central to the court’s decision was its refusal to evaluate the prudence of the trustee’s fees through hindsight and its upholding of the indenture’s provision allowing for the recovery for costs incurred by the trustee in defending itself. Continue Reading

Continuing To Define Insider Trading

Courts will define the boundaries of friendship in insider trading.

Background

The issue in these cases revolves around how to interpret the United States Supreme Court’s December 6, 2016 decision in Salman v. United States1 which found that the government did not always have to show that something valuable changed hands to prove a crime was committed.

The source of the controversy was the 2014 decision by the United States Court of Appeals for the Second Circuit in Manhattan in United States v. Newman2 which had required prosecutors to also prove that the tipper received something “of a pecuniary or similar valuable nature” – a more difficult standard to meet. Continue Reading

Second Circuit Court of Appeals Rules for Education Management In Marblegate Out-of-Court Restructuring

On January 17, 2017, in the Marblegate Asset Mgmt., LLC v. Educ. Mgmt. Fin. Corp. litigation (No. 15-2124-cv(L), (2d Cir. 2017), the U.S. Court of Appeals for the Second Circuit in Manhattan ruled in favor of the defendant, Education Management Corporation (EDMC), overturning the decision of the U.S. District Court for the Southern District of New York in the EDMC restructuring outside of a Chapter 11 bankruptcy filing.1

Section 316(b) of the Trust Indenture Act of 1939, as amended provides that, subject to certain exceptions, the right of a holder of an indenture security to receive principal and interest payments, or to institute suit to enforce such payments after they become due, shall not be impaired or affected without such holder’s consent. However, the District Court in New York expanded the interpretation of Section 316(b) of the Trust Indenture Act to also prohibit transactions that result in an impairment of a non-consenting bondholder’s practical ability to receive payments, not just its legal right to receive payments, even where the transaction does not specifically modify any of the indenture’s payment terms. Continue Reading

In An Insider Trading Case Supreme Court Sides With Prosecutors

On December 6, 2016, the United States Supreme Court ruled unanimously in favor of prosecutors in a major insider trading case – Salman v. United States1, stating that gifts of confidential information from business executives to relatives violate the securities laws. This case clarified what constitutes a “personal benefit.”

The Supreme Court handed the government a significant win in its pursuit of insider trading, ruling that prosecutors in such cases do not always have to show that something valuable changed hands to prove a crime was committed. Continue Reading

In re Energy Future Holdings Corp, et al.: Third Circuit Enforces Indenture Make Whole Provisions

The United States Court of Appeals for the Third Circuit, applying New York law, recently reversed two lower court rulings that had denied holders of EFIH first and second lien notes approximately $431 million in optional redemption premiums. The Third Circuit determined that the make whole provisions contained in the relevant first and second lien indentures were enforceable by their terms in this post-bankruptcy acceleration context. Read the decision here.

Bondholder Protections Resulting From Out-Of-Court Restructurings

Litigation involving two recent out-of-court restructurings have focused on interpreting broadly bondholder protections under the Trust Indenture Act of 1939, as amended.

The two cases in the United States District Court for the Southern District of New York are:

  • Marblegate Asset Management v. Education Management Corp.
  • MeehanCombs Global Opportunity Funds, LP et al. v. Caesars Entertainment Corp. et al.

Continue Reading

Puerto Rico Oversight Board Is Chosen By The White House

The members of the financial oversight board to supervise Puerto Rico’s fiscal affairs were announced by the White House on August 31, 2016. The seven members are experts in finance and law and were chosen from lists provided President Barack Obama by the party leaders of both houses of Congress. The members of the oversight board include four Republicans and three Democrats. Four members are Puerto Ricans, three more than required under the new Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

As previously reported, Puerto Rico needed a special restructuring law because all branches of its government are specifically prohibited from seeking relief through bankruptcy. The island has $72 billion in outstanding debt. PROMESA extends bankruptcy like protections to Puerto Rico under the purview of a federal control oversight board and halted new debt related litigation against the island until February 2017.1 Continue Reading

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