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ARTICLE · 27 JANUARY 2017

The Redemption 'Make Whole' Remedy Controversy - An Easy Fix

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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The new year has brought an unexpected controversy in an otherwise very issuer-friendly high yield bond market, one involving limiting the available remedies following default that were expanded...

United StatesFinance and Banking
Ann Kalodis
Ann Kalodis
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The new year has brought an unexpected controversy in an otherwise very issuer-friendly high yield bond market, one involving limiting the available remedies following default that were expanded in last year's decision by the Southern District of New York in Wilmington Savings Fund Society, FSB v. Cash America International Inc. The court in Cash America held that when a default is caused by voluntary actions of the issuer and the issuer has the ability to make the applicable redemption payment, a bondholder may pursue a remedy of specific performance of the redemption provisions of the indenture for the payment of the applicable redemption premium.

Prior to Cash America, most market participants believed that such a remedy would only be available where an issuer intentionally defaulted for the purpose of avoiding paying the redemption premium (under the reasoning set forth in Sharon Steel Corp. v. Chase Manhattan Bank NA, 691 F.2d 1039 (2d Cir.1982)). After Cash

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