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Ninth Circ. Ruling Highlights Divide on Ch. 11 Interest Rates

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Seth Kleinman and Miranda Russell authored an article for Law360 discussing the correct rate of interest to be applied to unimpaired unsecured claims against a fully solvent debtor, and the division amongst bankruptcy courts.

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Seth Kleinman and Miranda Russell authored an article for Law360 discussing the correct rate of interest to be applied to unimpaired unsecured claims against a fully solvent debtor, and the division amongst bankruptcy courts.The authors wrote:Over the next several years, it is a virtual certainty that other circuit-level courts will be asked to opine on the issue. In fact, the U.S. Court of Appeals for the Fifth Circuit is currently considering the same question in the Ultra Petroleum matter. In the meantime, solvent, or potentially solvent, debtors may choose to file bankruptcy cases outside the Ninth Circuit, if possible, to avoid paying unimpaired unsecured creditors the higher rate of interest. Additionally, both solvent debtors and unimpaired unsecured creditors to solvent debtors should be prepared to litigate the issue to the circuit level in cases maintained outside the Fifth and Ninth Circuits.Read the <a href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/blt97c336f19b8479ff/632a0b8edbb41c0cdadc7d09/220916-ninth-circ-ruling-highlights-divide.pdf" target="_blank">full article</a>.

