Despite the OID being paid only when the debt matures, it is, in essence, interest and, from an accounting and tax perspective, OID is typically amortized over the life of the debt and treated as interest in addition to any periodic or regular interest under the debt instrument. How is OID usually treated from a bankruptcy perspective?karacto.xyz · upon a bankruptcy filing. This act moves the maturity date to the bankruptcy petition date and courts generally regard payment at or after that time as a repayment after maturity rather than prepayment before maturity. Enforceability of Make-Wholes in Bankruptcy (cont.)karacto.xyz The recent Southern District Bankruptcy Court decision in In re AMR Corp., B.R. (Bankr.S.D.N.Y. ) ("American Airlines") raises again the challenges facing underwriters, initial purchasers, lenders and investors in the debt capital markets in assessing and minimizing the risks associated with the ability to recover make-whole compensation and original issue discount ("OID") in the karacto.xyz //make-whole-premiums-and-oid-in-bankruptcy.
Related videosOriginal Issue Discount (OID) on Debt Issuances
The Bankruptcy Court concluded that the reasoning of Chateaugay dictates that unamortized OID generated by a fair value exchange should not be disallowed. The Court reasoned that no "meaningful basis" exists for distinguishing between face value and fair value exchanges and, thus, the same rule on disallowance of OID should apply in both instances.
The Court concluded that "no commercial or business reason, or valid theory of corporate finance, [exists] to justify treating claims generated by face value and fair value exchanges differently in bankruptcy. The Court rejected the assertion that disallowing the OID in this particular case was consistent with the "plain language" of section b 2. The plaintiffs argued that applying the plain meaning would not lead to an absurd result because the noteholders that participated in the exchange would receive a greater recovery than those that did not.
The Court was not persuaded, noting that its rules should provide "predictability" and avoid "confusion in the market. ResCap should give lenders comfort that, at least in the Southern District of New York, unamortized OID generated by debt-for-debt exchanges whether face value or fair value in connection with prepetition consensual workouts is not subject to disallowance as unmatured interest.
This memorandum is not intended to provide legal advice, and no legal or business decision should be based on its content. Questions concerning issues addressed in this memorandum should be directed to:. Associates Erica Weinberger and Adam M. Denhoff contributed to this client alert.
UMB Bank, N. A face value exchange is an exchange of existing debt for new debt of equal face value but with modified terms and conditions. Such an exchange does not reduce the borrower's overall debt obligations. A fair market value exchange is an exchange of existing debt for new debt with a reduced principal amount, determined by the market value of the old debt.
Unlike a face value exchange, a fair value exchange offers the issuer the advantage of reducing its debt obligations. The Court also noted that "[a]t the time that Congress passed section b 2 , debt-for-debt exchanges did not create OID for tax purposes. The Tax Code was amended in to provide that distressed face and fair value exchanges generated taxable OID.
Andrew Parlen has joined the firm as a partner in the Restructuring Department, resident in the New York office. The Federal Reserve has issued a number of legal forms and agreements, with accompanying instructions, that must be submitted by eligible borrowers and lenders participating in the Main Street New Loan Facility, Main Street Expanded….
On April 30, the Fed issued revised term sheets for the two previously announced Main Street lending facilities, as well as a term sheet for the new Main Street Priority Loan Facility. The Fed expanded certain criteria for eligible….
We summarize the new facilities and updates to the terms of the previously announced facilities. Restructuring partner Brian Hermann was quoted extensively in a recent article in Business Insider about a the increase in restructurings as a result of the coronavirus crisis. As the coronavirus pandemic continues to shake global markets, more companies will likely need to restructure to address liquidity constraints, right-size their balance sheets, or implement operational restructurings.
As market reaction to the coronavirus outbreak leads to declining trading prices for bank loans and notes, many debt issuers and their private equity sponsors are considering repurchasing their outstanding debt to capture discount. The U. Tempnology, LLC that a trademark licensee may retain certain rights under a trademark licensing agreement even if the licensor enters bankruptcy and rejects the…. Bankruptcy partner Elizabeth McColm will speak on a panel at the 15th annual Wharton Restructuring and Distressed Investing conference.
Frey, Matthew B. This memorandum discusses the legal and business…. The series covers various high profile cases and topics …. On June 20, , Judge Kevin J. Carey of the United States Bankruptcy Court for the District of Delaware sustained an objection to a proof of claim filed by a postpetition debt purchaser premised on anti-assignment clauses contained….
The United States Court of Appeals for the Ninth Circuit recently held that a bankruptcy court may not designate claims for bad faith under section e of the Bankruptcy Code e. The United States Bankruptcy Court for the District of Connecticut recently examined a question at the heart of an existing circuit split regarding the consequence of trademark license rejection in bankruptcy: can a trademark licensee ….
FTI Consulting, Inc. Legal Developments…. The Court of Appeals for the Ninth Circuit recently held that section a 10 of the Bankruptcy Code — a provision which, in effect, prohibits confirmation of a plan unless the plan has been accepted by at least one impaired class ….
Grieve, Kyle J. Kimpler, Lindsay B. Parks and Ramy J. Paul, Weiss announced that Paul M. Six years after the Supreme Court ruled on Stern v. Marshall , courts continue to grapple with how much the decision curtails the exercise of bankruptcy court jurisdiction.
Recently, the U. Bankruptcy Court for the District of…. The Supreme Court will address a number of issues important to the business community in the upcoming term, including the scope of the Alien Tort Statute, the validity of arbitration clauses in certain employment agreements, and the….
The tension between environmental regulation and bankruptcy law makes environmental liability an issue that must be considered as part of any bankruptcy strategy.
Education Management Finance Corp. The United States Court of Appeals for the Second Circuit recently articulated a standard to determine what claims may be barred against a purchaser of assets "free and clear" of claims pursuant to section f of the….
On April 4, , as the most recent step in its ongoing battle against inversion transactions, the U. Department of Treasury issued both new temporary and proposed regulations addressing certain inversion and post-inversion…. On March 29, , the Second Circuit addressed the breadth and application of the Bankruptcy Code's safe harbor provisions in an opinion that applied to two cases before it.
Restructuring partner Paul Basta was recognized in a Business Insider article as one of the top ten restructuring attorneys who will be at the center of the increase in restructuring and bankruptcy work due to the coronavirus crisis. King award at the Harvey R. Miller and Leonard M. On Tuesday, Newsom signed Senate Bill Trust has to be earned. All rights reserved. Website powered by Foundation. Switch to the mobile version of this page. North Bay Bohemian.
Pin It. Speaking of Subscribe to this thread:. By Email. With RSS. Readers also liked… By Book or Nook Apr 3,