The nation’s highest court has put to rest a legal challenge that could have threatened a massive debt market that private-equity managers and other corporate dealmakers rely on, WSJ Pro Bankruptcy reported. The Supreme Court on Tuesday declined to hear a case brought by bankruptcy trustee Marc Kirschner against a group of banks including JPMorgan Chase and Citigroup that organized a loan to drug-testing business Millennium Health. The banks issued a $1.8 billion syndicated loan in 2014, then chopped the obligation up and sold it to some 400 investors. The bankruptcy trustee argued that the banks withheld from those investors information about a government investigation into Millennium’s billing practices. The company settled the probe for $256 million, precipitating its 2015 bankruptcy. A district court in 2020 rejected the trustee’s case on the grounds that loans aren’t covered by U.S. securities laws. An appeals court last year again upheld this view, saying there was “no compelling reason” to rewrite the loans’ legal status to treat such debt as securities. The Supreme Court didn’t provide any reason for declining to take the case. Wall Street firms and lobbyists have been watching the Kirschner case with apprehension for seven years, because of its potential impact on the multitrillion-dollar syndicated-loan market. Syndicated loans are loans that banks issue and then resell, and are typically used to finance leveraged buyouts. The market recently sputtered after the Federal Reserve raised interest rates and banks reduced lending, but it remains a financial cornerstone for private-equity dealmakers.