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Seth J. Kleinman is a partner and a member of the firm’s Business Restructuring + Insolvency Group. Seth has a dual presence in New York and Chicago.Seth advises clients in all areas of corporate restructuring, bankruptcy, and insolvency matters. He represents corporate debtors, lenders, high-yield debtholders, investment managers, loan agents, indenture trustees, creditors, financial counterparties, and other interested parties in bankruptcy-related transactions, litigation, and out-of-court workouts.Seth’s practice focuses on advising ad hoc lender groups in high-stakes restructurings, with a particular focus on syndicated lenders, collateralized loan obligations (CLOs), direct lenders, high-yield funds, institutional asset managers, and opportunistic funds. Seth also has extensive experience advising private equity sponsors, boards of directors, and companies experiencing financial or operational distress.  Seth works across a wide range of industries, including industrials, retail, automotive, aerospace/defense, agriculture, financial services, manufacturing, media and entertainment, oil and gas, energy, mining and minerals, transportation, healthcare, and tax-exempt entities, among others.  While earning his J.D. cum laude from Northwestern University, Seth worked as a judicial extern to the Honorable Eugene Wedoff, Chief Judge of the Bankruptcy Court for the Northern District of Illinois. Seth is a member of the Turnaround Management Association (TMA), as well as the American Bankruptcy Institute (ABI).<h4>Representative Experience</h4>Lender group representation<ul><li>An ad hoc group of lenders in the Chapter 11 case of an omnichannel video conferencing solutions provider. The ad hoc group of lenders provided debtor-in-possession financing and allowed the use of cash collateral. The Bankruptcy Court for the Southern District of Texas authorized a 363 sale of the business to a strategic buyer. </li><li>Ad hoc group of lendersto a large U.S.-based commercial bank, in the Chapter 11 case of an operator of both digital and brick-and-mortar, full-service specialty pharmacies. The matter resulted in a successful section 363 sale of substantially all of the debtor’s assets to a large multinational pharmacy and retail operator.  </li><li>Ad hoc group of first lien term lenders and debtor-in-possession lenders to Libbey Inc., one of the world’s largest table glass and stemware manufacturers, with respect to the company’s successful in-court restructuring of over $400 million in first lien debt.</li><li>Ad hoc group of first lien lenders to the Brown Jordan Company, a leading manufacturer of indoor and outdoor furniture, with respect to the refinancing of its existing first lien debt.</li><li>Ad hoc group of first lien lenders with respect to a $1 billion senior secured term and revolving credit facility, in the highly successful chapter 11 case of the Hertz Corporation.</li><li>Ad hoc group of second lien lenders to Premiere Global Services, Inc., a provider of collaboration software and services, with respect to restructuring issues.</li><li>Ad hoc group of senior term lenders to Acosta, Inc., a full-service sales and marketing company for consumer packaged goods companies that had approximately $3 billion of pre-petition debt on its balance sheet, with respect to the company’s prepackaged chapter 11 cases filed in the District of Delaware. Acosta’s bankruptcy resulted in a significant recovery for lenders, including ownership of Reorganized Acosta. Reorganized Acosta exited chapter 11 with no leverage on its balance sheet.</li><li>Ad hoc group of senior term lenders to PetSmart, Inc., the largest specialty pet retailer in North America, with respect to the company’s proposed spin-off of Chewy.com and related district court litigation.</li><li>Ad hoc group of first lien lenders to Cumulus Media, Inc., the owner and operator of the second-largest group of radio stations in the United States in the lenders’ successful opposition to the company’s planned exchange offer and in the company’s subsequent chapter 11 case, which resulted in the first lien lenders, who were owed almost $2 billion, acquiring over 85 percent of the equity in the reorganized entity.</li><li>Ad hoc group of term lenders to iHeart Media, Inc., the owner and operator of the largest group of radio stations in the United States, with respect to the company’s in-court restructuring of approximately $20 billion in indebtedness.</li><li>Ad hoc group of term lenders to Arch Coal, Inc., in the lenders’ successful opposition to the company’s proposed exchange offer and in the company’s subsequent successful chapter 11 case, which resulted in the restructuring of a $1.9 billion credit facility pursuant to which the term lenders acquiring 90 percent interest of the equity in the reorganized entity.</li><li>Ad hoc group of first-lien lenders and loan agent to Transtar Industries, Inc., the largest distributor of automotive transmission parts in the United States, which filed for chapter 11.</li><li>Ad hoc group of PIK Noteholders of Energy Future Holdings Corp. in a dispute with the company regarding the noteholders’ right to payment of post-petition interest.</li></ul>Borrower and private equity sponsor representations<ul><li dir="ltr">Altamont Capital Partners with respect to Juice Plus+ out-of-court restructuring. Altamont bought out Juice Plus+ in 2018. The powdered juice seller, which operates using a multi-level marketing structure, struggled with lower enrolment as Covid-19 pandemic benefits evaporated and consumer prices climbed. </li></ul><ul><li>Borden Dairy Company, the iconic dairy processor with annual revenues in excess of $1.4 billion, in connection with its chapter 11 cases and the 363 sale of substantially all of its assets, following a 10-day “virtual” auction involving multiple bidders, to a joint venture owned by Capitol Peak Partner and KKR.</li><li>The Kyrgyz Republic with respect to the disputed chapter 11 filing of the country’s valuable Kyrgyz Kumtor Mine. This matter presents novel issues regarding the jurisdiction of a U.S. Bankruptcy Court over foreign sovereign property.</li><li>Private equity-owned dentistry and orthodontic business with 42 offices nationwide in its out-of-court restructuring and recapitalization. The transaction resulted in the company receiving a significant equity infusion to help sustain and grow the enterprise.</li><li>Solar panel manufacturer in an out-of-court restructuring of its funded liabilities and a recapitalization of its balance sheet by certain of its senior secured lenders.</li><li>Liberty Tire, Inc. in its out-of-court restructuring. Liberty is the premier provider of tire recycling services in the U.S. and Canada. The M&A Advisorselected Liberty Tire as its Out-of-Court Restructuring Deal of 2015 (under $500 millions).</li><li>4Kids Entertainment, Inc. in its chapter 11 case. 4Kids managed licensing, broadcast, and merchandising rights to children’s titles. The contested case, which resulted in a 100% distribution to unsecured creditors and a distribution to equity holders, was recognized as one of the most Successful Restructurings of 2012 by Turnarounds & Workouts.