On January 17, 2017, the Second Circuit Court of Appeals (the “Second Circuit”) overturned the decision of the U.S. District Court for the Southern District of New York (“S.D.N.Y.”) in Marblegate Asset Mgmt. v. Educ. Mgmt. Corp., 111 F. Supp. 3d 542 (S.D.N.Y 2015) (“Marblegate II”).
Marblegate II raised significant questions regarding the ability of issuers and bondholders to effect certain out-of-court restructurings without unanimous consent of bondholders. The Second Circuit has now clarified that Section 316(b) of the Trust Indenture Act of 1939 (the “Trust Indenture Act” or “TIA”), 15 U.S.C. § 77ppp(b), does not inhibit the ability of issuers and bondholders to engage in out-of-court restructuring transactions or to make modifications to Trust Indenture Act qualified indentures that are binding on dissenting bondholders so long as the “core payment terms” — the dates on which interest and principal payments are due and the amounts thereof — are not expressly amended and the right of bondholders to bring suit for breach of the core payment terms is not restricted. By analogy, the same conclusion would hold true for non-TIA qualified indentures that mimic the relevant TIA text.