10 Apr Intercreditor Agreement Insights
The agreement stipulates that if 66% of lenders approve a resolution plan in value, it would bind all lenders. However, derogatory creditors have the option of selling their loans to other lenders with a 15% discount on the liquidation value or buying the entire portfolio that pays 125% of the value agreed in the debt settlement plan by other lenders. Although the seniors voted against the plan, the plan was confirmed with the support of the latter on the “Cramdown” basis. The decision that confirmed the plan was upheld on appeal. The seniors filed a complaint against the latter for violating the inter-creditor agreement. The bankruptcy court dismissed the appeal against the latter and was reconfirmed on appeal. The status quo will be effective 180 days from the deadline – the RBI had asked lenders to resolve their restructured loans within 180 days from March 1 or send them back to bankruptcy court. However, this provision would not prevent lenders from acting against borrowers or directors for misdemeanours. Lenders are in the process of having this agreement approved between creditors by their boards of directors. The inter-creditor agreement prohibited the latter from receiving the proceeds of common guarantees before the elderly were paid in full. Accordingly, the seniors argued that, when the debtor`s basic workforce was accepted under The Chapter 11 plan, the latter had breached the intercreditation agreement because the reorganized debtor`s assets represented the proceeds of common guarantees.
Background: More than 50 banks and financial institutions in India have reached an agreement between creditors to accelerate the liquidation of stressed assets of 50 kronor or more, which are under syndicated loans. The agreement is based on a recommendation from the Sunil Mehta Commission, which looked at the solution of stressed assets. In Re MPM Silicones, LLC, the U.S. District Court for the Southern District of New York recently confirmed a statement by the U.S. Bankruptcy Court for the Southern District of New York in 2014 in an inter-creditor dispute that could affect the frequency and effectiveness of Cramdown in future confirmations of contentious plans under Chapter 11 of the Bankruptcy Act. 518 B.R. 740 (Bankr. S.D.N.Y. 2014), aff`d, 15-2280 (NSR), 2019 WL 121003 (S.D.N.Y. January 4, 2019) (“Momentive”).
When the pledge rights of the secured lenders continue under a Chapter 11 plan, which provides the secured lender with a flow of payments of present value equal to the value of lenders` guarantees, the District Court decided that the pledge of secured lenders did not extend to the reorganized capital issued under the Chapter Plan11. The agreement between creditors aims to liquidate credit accounts of 50 crore or more in size, under the control of a group of lenders. It is part of the government-approved “Sashakt” plan to address the problem of solving non-performing loans. The agreement provides that each resolution plan is submitted to a supervisory committee made up of experts from the banking sector. For derogatory creditors, the agreement states that “the credit bank has the right, but not the obligation, to arrange the purchase of the credit facilities at a value equal to 85% of the liquidation or the value of the liquidation, depending on the deadline.” But from the senior`s point of view, if mezzanine lenders get the additional stock guarantee, they risk imposing HoldCo`s shares and taking control of the company. This often results in a change of control in the preferred lenders` facility contract, which can then lead to a mandatory down payment – consequences that are rarely in the interest of either group of creditors. However, once the most prominent lenders have issued an insolvency notice, opinions are divided as to which payments should be suspended to mezzanine lenders. The form of the agreement reached by the Loan Market Association (LMA) provides for the termination of certain payments to mezzanine lenders.