In a long-awaited ruling that will impact the treatment of bondholders in future corporate restructurings, a three-judge panel for the United States Court of Appeals for the Second Circuit upheld the District Court rulings in connection with the Momentive Performance Materials Inc. (“MPM”) bankruptcy on issues including debt subordination and make-whole premium entitlement, yet reversed and remanded with respect to the calculation of the applicable cramdown interest rates.

The Second Circuit denied the subordinated noteholders’ appeal of the District Court’s conclusions that those noteholders’ claims are junior in priority to the claims of second lien noteholders. In reaching its conclusion, the Second Circuit reasoned that certain of the relevant indenture provisions were ambiguous, but resolved those ambiguities in favor of MPM.

In addition, the Second Circuit affirmed that holders of senior lien notes were not entitled to a make-whole premium that otherwise was included in the relevant loan documents. The Second Circuit, however, reversed the lower courts’ ruling regarding the method of calculating the appropriate interest rate afforded to senior noteholders on replacement notes issued pursuant to MPM’s plan of reorganization.

Partners Seth H. Lieberman and Patrick Sibley and Associate Matthew W. Silverman, members of Pryor Cashman’s Bankruptcy, Reorganization & Creditors’ Rights Group, represented Wilmington Savings Fund Society, FSB, as successor indenture trustee to the second lien notes.  

To read the full decision, please click here.