For more than three years, Kramer Levin lawyers representing holders of approximately $2.2 billion of second-lien notes in the bankruptcy of Energy Future Intermediate Holding Co. LLC (EFIH), a subsidiary of Energy Future Holdings (EFH), produced a string of successes, which was capped by victory in an appeal to the U.S. Court of Appeals for the 3rd Circuit and a subsequent settlement.
EFH filed for bankruptcy in April 2014 with more than $40 billion in liabilities — the largest bankruptcy arising from a failed leveraged buyout. At the outset, Kramer Levin defeated a proposed restructuring involving refinancing and prepayment of the second-lien notes and offering only 50 percent of the make-whole provided under the indenture upon early redemption. In November 2016, the 3rd Circuit ruled in favor of the indenture trustee in its make-whole appeal, reversing decisions by the Delaware Bankruptcy Court and U.S. District Court. The 3rd Circuit held that any payment before scheduled maturity, even in bankruptcy, amounted to an “optional redemption,” triggering the make-whole premium. Subsequently, the debtors pursued a plan of reorganization that would have established a claims reserve. After we filed a substantive objection to the claims reserve, the parties reached a settlement under which EFIH second-lien noteholders would receive their full accrued principal and interest and 87.5 percent of the make-whole claims. The settlement was approved by the bankruptcy court on March 24, 2017.