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Second Circuit Court of Appeals Lifts Cloud of Uncertainty over Bond Restructurings
18 January 2017
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The Second Circuit Court of Appeals reversed a lower court decision that interpreted minority bondholder protections in Section 316(b) of the Trust Indenture Act (“TIA”) to restrict out-of-court bond restructurings.
The court held that Section 316(b) of the TIA only prevents changes to an indenture’s core payment terms and does not prevent other transactions that may impair a bondholder’s practical ability to receive payment.
This ruling removes uncertainty over whether certain out-of-court bond restructurings are permissible under Section 316(b) of the TIA.
The court also cautioned that out-of-court bond restructurings remain subject to other potential creditor claims, serving as a useful reminder that distressed companies and equity sponsors should follow best practices when pursuing these transactions.
David A. Brittenham
Richard F. Hahn
M. Natasha Labovitz
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