The Peabody Award: Exclusive Opportunism in Bankruptcy

We asked our expert Contributors to weigh in on Exclusive Opportunism – the trend of preserving exclusive financial opportunities for select creditors without offering that opportunity to all creditors of the relevant class — all in exchange for voting in favor of the debtor’s plan. While the Peabody case seemed an outlier at the time, it has since become the go-to strategy for debtors making it the namesake for this inaugural award. Contributor Paul Silverstein provides a high level summary of the issues relating to exclusive opportunism, focusing on potential violations of Section 1123(a)(4) and of the Supreme Court’s decision in Bank of America Nat. Trust and Savings Assoc. v. 203 N. LaSalle St. P’ship, 526 US 434 (1999). In the view of Contributor Phil Anker “offering some but not all creditors in the fulcrum class the right to invest in the reorganized debtor (or the right to backstop an offering) under a plan can violate the “same treatment” requirement for confirmation.” Similarly, Advisory Board Member Daniel Kamensky notes, “Courts should be concerned about exclusive opportunism – whether inside or outside of bankruptcy – because they strain intercreditor dynamics, create new fault lines and amplify distributional concerns among similarly situated creditors.” Contributor Sid Levinson in contrast points out these can be a “valuable tool for debtors”. As everything in the bankruptcy process, these tools can be subject to abuse. Contributor Jim Millar shares his recent article where he discusses vote buying as part of providing these exclusive benefits to subsets of creditors.

A list of recent cases is below: 

In re Peabody Energy Corp. (EDMS 2017), Favored creditors given exclusive right to purchase 22.5% of $750 million private placement.

In re LATAM Airlines Grp. S.A. (SDNY 2022), Favored creditors given exclusive right to purchase 50% of $3.269 billion private placement

In re Grupo Aeromexico, SAB (SDNY 2022), Favored creditors given exclusive right to purchase $580 million of $720 million rights offering

In re Pacific Drilling (SDNY 2018), Favored creditors given exclusive right to purchase 20% of $500 million exit financing TPC Group Inc. (Del 2022), Favored creditors given exclusive opportunity to purchase 45% of $450 million exit financing