August 18, 2022 - Over the past few years, the LSTA has closely monitored and engaged on the issue of “loan market norms”. We have written about and educated on some of the important cases and “liability management” strategies that have given rise to what has been referred to as intra-creditor class warfare. Recent events in two important bankruptcy cases, Revlon and TPC, highlight some of those issues. In Revlon, a bankruptcy court has been asked to confirm that a disputed pre-bankruptcy mistaken principal payment made by Citibank to Revlon lenders which was not returned is subject to Citi’s subrogation rights. In other words, if Citi is unsuccessful in its attempt to get the non-returning lenders to return the money, Citi steps into their shoes as a lender. The stakes are high, because if Citi is ultimately unsuccessful in getting the money back and is not subrogated, it would be out $500 million, and Revlon’s debt would be magically reduced by that amount. In the TPC case, another “liability management” case, a Delaware bankruptcy court ruled that the “uptiering” which effectively subordinated minority lenders, was permissible under the terms of the credit agreement. While the facts are complex, Davis Polk, in a recent memo, noted that “the TPC decision makes clear (once again) … that the words on the page matter, and if an indenture or credit agreement does not expressly address lien subordination, investors may be vulnerable to a transaction that does just that.”
Important issues like liability management, mistaken payments and so-called “intra-class warfare” will be the subject of a panel, “Fairness, Contracts, and the Law: Navigating the Distressed Loan Market” at the LSTA’s forthcoming Annual Conference which will include Judge Craig Goldblatt whose wrote the TPC opinion, Dan Kamensky, a member of the Creditor Rights Coalition, Professor Vince Buccola of Wharton, Angela Fontana, a partner in Sidley’s Dallas office, and LSTA GC Elliot Ganz.