Two SDNY Decisions Hold that the Termination of a Parent Guarantee in an Out-of-Court Restructuring Violates Section 316(b) of the Trust Indenture Act
In a pair of recent decisions, the courts in the Southern District of New York held that the transactions eliminating parent guarantees in connection with out-of-court restructurings were impermissible under Section 316(b) of the Trust Indenture Act of 1939, as amended (“TIA”) because the elimination of such guarantees impaired the nonconsenting noteholders’ right to receive payment. The first decision, Marblegate Asset Management et al. v. Education Management Corp., -- F. Supp. 3d --, No. 14 Civ. 8584, 2014 WL 7399041 (S.D.N.Y. Dec. 30, 2014) (“Marblegate”), was issued on December 30, 2014 and the second decision, Meehancombs Global Opportunities Funds, L.P., et al. v. Caesars Entertainment Corp., et al., -- F. Supp. 3d --, No. 14 Civ. 7091 (SAS) (S.D.N.Y. Jan. 15, 2015) (“Caesars”), was issued on January 15, 2015.