The Delaware Bankruptcy Court Confirms That Lenders in Multiple-Level Financing Structures Are Entitled to the Protections of Corporate Separateness

February 02, 2012
The Delaware Bankruptcy Court recently confirmed that in multiple-debtor chapter 11 cases, the cramdown rules set forth in section 1129(a)(10) of the Bankruptcy Code must be applied on a per debtor basis as opposed to a per plan basis. Given the potential for large securitization structures that utilize mezzanine financing to undergo out-of-court restructurings or chapter 11 cases in 2012 due to upcoming maturities, it is critical that lenders in these structures understand the importance of recent case law and conduct their negotiations accordingly. This update discusses the court’s decisions and the implications for lenders, particularly when they are the only creditor whose vote could be solicited on a debtor’s plan of reorganization.