Third Circuit Court of Appeals: Energy Future Required to Pay Make-Whole Payments

by Cole Schotz


In a decision released on November 17, 2016, the Third Circuit Court of Appeals reversed the holding of the Delaware Bankruptcy Court, affirmed by the District Court, that EFIH is not required to pay make-whole payments. In re Energy Future Holdings Corp., 16-1351, _ F.3d _ (3d Cir. Nov. 17, 2016).

Summary of Facts

In 2010, Energy Future Intermediate Holding Company LLC and EFIH Finance Inc. (together “EFIH”) borrowed approximately $4 billion. In return, EFIH issued notes secured by a first priority lien on their assets. The indenture governing the loan (the “First Lien Indenture”) allowed an early redemption prior to December 1, 2015 provided that EFIH paid a “redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium [i.e., the make-whole] . . . and accrued and unpaid interest” (the “Optional Redemption Provision”). The First Lien Indenture also provided for an immediate acceleration of “all outstanding Notes” in the event EFIH filed for bankruptcy (the “Acceleration Provision”). The Acceleration Provision provided the First Lien Noteholders the right to “rescind any acceleration [of] the Notes and its consequences[.]”

In 2011 and 2012, EFIH borrowed additional funds and issued Notes secured by a second priority lien on their assets. The indenture governing the Notes (the “Second Lien Indenture”) contained a redemption provision similar to the one described above. The Second Lien Indenture, however, contained an acceleration provision providing that “all principal of and premium, if any, interest . . . [,] and any other monetary obligations on the outstanding Notes shall be due and payable immediately” if EFIH filed for bankruptcy.

The Bankruptcy and District Court Decisions

On April 29, 2014, EFIH and certain affiliates filed for bankruptcy in the Delaware Bankruptcy Court. EFIH sought, among other things, to refinance the Notes, at a lower interest rate, without incurring the obligation to pay the make-whole. The bankruptcy filings caused the debt to accelerate and, by definition, triggered the right of the Noteholders to rescind the acceleration. The indenture trustees for the First and Second Lien Noteholders, Delaware Trust Company and Computershare Trust Company, N.A. and Computershare Trust Company of Canada respectively, commenced separate adversary proceedings seeking, among other things, a declaration that EFIH’s refinancing of the Notes would entitle the Noteholders to make-whole payments.

In 2015, the Bankruptcy Court, in two separate opinions,held that the Noteholders were not entitled to make-whole payments. In re Energy Future Holdings Corp., 527 B.R. 178 (Bankr. D. Del. 2015), aff’d, No. CV 15-620 RGA, 2016 WL 627343 (D. Del. Feb. 16, 2016); In re Energy Future Holdings Corp., 539 B.R. 723 (Bankr. D. Del. 2015), aff’d, No. CV 15-1011 RGA, 2016 WL 1451045 (D. Del. Apr. 12, 2016). Specifically, the Bankruptcy Court found that when EFIH filed for bankruptcy, the Notes automatically accelerated and became due immediately. Because the Notes became due and payable upon acceleration, EFIH’s refinancing could not constitute an “optional redemption” and, therefore, did not trigger the obligation for make-whole payments under the Indentures. The Bankruptcy Court further held that the automatic stay prevented the Noteholders from rescinding the acceleration of the Notes. The First Lien Noteholders then sought relief from the automatic stay, which the Bankruptcy Court denied.In re Energy Future Holdings Corp., 533 B.R. 106, 116 (Bankr. D. Del. 2015). The District Court affirmed the decisions of the Bankruptcy Court and the indenture trustees each appealed to the Third Circuit and the appeals were subsequently consolidated.

The Third Circuit Decision

The Third Circuit, in analyzing whether a make-whole payment was due, focused on the following questions: (1) was there a redemption, and (2) if so, was the redemption optional?

With respect to the first question, the Court rejected EFIH’s argument that the term “redemption” only entailed “repayments of debt that pre-date the debt’s maturity” as the Bankruptcy Court had concluded. The Third Circuit, relying on rulings of New York and federal courts, concluded that the term encompasses both pre- and post-maturity repayments of debt. The Court further concluded that the redemption was “optional,” because the Debtors voluntarily filed for chapter 11 protection intending to “refinance the Notes without paying any make-whole amount” and had opposed the Noteholders’ attempt to lift the automatic stay and rescind the acceleration of the Notes. Finding that the refinancing of the Notes constituted “optional redemptions” that occurred prior to December 1, 2015; the Court concluded that EFIH was obligated to pay the make-whole payments.

Next, the Court addressed the relationship between the Optional Redemption and the Acceleration Provisions and concluded that both provisions “address different things . . . [that they] provide the map to guide the parties through a post-acceleration redemption.” The Third Circuit specifically rejected EFIH’s reliance on In re AMR Corp.,which held that no make-whole payment was due because the text of AMR’s acceleration provision specifically stated that no make-whole was due upon acceleration. 730 F.3d  88 (2d Cir. 2013). After taking a closer look at the additional language contained in the acceleration provision in the Second Lien Indenture, i.e., “premium, if any,” the Court found that it “leaves no doubt that [the Optional Redemption Provision] and [the Acceleration Provision] work together.” EFIH had further argued, relying on a recent Southern District of New York decision, Momentive, currently on appeal before the Second Circuit, that the language – “premium, if any” – is not specific enough to require a make-whole payment. In re MPM Silicones, LLC, No. 14-22503-RDD, 2014 WL 4436335 (Bankr. S.D.N.Y. Sept. 9, 2014), aff’d, 531 B.R. 321 (S.D.N.Y. 2015) (“Momentive”). The Third Circuit seized the opportunity to criticize Momentive finding it “unpersuasive” and noting it “conflicts with that indenture’s text and fails to honor the parties’ bargain.”

EFIH further argued that “courts must close their eyes to make-whole provisions once a debt’s maturity has accelerated.” The Third Circuit disagreed and concluded that  the Optional Redemption “applies no less following acceleration of the Notes’ maturity than it would to a pre-acceleration redemption.”

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.

© Cole Schotz | Attorney Advertising

Written by:

Cole Schotz

Cole Schotz on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*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. Or, sign up using your email address.