Last week, the Second Circuit heard oral arguments in the widely followed Marblegate Asset Management LLC v. Education Management Corp. case. When the appeal is resolved, it is expected to provide a useful guidepost for financially distressed companies that wish to engage in consensual, out-of-court restructurings of their bond debt. At issue is whether Section 316(b) of the Trust Indenture Act provides an independent cause of action for noteholders where there has been no breach of any indenture covenant but the practical effect of a restructuring transaction supported by the majority of the noteholders is to insure that the holdout noteholders will not recover principal or interest.
In this alert, we report on the parties’ arguments to the Second Circuit and the questions which the panel appeared to be focused on.
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