Chapter 11 Plan Distributions Are Not Collateral Covered By Intercreditor Agreement's Waterfall Provision

In In re Energy Future Holdings Corp., 2019 WL 2535700 (3d Cir. June 19, 2019), a panel of the U.S. Court of Appeals for the Third Circuit ruled that adequate protection payments made during a bankruptcy case and distributions under a chapter 11 plan are not distributions of collateral for purposes of a "waterfall" provision in an intercreditor agreement.

Intercreditor and Subordination Agreements

An intercreditor agreement is an agreement among creditors specifying in advance how their competing claims against the borrower will be dealt with in terms of priority, receipt of payment, recourse to assets, and other related rights. Such agreements sometimes include a "waterfall" provision that establishes the order in which the parties will receive payments from a pool of the borrower's assets upon the occurrence of default or another specified event.