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As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress added Section 562 to the Bankruptcy Code. Section 562 governs the timing of damage measurements with respect to swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements that are rejected or terminated in connection with a bankruptcy case.  Section 562 provides, in relevant part, that: (a) If the trustee rejects a…repurchase agreement,…or if a…repo participant… liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of – (1) the date of such rejection; or (2) the date or dates of such liquidation, termination, or acceleration (b) If there are not any commercially reasonable determinants of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value.
8 years 7 months ago
As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Congress added Section 562 to the Bankruptcy Code. Section 562 governs the timing of damage measurements with respect to swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements that are rejected or terminated in connection with a bankruptcy case.  Section 562 provides, in relevant part, that: (a) If the trustee rejects a…repurchase agreement,…or if a…repo participant… liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of – (1) the date of such rejection; or (2) the date or dates of such liquidation, termination, or acceleration (b) If there are not any commercially reasonable determinants of value as of any date referred to in paragraph (1) or (2) of subsection (a), damages shall be measured as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value.
8 years 7 months ago
Delaware’s Vice Chancellor Laster recently issued a decision in which he proposed that a board should get “business judgment review” of a going private transaction involving a controlling stockholder when the transaction is subject to BOTH a “majority-of-the-minority” tender or vote condition AND blessed by a qualified special committee.  This is a well litigated issue as a result of which Delaware courts have distinguished between the standards of review applicable to these types of transactions depending on whether the transaction is structured as a one-step merger or a two-step tender offer (applying entire fairness to one-steps but not to two-steps that contain certain procedural protections like a majority-of-the-minority tender condition).  This case attempts to harmonize the discrepancy by advocating a unified standard but the proposal will need the future blessing of the Delaware Supreme Court to be effective, given the existing law.  I expect it will remain an important judgment call for parties to decide whether to introduce the added risk of dual approvals (special committee and minority shareholders) in the hope of getting business judgment review; or to follow the traditional path of shifting the burden of proof in entire fairness to the plaintiffs through a well run special committee process.  Here’s the Davis Polk note. Contact Phillip Mills.
8 years 9 months ago
After much litigation and legal maneuvering, the Senior Secured Lenders prevailed at the auction for Philadelphia Newspapers.  The Lender’s winning bid is for approximately $139 million, and the parties expect to close on the sale by late June.  To read a summary of the sale, click here and here. Filed under: Uncategorized

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8 years 10 months ago
While this Blog generally focuses on bankruptcy-related issues, I thought it would be interesting to provide some of the key information about the Government’s fraud investigation into Goldman Sachs; after all, the subprime debacle caused the most severe financial collapse since the Great Depression.  There is no doubt that the Government on both sides of the aisle is looking for blood from Goldman Sachs, but more than that, the Government is currently seeking financial reform. 

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8 years 10 months ago
In In re Erving Industries, Inc. et al., the Court held that the supply of electricity constituted the sale of goods so that the electric supplier was entitled to assert a 503(b)(9) administrative expense claim.  The Court’s opinion is very well-reasoned and its opinion along with a substantial appendix on the electric industry can be found here.    In short, Erving Industries, Inc., along with certain of its affiliates, filed for Chapter 11 on April 20, 2009.  Constellation NewEnergy, Inc. filed an administrative expense claim under 503(b)(9) in the amount of $281,667.88 (the “Claim”).  The Debtors and NewEnergy agreed that the amount sought in the Claim accurately represented the charges for electricity supplied to the Debtors during the relevant 20 day period, but the Debtors objected to the Claim on the grounds that electricity is not a good within the meaning of 503(b)(9).  The Debtors also contended that NewEnergy was a utility provider.  NewEnergy maintained that it did not perform the traditional service functions commonly associated with electric utilities.  It argued that while regulated utilities are responsible for the ultimate delivery of electricity to customers, NewEnergy says it has no role in the delivery and is involved solely in the sale of electricity as a “competitive supplier.” 

