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25 Am. Bankr. Inst. L. Rev. 1 (2017)

handle is hein.journals/abilr25 and id is 1 raw text is: DEBT RESTRUCTURINGS AND THE TRUST INDENTURE ACT HARALD HALBHUBER* This Article makes a major contribution to the interpretation and application of the Trust Indenture Act, a Depression-era statute governing publicly traded corporate bonds. A recent federal district court decision in a widely-reported case called Marblegate that applied the statute to debt restructurings has affected companies and transactions across the country. In that decision, the court held that a debt restructuring violated the non-impairment provision of the statute because it presented unsecured bondholders with a choice between exchanging their bonds for equity and being left with claims against an empty shell by virtue of a foreclosure by secured creditors. The court based its decision on the legislative history of the Trust Indenture Act. This Article demonstrates that the Trust Indenture Act cannot have been intended to prohibit debt restructurings like the restructuring in Marblegate. Thorough historical analysis shows that in the decades leading up to the enactment of the Trust Indenture Act, transactions like the restructuring in Marblegate were not, as the court suggested, an unforeseen legal device, but a generally accepted debt restructuring technique. There is no indication that Congress intended to outlaw that technique. More importantly, most bond indentures at the time already contained the non-impairment provision relied on by the court in Marblegate, well before it was mandated by the Trust Indenture Act. That provision co-existed with restructurings like the one in Marblegate, and it did not occur to anyone, let alone Congress, that the provision would have prohibited such transactions. Still, as the Article also shows, the non-impairment provision was not irrelevant boilerplate, and it was critical to the SEC's policy. This does not mean that minority bondholders have no protections in debt restructurings outside bankruptcy. Restructurings are subject to fraudulent conveyance laws and other laws protecting creditors generally, just as they would have been in the 1930s. * Partner, Shearman & Sterling LLP, New York. The views expressed in this Article are those of the author and should not be attributed to Shearman & Sterling LLP. I am grateful to Robert Evans, Jason Lehner, Richard Squire and Petra Vospernik for comments on earlier drafts and to Thomas McGuire and Sharon Phillips for helpful discussions. Special thanks to Karen Prosky for assistance with citations. 1

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