Agreements Among Lenders

On April 8, 2021, in Uncategorized, by admin

In recent decades, the application of inter-10-language agreements (ICAs), which would have infringed voting rights, and the right to cash or other property payments for secured claims, have played an increasingly important role in bankruptcy cases. Although the Bankruptcy Act provides that “subordination agreements” are enforceable in the event of bankruptcy, to the extent that these agreements are enforceable under existing non-bankruptcy legislation, the handling of creditors` disputes over such agreements was inconsistent.1 RadioShack, an electronics chain, had a complex capital structure at the time of the declaration. RadioShack had two large groups of secured lenders: a group of asset-based lenders or ABL as part of a revolving credit facility and a group of credit lenders. The ABL loan and the long-term loan were accompanied by cross-wage pledges and a fractional collateral structure, with the subordination between the ABL and the term loan, which was governed by an ICA.14, being subdivided into several tranches, each of which is governed by separate AALs. The ABL was split into a first-line group consisting of a number of hedge funds and a final lender that was a subsidiary of Standard General (Standard General). For the group of long-term lenders, a subsidiary of Cerberus Capital Management LP (Cerberus) was the first lender and a subsidiary of Salus Capital Partners LLC (Salus) the last lender. The proposed recovery plan (the first plan) provided that the creditors of the first pfandrecht received mutual capital in the reorganized TCESH, cash, new CHHR debts and certain other rights (distribution plans), as well as the pawning rights of the first pledge. Non-bond creditors argued that the appropriate plan distributions and protection payments did not constitute “guarantees” or “revenues” of security within the meaning of the ICA or securities documents, and that at the time of the petition, they should therefore be prorated among the creditors of the first pledge based on the size of the claims of each class of creditors. To resolve this issue, the bankruptcy court relied on the argument presented to Momentive. Bankruptcy courts are increasingly willing to interpret AIC and AALs and to apply the clear language of these agreements to the facts.

Creditors should be aware that, even if they prefer to engage in litigation in an alternative forum, these disputes are generally considered fundamental proceedings and may be tried by the bankruptcy court. This is particularly noteworthy because bankruptcy courts are capital tribunals and judges often address these disputes pragmatically. In addition, priority creditors appear to continue to bear the risk of agreements that do not restrict the rights of subordinate creditors in the event of bankruptcy, with clear and clear language. Mr. Dutson is a financial restructuring partner in the Atlanta office of King and Spalding, with a focus on representing lenders and agents in major business drives and restructurings. In addition, he has represented debtors and other investors in a large number of chapters 11 bankruptcy and insolvency cases. Mr. Dutson often represents senior Secured institutional lenders in syndicated credit facilities with particular experience in the restaurant, health, energy, transportation, manufacturing and media sectors.


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