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8 years 11 months ago
Does a secured creditor have an absolute right to acquire its collateral, which is sold pursuant to a plan of reorganization, by credit bidding its debt? The Third Circuit Court of Appeals, in a strict constructionist opinion, has just answered this question in the negative.
8 years 12 months ago
Does a secured creditor have an absolute right to acquire its collateral, which is sold pursuant to a plan of reorganization, by credit bidding its debt? The Third Circuit Court of Appeals, in a strict constructionist opinion, has just answered this question in the negative.
8 years 12 months ago
In what is sure to be a controversial opinion, the Third Circuit Court of Appeals (No. 09-4349) has issued an Opinion holding that the lenders in the contentious Philadelphia Newspapers’ bankruptcy case pending in the United States Bankruptcy Court for the Eastern District of Pennsylvania, No. 09-11204, may not credit bid for the sale of substantially all of the assets of Philadelphia Newspapers during a proposed auction to be conducted under Section 1129(b)(2)(A).  The Opinion affirms the decision of the District of Pennsylvania, which overruled the decision of the Bankruptcy Court.  For a good summary of the case history, click here.  The Third Circuit’s opinion is well-reasoned (using statutory construction and analysis), and even though the opinion is 2-1, it is now the law of the land (at least in the Third Circuit) and its impact on the sale process in Chapter 11 cases will be known only over time.

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9 years 9 hours ago
In an unprecedented paper entitled The Crisis, Alan Greenspan, the former Chairman of the Federal Reserve, acknowledges that the government failed to properly regulate the markets and banks under his leadership (although he also states that probably no amount of regulation could have avoided the Credit Crisis without significant and adverse effects on the economy).  Mr. Greenspan, who historically was in favor of less government regulation and deregulation, argues that regulation is necessary so that no financial institution is ever too big to fail, and states that “the primary imperative going forward has to be (1) increased regulatory capital and liquidity requirements on banks and (2) significant increases in collateral requirements for globally traded financial products.” 

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9 years 3 days ago
Pursuant to section 104(a) of the Bankruptcy Code (11 U.S.C. § 104(a)), starting April 1, 1998, and at each three year interval ending on April 1 thereafter, the dollar amounts in effect under various sections of the Bankruptcy Code are subject to adjustment. The adjustments are based upon the consumer price index, and a rounding to the nearest $25 amount that represents such change, with such adjusted amounts to be published in the Federal Register by the Judicial Conference of the United States not later than March 1 of each three year interval. Such adjustments apply only with respect to cases commenced after the effective date of such adjustments. On or about February 25, 2010, the Judicial Conference published the adjustments that will take affect as of April 1, 2010 (see Federal Register/Vol. 75, No. 37/Thursday, February 25, 2010/Notices, Page 8747-8749.) The following are a few of the increases that would be relevant to business bankruptcy cases: a.  Under the 28 U.S.C. § 1409(b), venue of proceedings arising under or related to cases under Title 11 to recover a debt against a non-insider of less than $11,725.00, may be brought only in the district court for the district in which the defendant resides. This is an increase from $10,950.
9 years 1 week ago
Pursuant to section 104(a) of the Bankruptcy Code (11 U.S.C. § 104(a)), starting April 1, 1998, and at each three year interval ending on April 1 thereafter, the dollar amounts in effect under various sections of the Bankruptcy Code are subject to adjustment. The adjustments are based upon the consumer price index, and a rounding to the nearest $25 amount that represents such change, with such adjusted amounts to be published in the Federal Register by the Judicial Conference of the United States not later than March 1 of each three year interval. Such adjustments apply only with respect to cases commenced after the effective date of such adjustments. On or about February 25, 2010, the Judicial Conference published the adjustments that will take affect as of April 1, 2010 (see Federal Register/Vol. 75, No. 37/Thursday, February 25, 2010/Notices, Page 8747-8749.) The following are a few of the increases that would be relevant to business bankruptcy cases: a.  Under the 28 U.S.C. § 1409(b), venue of proceedings arising under or related to cases under Title 11 to recover a debt against a non-insider of less than $11,725.00, may be brought only in the district court for the district in which the defendant resides. This is an increase from $10,950.
9 years 1 week ago
In a recent decision, the United States Court of Appeals for the Third Circuit further defined its standard for awarding a break-up fee to an unsuccessful “stalking horse” bidder for a debtor’s assets. In In re Reliant Energy Channelview LP, ___ F.3d ___, 2010 WL 143678 (C.A. 3 (Del.) 2010), the debtors sought to sell their largest asset, a power plant, pursuant to Section 363 of the Bankruptcy Code. Following a comprehensive marketing process, the debtors accepted a $468 million bid of Kelson Channelview LLC (Kelson). The contract with Kelson simply required the debtors to seek an order approving certain bid protections and procedures, including the payment of a $15 million break-up fee to Kelson, if the bankruptcy court were to require the debtors to hold an auction, which it subsequently did.
9 years 1 month ago
In a recent decision, the United States Court of Appeals for the Third Circuit further defined its standard for awarding a break-up fee to an unsuccessful “stalking horse” bidder for a debtor’s assets. In In re Reliant Energy Channelview LP, ___ F.3d ___, 2010 WL 143678 (C.A. 3 (Del.) 2010), the debtors sought to sell their largest asset, a power plant, pursuant to Section 363 of the Bankruptcy Code. Following a comprehensive marketing process, the debtors accepted a $468 million bid of Kelson Channelview LLC (Kelson). The contract with Kelson simply required the debtors to seek an order approving certain bid protections and procedures, including the payment of a $15 million break-up fee to Kelson, if the bankruptcy court were to require the debtors to hold an auction, which it subsequently did.
9 years 1 month ago
On November 2, 2009, CIT Group, Inc., a leading provider of financing to small businesses and middle market companies, filed for bankruptcy in the United States Bankruptcy Court for the Southern District of New York.  Click here for a copy of the CIT Voluntary Petition.  Only two of CIT’s business units filed for bankruptcy, and CIT has stated that none of its operating subsidiaries, including CIT Bank, its business segments or its international business operations, are part of the bankruptcy filing and it expects business as usual will continue throughout the reorganization process.  CIT also states that it has the liquidity to serve its customers. CIT listed $71 billion in assets and $64.9 billion in liabilities. CIT is over 100 years old, and provides significant capital to small and middle market businesses.  CIT is huge, really huge:  its customers employ more than 90 million employees, it’s the leading provider of financing to the retail sector and to women-, minority- and veteran-owned small businesses.  An outright failure of CIT could have significant adverse effects on the US economy, which is currently in a very fragile state at best. 

