Delaware Bankruptcy Court Allows Make-Whole Claim Representing 37% of Loan Balance

26 April 2013
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  • On April 22, 2013, Judge Kevin J. Carey of the Bankruptcy Court for the District of Delaware allowed a lender’s $23.7 million pre-petition make-whole claim, representing approximately 37% of the outstanding principal of the loan, in the pending Chapter 11 case of School Specialty, Inc.‬
  • Judge Carey’s decision should provide comfort to lenders that, if a make-whole amount is based on a yield maintenance formula tied to Treasury rates and is clearly provided by the loan agreement, it will be enforced, especially if the payment obligation is triggered prior to the borrower's bankruptcy filing.‬
  • The court found that the make-whole amount was not grossly disproportionate to the lender's possible loss under New York law and was allowed under bankruptcy law, clearly endorsing the majority view that make-whole claims are not claims for unmatured interest which are generally not allowed in bankruptcy.