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Avoiding Subordination Of Secured Debt After TPC Decision
By Jason Cohen , Mark Dendinger and Jonathan Lozano ( July 19 , 2022 , 5:18 PM EDT )
Following a July 6 memorandum opinion from the U . S . Bankruptcy Court for the District of Delaware , lenders and noteholders risk subordination of their liens absent explicit language prohibiting such subordination in their respective debt documents .
U . S . Bankruptcy Judge Craig T . Goldblatt ' s decision in In re : TPC Group Inc . upheld a prepetition uptier transaction challenged by two leapfrogged minority noteholders in the context of TPC Group ' s proposed debtor-in-possession financing .
The bankruptcy court ' s decision highlights the importance of fortifying debt documents by explicitly delineating tiers of consent rights related to lien subordination .
Jason Cohen
Rather than apply the strict technical provisions of the operative loan documents in a vacuum as other courts have done , Judge Goldblatt considered the documents in the context of the broader lending market , and held that a 2019 indenture permitted the subordination of senior secured 10.50 % notes in favor of a 2021 indenture for senior secured 10.875 % notes issued by TPC Group .
The bankruptcy court based its decision on contractual interpretation of the relevant indentures and debt documents , holding that , absent any specific provision directly addressing subordination of liens , subordination was not one of the sacred rights in the 2019 indenture requiring consent of all holders of the 10.50 % notes .
Mark Dendinger
As Judge Goldblatt stated bluntly ,
[ t ] here is nothing in the law that requires holders of syndicated debt to behave as Musketeers . To the extent such holders want to be protected against selfinterested actions by borrowers and other holders , they must include such protections in the terms of their agreements .[ 1 ]
In August 2019 , TPC Group raised $ 930 million by issuing senior secured notes due in 2024 with an interest rate of 10.50 %, and secured by a first lien on substantially all of the the debtors ' assets . The minority holders of the 10.50 % notes , the
Jonathan Lozano