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ARTICLE · 18 OCTOBER 2013

Original Issue Discount Claim: Maybe It’s Allowed, And Maybe It’s Not

Pepper Hamilton LLP
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An unsecured creditors committee brought an action against an indenture trustee and collateral agent (a) seeking to recharacterize a facility as a secured financing, (b) requesting a declaratory judgment that liens did not extend to released collateral and loans, and (c) seeking partial disallowance of claims of noteholders on the basis that the claims included original issue discount (OID) that should be disallowed as unmatured interest.

United StatesInsolvency/Bankruptcy/Re-Structuring
Vicki Harding
Vicki Harding

Official Comm. of Unsecured Creditors v. UMB Bank, N.A. (In re Residential Capital, LLC), 495 B.R. 250 (Bankr. S.D. N.Y. 2013) –

An unsecured creditors committee brought an action against an indenture trustee and collateral agent (a) seeking to recharacterize a facility as a secured financing, (b) requesting a declaratory judgment that liens did not extend to released collateral and loans, and (c) seeking partial disallowance of claims of noteholders on the basis that the claims included original issue discount (OID) that should be disallowed as unmatured interest.  In this decision the bankruptcy court ruled on the trustee's motion to dismiss these claims.

As is often the case, the Chapter 11 debtors agreed to a series of stipulations regarding the validity of pre-petition credit facilities and liens as a condition for obtaining post-petition financing, but with the caveat that the unsecured creditors committee would be given time to investigate and

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