The Trust Indenture Act of 1939 (the “TIA”) codifies a select set of requirements and prohibitions intended to protect perceived “sacred rights” of holders of public bond instruments. When the U.S. District Court for the Southern District of New York issued a ruling greatly expanding the traditional perceived scope of one of the TIA’s sacred protections, the financial industry took serious note.

More specifically, in Marblegate Asset Management v. Education Management Corporation, the District Court held that Section 316(b) of the TIA, which prohibits any amendment to note payment terms (e.g., maturity, payment of principal or interest) absent an affected bondholder’s consent, also prohibits any other modifications that would have the practical effect of hindering a bondholder’s ability to receive payment. Consternation rippled throughout Wall Street and beyond as bond issuers, bondholders, and professionals in the leveraged finance and restructuring communities sought to understand the implications of the District Court’s broad interpretation.