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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