The Trust Indenture Act has Reemerged as a Powerful Tool for Objecting Bondholders Outside of Bankruptcy

March 13, 2015
Client Alert

The United States District Court for the Southern District of New York has recently issued two decisions that could give dissenting bondholders a potential edge in their efforts to hold out for greater concessions or forestall or prevent restructurings outside of bankruptcy. In both the Education Management Corp. bankruptcy case and in a civil action involving Caesars Entertainment Corp., the court injected new life into a 75-year-old provision of the Trust Indenture Act of 1939, as amended; in particular, Section 316(b), which places limitations on collective action clauses in bond indentures so that a majority of holders cannot implement certain changes to indenture terms to the detriment of the minority.

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