Are adversary proceedings a promising forum for disgruntled minority lenders left behind in an LME to seek justice?
With the now well-documented likelihood that a company with an LME in the books will again restructure through a Chapter 11, bankruptcy courts have increasingly become a key forum for minority lenders to try to reverse their fate.
A bankruptcy petition can fuel a sense of urgency for resolution. The highest ranking and largest lenders — often the same lenders who emerge in the strongest position after an LME — typically get first dibs on offering debtors a DIP facility. In return, DIP lenders are awarded many advantages: superpriority claim status, the potential to roll-up pre-petition debt to an elevated priority status and greater control over the bankruptcy case. The outcome is that Chapter 11 can crystallize creditor priorities reshuffled by a pre-petition LME.
Take Trinseo, for example, where a group of minority lenders filed an adversary proceeding on the first day of the bankruptcy challenging two pre-petition LMEs that they claim taken together were part of the Trinseo majority lenders’ broader strategyto “set the stage to take over the Debtors in bankruptcy.” The minority lenders view Trinseo's bankruptcy as...
