Second Circuit’s reversal of controversial restructuring decision may boost confidence among distressed bond issuers.

The recent decision of the United States Court of Appeals for the Second Circuit in Marblegate has provided some relief from the significant uncertainties created by recent decisions of the United States District Court for the Southern District of New York with regard to the scope of the Trust Indenture Act of 1939 (the Act). The District Court’s decisions in the Marblegate and Caesars Entertainment restructurings had hamstrung out-of-court restructuring transactions and certain other transactions that involved distressed and potentially insolvent companies. The language and rationales of the District Court in these cases represented a significant departure from the previously understood meaning of Section 316(b) of the Act. The Second Circuit’s opinion restores the commonly held understanding that “Section 316(b) prohibits only non-consensual amendments to an indenture’s core payment terms.” (emphasis added). We expect that the Second Circuit’s opinion will provide comfort to practitioners and market participants looking to resume out-of-court restructurings and other transactions that may have stalled in the aftermath of the District Court’s decisions.