On January 17, in the latest chapter in the ongoing debate over §316(b) of the Trust Indenture Act, the Second Circuit reversed the district court’s decision in Marblegate, concluding that the TIA does not prohibit out-of-court restructurings that deprive non-consenting noteholders of their substantive right to payment on account of their notes. There will be time for reflection in the weeks to come—reflection that will be fueled by the Second Circuit’s own internal disagreement in its 2-1 decision, with a strong dissent from Judge Chester Straub. In the meantime, a brief summary follows.
Background
Section 316(b) of the Trust Indenture Act (which governs virtually all notes issuances) provides, in relevant part, as follows:
