This month's issue of Debt Dialogue addresses the worlds of restructuring and conservatorship, preferred stock investments and municipal securities disclosure.

Topics covered in this issue include:

  • Supreme Court Holds Church-Affiliated Organizations Exempt From ERISA: A Prescription for the Ailing Health Care Provider?
    The United States Supreme Court's recent decision in Advocate Health Care Network v. Stapleton means that many plans of organizations affiliated with churches will continue to be exempt from burdensome funding, fiduciary and other obligations under ERISA. This has the potential to significantly impact restructurings — particularly health care provider restructurings — going forward.
  • Refusing to Fund Into a Bankruptcy: Lessons From Lyondell for Lenders
    It may be difficult for a lender to extricate itself from its commitments to a distressed borrower by relying solely on the contractual provisions, such as a MAC clause, a solvency test or some other financial covenant. Where a credit agreement includes a damages waiver, however, Lyondell suggests another possibility — the efficient breach of a lending commitment.
  • The Cumulus Media Ruling and the Material Adverse Event Default
    The court in Cumulus Media Holdings Inc. v. JPMorgan Chase Bank, N.A. ruled that a proposed exchange of senior notes for revolver commitments would violate certain covenants of the issuer's credit agreement protecting the revolving lenders. One aspect of that ruling suggests that modifications to the credit documentation of a financially distressed debtor could give rise to a material adverse event default under the standard terms of a credit facility.
  • Hsu v. ODN Holding Corp. and the Rights of (un)Preferred Stockholders
    In Hsu v. ODN Holding Corp., the Delaware Court of Chancery refused to dismiss a lawsuit alleging that the company's directors and others breached their fiduciary duties by selling assets to fund the redemption of preferred stock. The court's decision suggested that the fiduciary duties of directors may in certain cases require that the rights of preferred holders be intentionally violated, and may cast a shadow on the rights of preferred holders generally.
  • Creditors of Financial Institutions Beware — Perry v. Mnuchin Marks a Significant Expansion of the Government's Power to Expropriate
    The D.C. Circuit Court of Appeal's decision in Perry Capital LLC v. Mnuchin validated Treasury's "net worth sweep" of profits from Fannie Mae and Freddie Mac. The decision affirms the government's broad statutory power in the financial services sector to divert assets for the government's benefit, to arrogate contractual rights and to circumvent statutory priorities and other creditor protections, all without judicial review.
  • SEC Proposes Modifications to Rule 15c2-12 to Increase Event-Driven Disclosures by Municipal Issuers
    The SEC has proposed additions to the event-driven disclosures under Rule 15c2-12 for municipal issuers. The rule change would add the creation of financial obligations and the occurrence of defaults and similar events under financial obligations. The proposal has generated fervent reactions among both buy and sell side participants in the municipal securities markets that the SEC will need to balance as it seeks to create greater reporting transparency for municipal securities.

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