She says that “signatories to a contract cannot consent to violate the law.”ĬEC acknowledges that “this is not the time or place to argue the merits” of its litigation but says that it is undisputed that without intervention by the Second Circuit, in the CEC litigations, “the corporate parent of an issuer that believes it took good faith action to pay off debt and maintain its operations, consistent with the provisions of its indentures and with the goal of avoiding the crushing expense of bankruptcy, now finds itself facing a trial over whether a debt refinancing was a forbidden ‘reorganization.’” The opinion also notes that agreement by noteholders to the indenture does not result in the consent to impairment in violation of the TIA. 27 opinion in the Caesars parent guarantee litigation, Judge Shira Scheindlin makes clear that “whatever the release provision allowed, it cannot provide CEC with a path to impair noteholders’ rights under section 316(b).” Judge Scheindlin concluded that in order to prove an impairment under section 316(b), plaintiffs must prove either an amendment to a core term of the debt instrument or an out-of-court debt reorganization. The amici do not take a position in support of either party, though they criticize the lower court ruling and “strongly urge the Court to reject an unduly expansive reading of those provisions, which would threaten the orderly operation of the financial markets.”ĮDMC and the steering committee for the ad hoc committee of term lenders - as an intervenor appellant - both filed briefs in support their appeal last week. Chamber of Commerce also filed a brief to offer their perspective on “the purpose and proper interpretation of the bondholder protection provisions” of the TIA. The Loan Syndications and Trading Association together with the U.S. CEC requests that the Second Circuit reverse Judge Failla’s decision. CEC says that it submits its brief because “we believe that decisions issued in the CEC litigations illustrate the market confusion and inequity - as well as the chilling effect on ordinary capital markets transactions and discussions with creditors engaged in by financially troubled companies attempting to avoid bankruptcy - engendered by” Judge Failla’s decision. On Wednesday night, Caesars Entertainment Corporation as amicus curiae filed a brief in support of Education Management Corp.’s appeal of SDNY district court Judge Katherine Polk Failla’s June 23 decision finding that section 316(b) of the Trust Indenture Act, or TIA, prohibited EDMC’s out-of-court restructuring without 100% consent from the unsecured noteholders.
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