Second Circuit Affirms Unfavorable Plan Treatment of Senior Secured Creditor in DBSD North America

Second Circuit Affirms Unfavorable Plan Treatment of Senior Secured Creditor in DBSD North America

The Second Circuit Court of Appeals issued a summary order this week upholding the aggressively unfavorable treatment of a senior secured creditor under the reorganization plan (the "Plan") of DBSD North America, f/k/a ICO North America ("DBSD"). (The Second Circuit upheld a separate challenge to the plan brought by an unsecured creditor). The summary order states that "[a]n opinion will follow in due course."   

As previously described on this site, the bankruptcy court took the highly unusual step of "designating" (i.e., disallowing) the vote rejecting the Plan of the senior secured creditor (also a competitor of DBSD). The bankruptcy court's finding that the vote was "not in good faith" because the senior secured creditor was acting with a "strategic purpose", rather than merely seeking to further its interest as a creditor looking to be repaid, raised eyebrows throughout the bankruptcy community (and particularly among investment firms that regularly acquire debt with such a strategic purpose). But it was the bankruptcy court's decision to approve the unfavorable proposed treatment of the senior secured creditor that is likely to have the most potential long term impact. 

Read this article in its entirety at Kelley Drye & Warren LLP's Bankruptcy Law Insights blog