noteholders or lenders with whom they were previously pari passu , as the bankruptcy court ' s ruling makes clear that similarly situated lenders or noteholders have no implied duty of allegiance that prohibits subordination via uptier transactions and can rely on the contract governing subordination .
Even though inclusion of subordination as a sacred right may create a situation where more drastic " actions such as the release of collateral are subject to a lower hierarchy of consent rights , any court following the guidance in In re : TPC Group would likely give substantial weight to clear and unambiguous language delineating the consent rights surrounding subordination of liens .
Second , the bankruptcy court ' s denial of the stay demonstrates that challenging an uptier transaction may be neither necessary nor sufficient to defeat a debtor-in-possession financing from the uptier parties .
As the bankruptcy court explained in its opinion denying the stay pending appeal ,
there are potential bases for objecting to the loan that do not depend on the declaratory judgment ruling . And on the flip side , while the objection to the DIP loan would be undoubtedly stronger if the 10.5 % Notes were senior to the debt that is proposed to be rolled up , a ruling in the declaratory judgment action in favor of the objecting noteholders would not necessarily mean that the DIP loan could not be approved .[ 13 ]
Given these lessons , the bankruptcy court ' s opinion is a reminder that lenders and noteholders must remain vigilant in drafting protective provisions in their respective debt documents , particularly where market cycles may give way to periods of covenant light drafting .
Such rights that may have previously been considered implicit can be quickly discarded in a bankruptcy setting where the Three Musketeers motto of " all for one and one for all " quickly becomes " everyone for him or herself ."
Jason G . Cohen is a partner , Mark E . Dendinger is a managing partner and Jonathan L . Lozano is an associate at Bracewell LLP .
The opinions expressed are those of the author ( s ) and do not necessarily reflect the views of the firm , its clients , or Portfolio Media Inc ., or any of its or their respective affiliates . This article is for general information purposes and is not intended to be and should not be taken as legal advice .
[ 1 ] Bayside Cap . Inc . and Cerberus Cap . Mgmt ., L . P . v . TPC Group Inc . ( In re TPC Group Inc .), Adv . Case No . 22-50372 ( CTG ) Dkt . 72 at * 28 ( Bankr . D . Del . July 6 , 2022 ).
[ 2 ] 2019 Indenture §§ 6.05 and 9.02 ( a ). [ 3 ] Id . at § 9.02 ( e ). [ 4 ] Id . at 9.02 ( d )( 10 ).
[ 5 ] Opinion at 16-17 (" The current dispute [] does not turn at all on whether one or another party might be cast as sympathetic or opportunistic . It simply calls for the Court to read and enforce the parties ' agreements in accordance with their terms .").