Fifth Circuit Rules On The "Solvent-Debtor Exception" And Make-Whole Premiums

On October 14, 2022, the U.S. Court of Appeals for the Fifth Circuit issued a long-awaited ruling on whether Ultra Petroleum Corp. ("UPC") must pay a $201 million make-whole premium to noteholders under its confirmed chapter 11 plan and whether the noteholders and certain other unsecured creditors are entitled to postpetition interest on their claims pursuant to the "solvent-debtor exception." In affirming the bankruptcy court's 2020 ruling, a divided three-judge panel of the Fifth Circuit held that the Bankruptcy Code disallows the make-whole premium "as the economic equivalent of unmatured interest," but held that "because Congress has not clearly abrogated the solvent-debtor exception," it applied to this case. Given UPC's solvency, the Fifth Circuit majority also ruled that UPC is obligated to pay postpetition interest to its noteholders and certain other unsecured creditors at the agreed-upon contractual default rate to render their claims unimpaired by UPC's