Settlements, Subordination and Syndicated Debt: Recent Noteworthy Bankruptcy Decisions

The last 12 months have produced a number of important bankruptcy developments relevant to the primary and secondary loan markets. Appellate courts disagreed with bankruptcy courts – and in certain instances each other – over a number of key issues, with one case making it all the way to the Supreme Court. While all of these decisions have implications for issuers and holders of syndicated debt, rulings from the past year appear to be driven less by general equitable or policy concerns, and more by the courts’ fact-specific, purportedly objective application of express statutory and contractual terms. To the extent a common thread exists, it appears to be that clarity counts – courts are enforcing valid statutory and contractual rights to the extent, and only to the extent, such rights are clearly stated in the applicable statute or contract. The notable exception to this general trend is Jevic, the first case discussed below and the subject of the above-referenced Supreme Court appeal, where the Third Circuit upheld the validity of a controversial form of settlement that is neither expressly permitted nor expressly prohibited by the Bankruptcy Code. Whether this exception will withstand Supreme Court scrutiny or be brought into line with the general trend remains to be seen.