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Third Circuit Sides With Creditors in EFIH Make-Whole Dispute

By John J. Rapisardi and Joseph Zujkowski
July 02, 2017

At the end of last year, the U.S. Court of Appeals for the Third Circuit added to several recent decisions addressing whether a creditor was entitled to payment of a “make- whole” premium in connection with a Chapter 11 case. See Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings), 842 F.3d 247 (3d. Cir. 2016)). The Third Circuit's opinion is the most creditor-friendly decision issued to date on this topic, as the court found that the refinancing of certain first- and second-lien notes after EFIH's Chapter 11 cases triggered payment of a “make-whole” premium. Notably, the Third Circuit found that the ” make-whole” premium was payable despite the fact that the indentures governing the notes did not expressly provide for payment of the premium in the event of an EFIH bankruptcy.

Background

In 2010, Energy Futures Intermediate Holding Company and EFIH Finance (collectively, EFIH) issued approximately $4 billion in 10% first-lien notes due 2020 pursuant to an indenture governed by New York law. Two specific indenture provisions were of significance. First, § 3.07, captioned “Optional Redemption,” provided that “[a]t any time prior to December 1, 2015, [EFIH] may redeem all or a part of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium.” Id. at 251. The amount of the “Applicable Premium” decreased over time, and was structured to compensate noteholders for interest that would have otherwise been paid through the Notes' stated maturity date following an early redemption. Id.

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