In the continuing struggle to determine whether Manhattan or Delaware is the more favorable venue for chapter 11 reorganization, a Feb. 16 decision by District Judge Richard G. Andrews in Wilmington puts the two districts on the same footing with respect to an issue concerning the right to make-whole premiums.
The question arose in the reorganization of electric energy giant Energy Future Holdings Corp. The debtor hatched a plot to refinance secured debt at lower rates prevailing today. The problem was make-whole premiums that would be due were the debt refinanced before bankruptcy.
Immediately after the chapter 11 filing, the debtor refinanced the debt with court approval and so far has beaten back every attempt by the lenders to assert claims for the make-whole premiums.
The indenture for the first-lien notes called for automatic acceleration following a bankruptcy filing. In addition, the indenture allowed no claim for a make-whole if acceleration were due to bankruptcy.
Hoping to reclaim the right to a make-whole, the indenture trustee sought a modification of the automatic stay to deaccelerate the debt. Previously, Judge Andrews upheld the bankruptcy court for refusing to permit deacceleration.
The indenture trustee also made an unsecured claim for damages arising from the loss of the make-whole. The bankruptcy judge held that there was no claim and was affirmed by Judge Andrews in his Feb. 18 opinion.
Judge Andrews first sided with the Second Circuit’s 2013 decision in the reorganization of the parent of American Airlines. The Manhattan appeals court held that an attempt to rescind acceleration is an effort at modifying contract rights that is subject to the automatic stay.
On the question of whether the noteholders have a claim for the loss of the make-whole, lower courts are divided. Deciding to disallow the claims, Judge Andrews followed Manhattan district court decisions in the reorganizations of MPM Silicones and Calpine Corp.
In the MPM case, the court held there was no claim because the automatic stay rather than the debtor was responsible for the inability to rescind. Judge Andrews said that the court in the Calpine case “specifically rejected” similar arguments.