This month’s issue of Debt Dialogue addresses the Second Circuit’s recent Marblegate decision, the controversy generated by last year’s Cash American decision, and payment of indenture trustee fees in bankruptcy, as well as other matters.

Topics covered in this issue include:

• A Look at the Second Circuit Decision in Marblegate
  A divided panel of the United States Court of Appeals for the Second Circuit recently issued its widely reported opinion in Marblegate Asset Management, LLC vs. Education Management Corp. The majority held that the right to payment protected by Section 316(b) of the Trust Indenture Act prohibits only nonconsensual amendments to an indenture’s core payment terms and does not protect the practical ability of bondholders to recover payment. The holding leaves room for additional inquiry.
• The Redemption ‘Make Whole’ Remedy Controversy
  Last year, a Southern District of New York decision held that when a default is caused by voluntary actions of the issuer and the issuer has the ability to make the applicable redemption payment, a bondholder may seek specific performance of redemption with payment of the applicable premium. The case has led to unexpected controversy in the high-yield bond market involving limitations on available remedies following default.
• Navigating Lehman II’s Reach: Means of Payment of Indenture Trustee Fees Under Chapter 11 Plans
  In 2014, the district court in In re Lehman Brothers Holdings, Inc. held that individual committee members must establish a “substantial contribution” to the case under Section 503 of the Bankruptcy Code before the payment of their professional fees will be approved as part of a Chapter 11 plan. Since then, U.S. Trustees and other parties have tried to extend this ruling beyond just committee members to the payment of indenture trustee fees under a plan. To protect a negotiated plan structure that provides for payment of indenture trustee fees, plan proponents must be creative in finding means to ensure payment without deducting from noteholders’ distributions.
• Hague Securities Convention: An International Convention and Its Local Implications
  Modern securities markets provide for electronic book-entry debits and credits to securities accounts irrespective of the political or geographic location of the securities. The recently adopted Hague Convention on the Law Applicable to Certain Rights in Respect of Securities held with an Intermediary prescribes default choice of law rules that may be different from those under Articles 8 and 9 of the Uniform Commercial Code.
• The Rule of Explicitness Inside and Outside of Bankruptcy
  A recent case in the Southern District of New York has applied the so-called Rule of Explicitness to the allocation of recoveries among creditors outside of a bankruptcy proceeding. The court found the requisite documentary clarity to pay post-petition interest ahead of the distribution of principal. Along the way, the decision provides a useful tutorial on the rule and its application.
• Can a Noteholder Sue Under TIA § 316(b) to Recover Accelerated Debt?
  A New York lower court held last month that a noteholder that had accelerated indenture debt may sue to collect that debt notwithstanding the operation of a standard no-action clause. This holding may not be compelled by Section 316(b) of the Trust Indenture Act and is contrary to some prior case law.

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