</li><li>PDM Bridge, LLC, a fabricator of steel components for bridges, in its successful out-of-court restructuring. The business was sold to a distressed investor in a debt transaction.</li><li>GSC Group, Inc. in its chapter 11 case. GSC managed private equity, mezzanine loan, and distressed funds and CLOs and at its peak had $28 billion AUM. The assets were sold in a three-day auction completed under section 363 of the Bankruptcy Code.</li><li>Apex Silver Mines, Inc. in its pre-negotiated restructuring and subsequent cross-border chapter 11 case.</li><li>Equity sponsor in the out-of-court restructuring of a leading provider of home healthcare services and medical equipment.</li><li>Equity sponsor in a proposed debtor-in-possession financing and new value plan of reorganization in the chapter 11 case of a publisher of business and trade publications.</li></ul>Loan agent and creditor representations<ul><li>Alter Domus (f/k/a Cortland Capital Market Services) as loan agent with respect to a $100 million financing for Zevra Therapeutics, facilitating debt repayment of $43.1 million and funding for future drug treatments.</li><li>Alter Domus (f/k/a Cortland Capital Market Services) as loan agent related to approximately $600 million in term loan financing in connection with the purchase of certain off-shore pipeline assets and merger between Sable Offshore Corporation and Exxon Mobil Corporation, which closed on February 14, 2024.</li><li>Alter Domus (f/k/a Cortland Capital Market Services) as loan agent related to the refinancing and amendment and extension of certain loan facilities of borrower Moran Foods, LLC (also known as Save A Lot). The refinancing includes a new $200 million asset-based lending credit facility and an extended maturity with respect to approximately $377 million of existing first and second lien loans.</li><li>Wilmington Trust, National Association, as pre-petition term loan agent, with respect to a $200 million first lien credit facility extended to Strike LLC, in its chapter 11 cases filed in the Southern District of Texas.</li><li>Wilmington Trust, National Association, as pre-petition and debtor-in-possession term loan agent, with respect to credit facilities extended to Last Lion HoldCo AS and Vewd Software AS, in its chapter 11 cases filed in the Southern District of New York.</li><li>Cortland Capital Market Services as second lien loan agent for a $350 million term loan to borrower Legacy Reserves, Inc., a publicly traded, independent energy company engaged in the development, production, and acquisition of oil and natural gas properties, in its chapter 11 cases filed in the Southern District of Texas.</li><li>Wilmington Trust as pre-petition term loan agent, revolving loan agent, and debtor-in-possession term loan agent to Southcross Energy, a publicly traded company that provides midstream services to natural gas producers and customers, in its chapter 11 cases filed in the District of Delaware.</li><li>Wilmington Trust as pre-petition first lien and second lien loan agent for $40 million of term loans to Geokinetics Inc., one of the largest independent land and seafloor geophysical and seismic data companies, in its chapter 11 case.</li><li>Wilmington Trust as pre-petition loan agent for an unsecured bridge loan facility to Concordia International Corp. in its Canada Business Corporations Act restructuring, one of Canada’s largest restructurings to date.</li><li>Cortland Capital Market Services as pre-petition loan agent for $470 million of term loans and $35 million in post-petition financing to Noranda Aluminum, Inc., a leading vertically integrated aluminum producer in the United States, in its chapter 11 case.</li><li>Wilmington Trust as pre-petition first lien and debtor-in-possession loan agent for over $400 million of term loans to Vertellus Specialties, Inc., a leading provider of specialty chemical products, in its chapter 11 case.</li><li>Cortland Capital Market Services as pre-petition first lien loan agent for $235 million of term loans to Tervita Corp., a leading environmental solutions provider, in its chapter 11 case.</li><li>Wilmington Trust as pre-petition first lien and debtor-in-possession term loan agent to Xtera Communications, Inc., a provider of optical networking for long-haul optical networks.</li><li>Cortland Capital Market Services as pre-petition loan agent for $80 million of term loans to Horsehead Corporation, the largest producer of zinc and zinc-related products in the United States, in its chapter 11 case.</li><li>The Federal Reserve Bank of New York as mortgage certificate holder and mezzanine lender in the chapter 11 bankruptcy cases of Extended Stay Hotels, Inc.</li><li>Multiple clients, including a global technology company, a worldwide advertising agency, and certain tier-one auto parts suppliers, in the Chrysler and General Motors bankruptcy cases.</li><li>Official creditors’ committee in the cross-border chapter 11 bankruptcy case of Sea Containers, Inc., a London-based marine container leasing company.</li></ul>Distressed M&A and out-of-court workout representations<ul><li dir="ltr">Healios, K.K., a Japanese bio tech company as DIP lender and stalking horse purchaser in the bankruptcy cases of Athersys, Inc. The credit bid and sale of Athersys assets to Healios closed on April 1, 2024. </li></ul><ul><li>SBCVC, Pte. Ltd., an affiliate of SoftBank, as a bidder for the assets of Aquion Energy Inc. in a sale under section 363 of the Bankruptcy Code.</li><li>Distressed debt fund in the purchase of a majority position in the distressed loan of a large agricultural commodity producer and the subsequent debt and equity restructuring of the company.</li><li>Distressed debt fund in the purchase of a majority position in the distressed loan of a leading direct marketing company and the subsequent sale of the company to a private equity fund.</li><li>Barclays Capital, Inc., as distressed purchaser of substantially all assets and debtor-in-possession lender in the Lehman Brothers, Inc. chapter 11 case, one of the largest and most complex chapter 11 cases to date.</li><li>Numerous clients regarding potential distressed asset purchases, both in and out-of-court.</li></ul>

Seth Kleinman

Partner

Miranda has represented debtors, creditors, official creditors’ committees, and other parties-in-interest in complex corporate restructurings and chapter 11 bankruptcy cases. Miranda also has experience representing private credit funds, public companies, and other borrowers and lenders in a variety of financing transactions. In 2024, The Legal 500 US named Miranda as Recommended for Corporate Restructuring.Miranda earned her J.D. at University of Virginia School of Law, where she served as Co-Director for the Migrant Farmworker Project and was the Pro Bono Award recipient. Miranda graduated summa cum laude from the University of Georgia, receiving a B.A. in Economics, History, and Spanish.

Miranda Russell

Associate

Business Restructuring + Insolvency