Conclusion
In order to best preserve "the deal" that a secured party client struck when the debtor was just a borrower under a debt facility, in-depth collateral review, careful analysis of intercreditor and subordination agreements and scrutiny of prior transactions with the debtor that could be subject to avoidance claims, will continue to be a critical part of the representation.
Kristen V. Campana is a partner, and Shujun Tian is an associate, at Bracewell & Giuliani in New York, where both practice in the financial restructuring group.
Endnotes:
1. The Bankruptcy Code (the Code) is codified in Title 11 of the United States Code in the adoption of the Bankruptcy Reform Act of 1978. The Code has been amended several times since 1978, most recently in 2005 through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
2. See 11 U.S.C. §362(a).
3. See id. §362(d).
4. See id. §510(a).
5. See In re Boston Generating, 440 B.R. 302 (Bankr. S.D.N.Y. 2010). Second Lien Lenders objected to a proposed §363 asset sale. The First Lien Lenders claimed that the Second Lien Lenders lacked standing due to the provisions of the intercreditor agreement, which stated that the sole right of the Second Lien Lenders was to hold a lien on the Collateral. The court allowed the Second Lien Lenders to object in their capacity as unsecured creditors because there was no waiver of the Second Lien Lenders' right to object to the sale as an unsecured creditor. New York law requires any such waiver be express and such provision was not in the intercreditor agreement.
6. See In re TCI 2 Holdings, 428 B.R. 117 (Bankr. D.N.J. 2010), demonstrating that a Chapter 11 Plan can be "crammed down" on senior lenders without giving effect to the intercreditor agreement. In siding with the Second Lien Lenders, the court found that §1129(b)(1) of the Code, which governs confirmation of nonconsensual plans, removes §510(a) from the scope of §1129. Having found that the debtors' plan met the "cram down" requirements of §1129, the bankruptcy court confirmed the debtors' plan and determined that the intercreditor provisions between the first and second lien lenders did not need to be enforced.
7. See In re CyberDefender, Case No. 12-10633 (BLS) (Bankr. D. Del).
8. See id. The junior lienholders objected to the debtor's proposed sale under §363(f) because their claims would not be paid in full and they had not otherwise consented. The court permitted the junior lienholders to be heard, but overruled their objection following the Beker analysis determining value of liens based on value of the collateral and not the face value of the asserted lien. See also In re Beker Indus., 63 B.R. 474 (Bankr. S.D.N.Y. 1985).
9. See 11 U.S.C. §547.
10. See id. §548.
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