For example, Marblegate was able to
recover a far greater amount than other
unsecured noteholders from Education
Management as a result of its holdout
tactics. In fact, the Southern District of
New York recognized this potential for
holdout value explicitly. The Marblegate
court noted, “Where individual
bondholders can free-ride off an
exchange offer, as they retain claims for
the full value of their debt against a newly
solvent issuer, they are better off refusing
the offer.” 4 However, the court went on
to recognize the potential issue with this
approach as well, noting that “if enough
bondholders refuse, they will frustrate
the workout, leaving bondholders locked
in game theory’s prisoners’ dilemma.” 5
The Marblegate case presented a set
of unique facts in that Chapter 11
was not a viable option for Education
Management because it would lose its
main source of funding as a result of
a filing. Other financially distressed
companies that are faced with holdouts
may instead file for Chapter 11 as a
way to bind minority noteholders.
In fact, if these decisions stand, the
Jay M. Goffman serves as global head of Corporate
Restructuring of Skadden, Arps, Slate, Meagher &
Flom LLP. His successful restructurings include
American Airlines, Centro Properties, Charter
Communications, MGM Studios, and the 32-hour
prepack of Blue Bird Bus. A co-chair of the ABI
Commission to Study the Reform of Chapter 11’s
Plan Process Committee, Goffman is also a Fellow
of the American College of Bankruptcy, and vice-chairman and a trustee of the China Institute,
which bestowed upon him its Blue Cloud Award.
result will likely be more prepackaged
bankruptcies and fewer out-of-court
exchange offers. Whether this is good
or bad depends upon one’s perspective.
1 Marblegate Asset Mgmt. v. Education
Mgmt. Corp., 75 F. Supp. 3d 592 (S.D.N. Y.
2014); 14-8584 (S.D.N. Y. June 23, 2015) [Dkt.
78]; Meehan Global Credit Opportunities
Funds, LP v. Caesars Entertainment Corp.,
80 F. Supp. 3d 507 (S.D.N. Y. 2015); BOKF,
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N. A. v. Caesars Entertainment Corp., 2015
WL 5076785 (S.D.N. Y. Aug. 27, 2015).
2 See In re Nw. Corp., 313 B. R. 595, 600
(Bankr. D. Del. 2004); YRC Worldwide Inc.
v. Deutsche Bank Trust Co. Am., 2010
WL 2680336 (D. Kan. July 1, 2010).
3 See Federated Strategic Income Fund
v. Mechala Grp. Jam. Ltd., 1999 WL
993648 (S.D.N. Y. Nov. 2, 1999).
4 75 F. Supp. 3d at 616.