Unexpected things happen in bankruptcy. Some debts can be restructured, some debts can be reduced and some debts the debtor is just stuck with. In contrast, outside of the bankruptcy ecosystem, economic interests are treated normally
. Because of the difference, a creditor’s activities for recovery in bankruptcy will, at times, seem at odds with their economic interests if viewed through the lens of a normal collection matter.
A currently pending adversary proceeding in the Energy Futures bankruptcy case is a good example of a creditor taking a somewhat counter-intuitive path to seek recovery.
As you may know, the bankruptcy case of Energy Future Holdings Corp. (“EFH”) is currently pending in Delaware. As the name implies, EFH is an energy company. The adversary I cite revolves around an affiliate of EFH who issued about $2 billion in notes under an indenture which contained a “make whole” provision.
As you may know, a “make whole” provision in a loan agreement basically provides that a borrower will need to pay some or all of the anticipated interest recovery to the creditor if the borrower pays the debt early.
In this case, the “make whole” provision was part of a large indenture issued by an affiliate of EFT on 2.18 billion in notes. For the purposes of the current litigation, a few of the provision are relevant: