Avoid subordination of secured debt after TPC decision


By Jason Cohen, Mark Dendinger and Jonathan Lozano (July 19, 2022, 5:18 p.m. EDT) – Following a July 6 memorandum notice from the U.S. Bankruptcy Court for the District of Delaware, lenders and noteholders risk the subordination of their liens in the absence of an explicit clause prohibiting such subordination in their respective debt securities.

U.S. Bankruptcy Judge Craig T. Goldblatt’s decision in In re:TPC Group Inc. upheld a pre-petition upper-tier transaction challenged by two overwhelmed minority noteholders in the context of TPC’s proposed debtor-in-possession financing Group.

The bankruptcy court ruling underscores the importance of strengthening debt documents by explicitly delineating the levels of consent rights associated with the subordination of the lien.

Rather than applying the strict technical provisions of the operational loan…

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