At the end of last year, the U.S. Court of Appeals for the Third Circuit added to several recent decisions addressing whether a creditor was entitled to payment of a “make whole” premium in connection with a Chapter 11 case. See Delaware Trust Co. v. Energy Future Intermediate Holding Co. (In re Energy Future Holdings), 842 F.3d 247 (3d. Cir. 2016)). The Third Circuit’s opinion is the most creditor-friendly decision issued to date on this issue, as the Third Circuit found that the refinancing of certain first and second lien notes after EFIH’s Chapter 11 cases were commenced triggered payment of a “make whole” premium. Notably, the Third Circuit found that the “make whole” premium was payable despite the fact that the indentures governing the notes did not expressly provide for payment of the premium in the event of an EFIH bankruptcy.
Background
In 2010, Energy Futures Intermediate Holding Company and EFIH Finance (collectively, EFIH) issued approximately $4 billion in 10 percent first lien notes due 2020 pursuant to an indenture governed by New York law. Two specific indenture provisions were of significance. First, §3.07, captioned “Optional Redemption,” provided that “[a]t any time prior to December 1, 2015, [EFIH] may redeem all or a part of the Notes at a redemption price equal to 100% of the principal amount of the Notes redeemed plus the Applicable Premium.” Id. at 251. The amount of the “Applicable Premium” decreased over time, and was structured to compensate noteholders for interest that would have otherwise been paid through the Notes’ stated maturity date following an early redemption.Id.
