Secured Lender’s Large “Makewhole” Claim Upheld By Delaware Bankruptcy Court


The United States Bankruptcy Court for the District of Delaware recently upheld a secured lender’s claim for a $23.5 million “makewhole” premium (the “Makewhole Claim”) over the heavily litigated objection raised by the unsecured creditors’ committee in In re School Specialty, Inc., No. 13-10125 (KJC) (Apr. 22, 2013). Although this is not the first time that the Delaware Bankruptcy Court has enforced a lender’s entitlement to a contractual prepayment premium, the factual circumstances of this case—particularly the fact that the $23.5 million Makewhole Claim stemmed from a $70 million loan that was entered into just eight months earlier—make the Bankruptcy Court’s decision instructive for lenders and borrowers in drafting and negotiating loan documents.

For lenders, this decision should reinforce the importance of carefully drafting provisions covering when the borrower must pay a “makewhole” premium, including explicitly requiring payment of such fees upon the acceleration or prepayment of loan obligations for any reason, including a bankruptcy filing. This decision can also provide guidance to lenders on key terms (e.g., the discount rate) in crafting “makewhole” provisions that likely would be upheld by a bankruptcy court (particularly in Delaware).

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.