Chapter 11

Orrick’s Marc Levinson Compares Chapter 9 to Chapter 11 for the Federal Judicial Center Website

 

Orrick Restructuring Senior Counsel Marc Levinson is one of the chapter 9 experts assisting in the preparation of a chapter 9 manual for bankruptcy judges and court clerks that has been posted on the website of the Federal Judicial Center, an arm of the United States Courts which educates federal judges.  Among other things, the manual will discuss the differences between chapter 9 and chapter 11 bankruptcies. The below video comparing chapter 9 v. chapter 11 was prepared at the FJC’s request that Marc draw upon his experience representing the cities of Stockton and Vallejo, California, in their chapter 9 cases. It has been posted on the FJC’s website, but note that access to the video on that website is restricted to judges. READ MORE

Supreme Court Hears Oral Argument in Jevic on Whether Distribution of Settlement Proceeds May Depart From Statutory Priority Scheme

 

The United States Supreme Court heard oral arguments on December 7, 2016 in Czyzewski v. Jevic Holding Corp. The case poses a question that has divided the Second, Third, and Fifth Circuits: Whether a bankruptcy court may authorize the distribution of settlement proceeds in a way that departs from the statutory priority scheme in the Bankruptcy Code, including through a so-called “structured settlement.” READ MORE

Third Circuit Departs from Momentive and Reinstates EFIH Noteholder Make-Whole Claims Causing Uncertainty over EFH’s Ability to Exit Bankruptcy

Recently, the Third Circuit reversed decisions issued by the Delaware Bankruptcy and District Courts and permitted first and second lien noteholders of Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. to receive payment of a make-whole premium. In re Energy Future Holdings Corp., No. 16-1351 (3d Cir. Nov. 17, 2016).  The decision, which is largely grounded in New York law, departs from recent controversial decisions issued by the Bankruptcy Court and District Court for the Southern District of New York in the Momentive bankruptcy, which we have previously discussed here and here.  In Momentive, the courts reached the opposite conclusion on substantially similar facts.  In Momentive, the courts reached the opposite conclusion on substantially similar facts.  In addition to creating a split between the Third Circuit and the Southern District of New York, the ruling creates uncertainty regarding the ability for the debtors in the long-running EFH bankruptcy to confirm their proposed chapter 11 plan. READ MORE

Orrick’s Marc Levinson Publishes Chapter 11 v. Chapter 9 Checklist in Practical Law

 

In a recent article for Practical Law Bankruptcy, Restructuring Senior Counsel Marc Levinson prepared a comparison chart providing an overview of the major facets of a Chapter 9 municipal bankruptcy and comparing them to those of a traditional Chapter 11 bankruptcy. The Chart examines, among other crucial issues, commencement of the case, eligibility requirements, case administration, preference actions and plans. To read the full chart, please click here.

Orrick Lawyer Co-Authors Article Addressing Unique Confirmation Issues in Nonprofit Cases

 

Orrick’s Evan Hollander co-authored an article for The Norton Annual Survey of Bankruptcy Law  (2016 Edition) addressing unique confirmation issues faced by nonprofit debtors in Chapter 11. The article addresses the applicability of the absolute priority rule, distinctive feasibility issues, and appropriate comparators when considering the best interests test in a nonprofit case. The authors identify emerging trends in nonprofit bankruptcy jurisprudence and suggest legislative action to help clarify certain ambiguities in the law. Read the full article here.

Foreign Debtors’ Access to U.S. Bankruptcy Courts: Expansion of “Property in the United States” Definition in Chapter 15 Cases

When is a foreign entity eligible to file a chapter 15 petition?  This question has been the subject of debate over the last few years, and Judge Martin Glenn’s recent opinion in In re Berau Capital Resources Pte Ltd. will add to this debate.  Although the debtor in the case was foreign and did not have a place of business in the United States, Judge Glenn concluded that the debtor had satisfied the eligibility provisions under section 109(a) of the Bankruptcy Code because the New York choice of law and forum selection clause in the underlying bond indenture rendered the bonds “property in the United States.”  No. 15-11804 (MG), 2015 WL 6507871 (Bankr. S.D.N.Y. Oct. 28, 2015).

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Overview and Analysis of Select Provisions of the ABI Chapter 11 Reform Commission Final Report and Recommendations

Part Three of Three

Earlier this year, Orrick’s Restructuring team began a three-part look at the American Bankruptcy Institute’s Chapter 11 Reform Report. In part one we looked at issues related to confirmation, valuation, financing and asset sales. Last month, in part two, we focused on modifications to the Bankruptcy Code’s “safe harbors” for derivatives and other complex financial transactions. This final part focuses on a variety of critical issues:  third party releases, rejection of collective bargaining agreements, professional compensation issues and treatment of executory contracts in bankruptcy.

