Circuit as the primary venue for such
disputes. The 2nd Circuit has afforded
clear guidance to creditors regarding
the types of transactions at issue in
Marblegate. It is, of course, subject to
potential rehearing en banc, a rarity in
the 2nd Circuit, or a petition for a writ
of certiorari to the U.S. Supreme Court.
Fourth, Marblegate and Caesars both
involved cases in which guaranties
were stripped from junior creditors’
collateral base. There are several
methods of potential out-of-court
restructuring that were not addressed,
including stripping covenants or
release of other collateral. In other
cases involving Section 316(b),
parties have argued that guaranties
constituted core terms, and this
issue was not directly addressed by
the 2nd Circuit. In addition, while
the Marblegate decision focused
heavily on the foreclosure aspect
of the out-of-court restructuring
and whether TIA was intended to
preempt such an action, alternative
restructuring transactions may
receive different treatment.
Ultimately, the 2nd Circuit’s decision
likely puts to rest claims of practical
impairment and provides greater
certainty to bondholders attempting to
implement out-of-court restructurings.
The decision may significantly impact
the negotiation of new issuances
and require careful drafting to avoid
implicating Section 316(b). J
1 Trust Indenture Act of 1939, 15
U. S.C. ss 77aaa-77bbbb.
2 Trust Indenture Act of 1939, Section 316(b).
Jeremy Johnson is a shareholder at Polsinelli
P.C. and provides business clients with business-oriented legal guidance addressing their
finance, restructuring, and insolvency issues.
Johnson has developed a special concentration
in distressed healthcare, representing hospitals,
senior living facilities, and financial and strategic
purchasers of distressed healthcare assets.
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