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Unitranche Facilities and the Jurisdiction of Bankruptcy Courts: RadioShack's Chapter 11 Leaves Questions Unanswered

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August 13, 2015

Client Alert
“Unitranche” facilities have been gaining popularity over the last decade. Although unitranche facilities offer advantages such as efficiency and lower costs, one concern of the lenders party to these loan facilities has been whether or not the agreement among lenders setting forth the relative priorities of the lenders under the facility is enforceable in a borrower’s bankruptcy proceeding. Because of this concern, many lenders were relieved to hear that the bankruptcy court in the RadioShack bankruptcy proceeding had considered and provided its thoughts with respect to the enforcement of certain provisions of an agreement among lenders in relation to a unitranche facility under which RadioShack was the borrower, but was not a party to the agreement among lenders.

Although the RadioShack proceeding sheds light on how bankruptcy courts may interpret an agreement among lenders, unfortunately, it still remains unclear as to whether U.S. bankruptcy courts will assert jurisdiction to consider arguments arising under an agreement among lenders. In RadioShack, all of the relevant parties in the case had consented to the bankruptcy court’s jurisdiction to consider the agreement among lenders in the underlying dispute, thus allowing the court to disregard the baseline issue of whether or not the court’s jurisdiction over the agreement among lenders existed.

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