To view part three, please click here.

Momentive: Case Update

As an update to our prior blog post, on May 4, 2015, Vincent Briccetti, United States District Court Judge for the Southern District of New York, issued a decision affirming the Bankruptcy Court’s order confirming Momentive’s cramdown chapter 11 plan.  The decision was long awaited with the parties having completed briefing in December 2014.

Judge Briccetti followed the reasoning of the Bankruptcy Court and affirmed the use of the “formula” approach to determine the cramdown interest rate.  Under the formula approach, the cramdown interest rate is equal to the sum of a “risk free” base rate (such as the prime rate) plus a risk margin of 1-3%.  Judge Briccetti rejected the “efficient market” approach advocated by the first and 1.5 lien noteholders, affirming the view that rates should not include any profit to secured creditors.  Under the efficient market approach, the cramdown interest rate is based on the interest rate the market would pay on such a loan.

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Overview and Analysis of Select Provisions of the ABI Chapter 11 Reform Commission Final Report and Recommendations

Part Two of Three

Last month, Orrick’s Restructuring team began a three-part look at the American Bankruptcy Institute’s Chapter 11 Reform Report. In part one we looked at issues related to confirmation, valuation, financing and asset sales. This second part focuses on modifications to the Bankruptcy Code’s “safe harbors” for derivatives and other complex financial transactions. The final part will focus on professional compensation, treatment of executory contracts and other interesting topics.

To view the full article, please click here.

Momentive: Where does it stand?

On September 9, 2014, following a hotly contested four-day confirmation hearing, Robert Drain, U.S. Bankruptcy Judge for the Southern District of New York, issued a bench ruling approving Momentive’s chapter 11 plan.  See In re MPM Silicones, LLC, No. 14-22503-rdd, 2014 Bankr. LEXIS 3926 (Bankr. S.D.N.Y. Sept. 9, 2014).  Momentive’s plan provided for the company’s first and 1.5 lien noteholders to receive new notes with extended maturities at a reduced interest rate, while fully equitizing the second lien noteholders.  Holders of senior subordinated notes did not receive any recovery.  At the heart of the plan was a $600 million rights offering backstopped by the second lien noteholders.

In approving the plan, Judge Drain overruled objections filed by trustees for the first and 1.5 lien noteholders who argued that the plan was not “fair and equitable” because the proposed cramdown interest rate for each of the new notes was below the applicable market rate.  The first and 1.5 lien noteholders also asserted that a make-whole premium would have been due upon a repayment of the debt  pursuant to language in the first and 1.5 lien note indentures.  The trustee representing holders of senior subordinated notes also objected to the plan on the grounds that it impermissibly subordinated the claims of senior subordinated noteholders to the deficiency claims of second lien noteholders, which resulted in the senior subordinated noteholders not receiving any recovery.  The trustee for the senior subordinated notes also argued that the plan violated the absolute priority rule because Momentive and its debtor-subsidiaries retained intercompany interests even though the senior subordinated notes were not paid in full.

Although Judge Drain’s bench decision touched on several important confirmation topics, the ruling was controversial because it explicitly rejected a market-based approach to calculating the cramdown interest rate and endorsed the “formula approach” espoused in the chapter 13 cases Till v. SCS Credit Corp., 541 U.S. 465 (2004) and In re Valenti, 105 F.3d 55 (2d Cir. 1997).  Under the formula approach, the debtor must, in a cram-down scenario, provide a secured creditor with new notes bearing interest equal to a “risk free” base rate (such as the prime rate) plus a risk adjustment of 1-3%.  Importantly, he found while market pricing includes an element of profit, the Bankruptcy Code has no such requirement and thus the risk adjustment should be just that – an adjustment that reflects the ultimate risk of nonpayment, and not a mechanism to recover opportunity costs.  Judge Drain’s decision conflicts with decisions issued by the U.S. Court of Appeals for the Fifth and Sixth Circuits as well as some lower court opinions.  In economic terms, Momentive’s oversecured first and 1.5 lien noteholders lost nearly $100 million in trading value for their existing notes because the cramdown interest rate was calculated using the formula approach versus a market rate.

Following his confirmation decision, Judge Drain denied the creditors’ immediate request for a stay of consummation of the plan pending appeal.  Whether a stay pending appeal is granted is committed to the discretion of the judge after considering the following factors:  (i) whether the movant will suffer irreparable injury absent a stay, (ii) whether a party will suffer substantial injury if a stay is issued, (iii) whether the movant has demonstrated a substantial possibility of success on appeal, and (iv) the public interest that may be affected.  On September 11, 2014, Judge Drain formally entered an order confirming Momentive’s plan, prompting the trustees for the first and 1.5 lien noteholders as well as the trustee for the senior subordinated noteholders to file an appeal with the district court and once again seek a stay pending appeal.

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