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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.


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