Dan Kamensky Speaks on Incora decision shocker

Dan Kamensky
Creditor Rights Coalition

Breaking (or dare I say Shocking) News.

The Incora decision is the most favorable opinion to come down in favor of creditor rights (I could not have predicted it).

It also likely puts the nail in the coffin of the Southern District of Texas as the destination of choice for any financially distressed company that underwent an aggressive non pro-rata uptiering transaction.

My take-aways below:

** Recent decisions have mostly split between bankruptcy judges upholding aggressive LMEs (Serta (Jones), TPC Group(Goldblatt)) and State Court judges finding triable issues of fact to be settled at trial (TriMark, Boardriders & Mitel).

How does J. Isgur (SDTX) come out?

Pro Bondholder. Like TriMark, Boardriders & Mitel, Incora allows contract claims to go forward (Contra J. Jones in Serta)

Super Pro Bondholder. Incora also allows tortious interference claims to go forward (even against participating noteholders!) while these claims were rejected in TriMark & Mitel.

Super Super Pro Bondholder. The contract claims are arguably weaker in Incora (collapsing doctrine/pro rata and collateral stripping) than open market purchase at issue in TriMark, Boardriders & Mitel.

Super Super Pro Bondholder. Incora involved a high yield bond indenture which is less protective of secured creditor rights. The only other decision in the bond context went the other way (TPC Group).

Super positive technical point going forward. Because the Court found that contract and tortious interference claims are not estate claims, the stay does not prohibit bringing those claims against third parties outside of the bankruptcy process in the next case.

Why do some of the initial reactions to the Incora decision miss the mark (other than Selendy Gay Elsberg’s piece above)?

** The standing discussion has confused some. The secured bondholders have standing. Period.

** While the Court dismissed the equitable lien/fraudulent conveyance claims, those are separately teed up in standing motions brought by the excluded bondholders because those are clearly assets of the estate. Next shoe to drop?

** While the Court dismissed the bad faith claims, who cares! (TriMark and Mitel also dismissed those claims).

The opinion can be found here.

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