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.


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

Caesars Entertainment Operating Company, Inc., et al. Chapter 11 Proceedings: Debtors Seek Authorization To Pay Indenture Trustee Fees and Expenses

On August 3, the Debtors in the Caesars chapter 11 proceedings pending in the Northern District of Illinois filed a motion seeking payment of the fees and expenses of an indenture trustee for certain senior unsecured notes during the pendency of the case and prior to plan confirmation.  The Debtors assert that the proposed payment is a sound exercise of their business judgment that is in the best interests of the Debtors’ estates within the meaning of Section 363(b)(1) of the Bankruptcy Code.

The United States Trustee objected, contending that the relief requested violates Section 503(b) of the Bankruptcy Code, and requested additional briefing and an evidentiary hearing to resolve certain factual issues related to the request.  The Official Committee of Second Priority Noteholders also objected, and certain other indenture trustees serving in the case filed responsive papers (WSFS, DTC, BOKF) seeking similar treatment in the event that the motion is granted.  The motion remains pending before the Court.

Hedge Funds Sue Puerto Rico And Its Governor

On July 20, 2016, a group of hedge funds holding Puerto Rico’s most senior public debt – general obligation bonds and debt guaranteed by the commonwealth – sued the island and its Governor, Alejandro Garcia Padilla, saying the island siphoned money away from bondholders in breach of the new U.S. law entitled the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which, as previously reported, was signed by President Barack Obama on June 30, 2016.1

Continue Reading

Congress Passes Puerto Rico Debt Relief Law

As previously reported, the U.S. House of Representatives on June 9th of this year approved legislation, entitled the “Puerto Rico Oversight, Management and Economic Stability Act,” (PROMESA), to stem the escalating debt crisis in Puerto Rico creating a federal financial control oversight board to help the island cope with its $72 billion in outstanding debt.1

The U.S. Senate approved the legislation on June 29 and President Barack Obama signed the PROMESA bill on June 30, 2016.

The legislation was passed by a bipartisan bid to salvage a debt-laden Puerto Rico. It would not have happened without House Speaker Paul Ryan’s determination, intense engagement with his conservative bloc, an awareness of the need to work with his Democratic counterpart, and a focus on Hispanics that he developed while serving as Mitt Romney’s 2012 running mate. Mr. Ryan also had pledged to work with House Minority Leader Nancy Pelosi.

Mr. Ryan guided the legislation through a series of make-or-break impasses.

Continue Reading