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9 years 4 months ago
Over the last several years, there have been a series of decisions rendered by the federal courts of appeals that grappled with the application of §510(b) to a claim that does not readily fall within the statute’s language.  Click here to read about the continuing expansion of §510(b).
9 years 5 months ago
Over the last several years, there have been a series of decisions rendered by the federal courts of appeals that grappled with the application of §510(b) to a claim that does not readily fall within the statute’s language.  Click here to read about the continuing expansion of §510(b).
9 years 5 months ago
In a recent decision by the Delaware Bankruptcy Court, the Court held that a person holding the title of an officer, including vice president, is presumptively what he or she appears to be — an officer and, thus, an insider.  See In re: Foothills Texas, Inc. et al. (Bankr. D. Del. 09-10542).  In Foothills Texas, the Debtors are independent energy companies engaged in the acquisition, exploration, exploitation and devlopment of oil and natural gas properties, and have 10 employees.  Two of the employees have the title of Vice President, and have a prepetition employment agreement (the “Employment Agreements”) that, if the agreements were assumed by the Debtors, would provide a retention payment to each of those employees.

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9 years 7 months ago
Under the GM deal reached with the Obama Administration, the US Government will own 60% of New GM — that is, the “leaner and meaner” GM (of course, only time will tell if that becomes the case).  The problem for the Obama Administration is that the US, between Chrysler and GM, has now ventured into ownership of private companies.  There are numerous interesting questions to ponder:  what will the US do if, in the most unlikely event, another bidder bids on the assets of the GM (I realize this is a virtual improbability)?  In such a case, would the Government enter into competitive bidding?  Would the answer to this question change if such a fantasy bidder is a foreign or sovereign entity compared to a private entity?  Assume the US is the successful bidder, which it will be, what happens if the US sells its 60% share shortly after New GM is formed — the US will likely take a substantial hit leaving the taxpayers out of the money (which will create a difficult political situation for the Obama Administration)?  On the other hand, if the Government does not sell its majority interest in New GM, will it start telling New GM (and Chrysler) what type of cars to make (no doubt they will be told to make small, “green” cars)?  Will it provide tax credits to those buying New GM (and Chrysler) cars?  Will it provide subsidies like China does for Chinese companies so that New GM and Chrysler appear profitable?  If the US Government attempts to alter the market either through subsidies,

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9 years 9 months ago
GM filed for Chapter 11 bankruptcy protection today in the United States Banrkuptcy Court for the Southern District of New York at 09-50026.  A copy of the petition is here, and a copy of the GM press release describing the bankruptcy proceedings are here.  To read a good discussion about the bankruptcy proceedings, click here.

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9 years 9 months ago