Case could reshape how, where companies restructure debts of senior lien holders

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Will I lose my property if I file for bankruptcy ?”


Bankruptcy observers say if United States Bankruptcy Judge Robert C. Drain’s August ruling in the Chapter 11 bankruptcy of Momentive Performance Materials Inc. holds up, it could dramatically alter the playing field for debtors and even junior creditors who seek to restructure debts held by senior lenders at so-called cram-down interest rates.

NYC Courthouse Charlotte Debt Lawyer North Carolina Bankruptcy AttorneyCram-down interest rates are interest rates that are considered below market value. In the Momentive bankruptcy, the debtor—Momentive—crafted a reorganization plan that would pay senior lien holders “with new long-term debt, at below-market interest rates,” according to Law 360.

The senior lien holders had an opportunity to accept a cash-out option and fight the restructuring plan, but turned it down. Momentive sought to enforce the restructuring plan, and in August, Judge Drain ruled that the senior lien holders could be paid based on the so-called “Till rate.”

The “Till rate” was formulated in a 2004 Supreme Court case that involved an individual debtor. Momentive marks the first time that the “Till rate” was adopted in a corporate Chapter 11 bankruptcy. In the Momentive case, the effect of the ruling on senior lien holders was dramatic. Immediately after the decision, the senior lien holders lost as much as $100 million in trading value on their Momentive notes.

The lien holders appealed the decision and sought a stay of Momentive’s restructuring, however neither United States District Judge Vincent L. Briccetti nor the Second Circuit United States Court of Appeals issued a stay, so Momentive’s restructuring will proceed even as the litigation over the plan plays out on appeal.

By the time an appellate court considers the case, the restructuring may have moved so far along that the matter is considered moot. In theory, every bankruptcy court in the United States could adopt Judge Drain’s reasoning, potentially giving debtors “the ability to cram down a long-term note on a senior creditor at a very low interest rate,” said bankruptcy attorney Michael Rosenthal of the law firm Gibson Dunn.

Rosenthal theorized that if Judge Drain’s ruling holds up on appeal, lien holders will seek more often to settle up with debtors, as opposed to litigating restructuring plans and risking a bankruptcy court’s blessing on a plan that includes repayment at cram-down interest rates.

The Momentive case is pending in the Southern District of New York. Corporations have long considered Delaware to be the safest state in which to incorporate and engage in litigation, given its well-developed business-law precedent.

Bankruptcy observers say Judge Drain’s ruling in Momentive has many companies—especially those on the brink of bankruptcy—rethinking this wisdom and wondering whether greener post-bankruptcy pastures are to be found on the white plains of the Empire State.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.






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Image courtesy of Michael J. D’Amato



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