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Opinion White Paper
(April 25, 2016)
The purpose of this White Paper is to provide guidance to practitioners in their consideration of
the application of recent judicial opinions relating to Section 316(b) of the Trust Indenture Act of
1939, as amended (the “TIA”). It was prepared by the law firms named below, but does not
necessarily reflect the view of any law firm regarding the proper interpretation of the TIA or the
recent judicial opinions discussed below. The guidance set forth in this White Paper is subject
to change in light of future judicial opinions interpreting Section 316(b) of the TIA or applicable
legislative action. The contents of this White Paper are for informational purposes only. Neither
this publication nor the lawyers who authored it are rendering legal or other professional advice
or opinions on specific facts or matters, nor does the distribution of this publication to any
person constitute the establishment of an attorney-client relationship.
A. BACKGROUND
The recent decisions of the United States District Court for the Southern District of New
York in the Marblegate1 and Caesars Entertainment2 cases contain language that
suggests a significant departure from the widely understood meaning of TIA Section
316(b) that has prevailed among practitioners for decades. These cases have
introduced interpretive issues that have disrupted established opinion practice. These
opinion issues arise where the relevant indenture is qualified under the TIA. Similar
interpretive issues may exist where the relevant indenture or other agreement is not
subject to the TIA but includes wording substantially similar to the text of TIA Section
316(b), although the applicable law and interpretive principles may differ.
This White Paper presents a set of general principles that can guide opinion givers until
such time as the interpretive questions raised by these recent cases are resolved
through future judicial opinions and/or legislative action.
B. GENERAL PRINCIPLES
1. Under the recent cases, TIA Section 316(b) is implicated if (a) there is an
amendment to an indenture that affects “core terms” – that is, payment terms –
or (b) there is collective action on the part of the issuer and some or all of its
creditors that constitutes a “debt restructuring” (also referred to in the cases as a
1 Marblegate Asset Management v. Education Management Corp., 2014 WL
7399041, 75 F.Supp. 3d 592 (S.D.N.Y. 2014); Marblegate Asset Management v.
Education Management Corp., 2015 WL 3867643 (S.D.N.Y. 2015).
2
Meehancombs Global Credit Opportunity Funds, LP v. Caesars Entertainment
Corp., 2015 WL 221055, 80 F.Supp. 3d 507 (S.D.N.Y. 2015); BOKF, N.A. v.
Caesars Entertainment Corp., 2015 WL 5076785 (S.D.N.Y. 2015) (“Caesars II”).
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“debt readjustment plan” or an “out-of-court debt reorganization”) that has the
effect of impairing the ability of the issuer to make all future payments of principal
and interest to non-consenting noteholders when due.
2. Absent unusual circumstances, a law firm should be able to render an unqualified
legal opinion to a trustee in connection with proposed amendments to one or
more “non-core” terms of an indenture, including amendments to material
covenants, either (a) outside the context of a “debt restructuring,” or (b) in the
context of a debt restructuring where the opinion givers have received evidence
satisfactory to them that the issuer will likely be able to make all future payments
of principal and interest to non-consenting noteholders when due after giving
effect to the Related Transactions (as defined below). Similarly, as discussed
below in Section D, absent unusual circumstances, a law firm should be able to
render an unqualified legal opinion to other transaction participants in these
same circumstances.
• For these purposes, “non-core” terms include all terms other than payment
terms. This conforms to opinion practice prior to the Marblegate and
Caesars Entertainment decisions. Since these cases only addressed the
application of TIA Section 316(b) in the context of a debt restructuring,
opinion givers should be able to rely on this historically understood
meaning of TIA Section 316(b) outside the context of a debt restructuring.
• Whether a transaction or series of transactions constitutes a “debt
restructuring” is a factual matter and may be difficult to discern. The
cases provide little in the way of guidance; however, they do suggest that
a “debt restructuring” is only implicated if the issuer is experiencing
sufficient financial distress that, absent debt modifications, it will likely be
unable to pay its debts when due or will be likely to file for protection under
the bankruptcy code (or any similar regime). Particular attention should be
given to transactions that include releases of material guarantors of the
subject notes, releases of all or substantially all of the collateral securing
the subject notes or a transfer of all or substantially all of the assets of the
issuer and its subsidiaries to entities that will not provide ongoing credit
support for the subject notes.
• The term “Related Transactions” means (1) where one or more indenture
amendments are involved, the proposed indenture amendments and all
related transactions, including the contemplated transactions facilitated by
the proposed indenture amendments, and (2) where no indenture
amendment is involved, the relevant transaction or series of related
transactions.
• Whether an issuer will likely be able to make all future payments of
principal and interest to non-consenting noteholders when due after giving
effect to any particular Related Transactions is a factual matter that will
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depend on the issuer’s particular circumstances. As with other factual
matters, opinion givers “may rely on information provided by an
appropriate source . . . unless reliance is unreasonable under the
circumstances in which the opinion is rendered or the information is known
to the opinion preparers to be false (together, “unreliable information”). . . .
If the opinion preparers identify information as “unreliable,” they must find
other information to establish the facts. Alternatively, they may include an
express assumption regarding those facts in order to give the opinion.”3
Opinion givers may, in some cases, conclude that reliance on a customary
solvency certificate from a responsible officer of the issuer to the effect
that the issuer will be solvent after giving effect to the Related
Transactions is sufficient to establish that the issuer will likely be able to
make all future payments of principal and interest to non-consenting
noteholders when due. In other cases, opinion givers may conclude that
reliance on a third-party solvency opinion is more appropriate. The
opinion givers are not responsible for independently assessing the
accuracy of or analysis underlying the conclusions set forth in such a
solvency certificate or third-party solvency opinion.
• If the opinion givers both (a) have reason to believe that the Related
Transactions, taken together, constitute a debt restructuring, and (b) have
not received evidence satisfactory to them that the issuer will likely be able
to make all future payments of principal and interest to non-consenting
noteholders when due after giving effect to the Related Transactions, the
opinion givers may determine that an unqualified opinion to the trustee or
other transaction participants in connection with the Related Transactions
is inappropriate or that their opinion should include a discussion of, or
reference to, the recent cases.
• However, even in situations where the opinion givers have
reason to believe that the Related Transactions, taken together,
constitute a debt restructuring and have not received evidence
satisfactory to them that the issuer will likely be able to make all
future payments of principal and interest to non-consenting
noteholders when due after giving effect to the Related
Transactions, if the opinion givers have received evidence
satisfactory to them that the issuer’s ability to make all future
payments of principal and interest to non-consenting noteholders
when due is not harmed by, or is improved by, the consummation
of the Related Transactions, the opinion givers may conclude that
there is no impairment within the meaning of TIA Section 316(b)
and that they can therefore deliver an unqualified opinion to the
3
TriBar Opinion Committee, Third-Party “Closing” Opinions: A Report of the Tribar
Opinion Committee, 53 Bus. Law. 591, 610 (1998).
4
trustee or other transaction participants in respect of the
proposed Related Transactions (with or without a discussion of,
or reference to, the recent cases).
3. As a matter of customary opinion practice, legal opinions speak as of the date on
which they are delivered. We do not believe the decision in Caesars II, in which
the court stated that compliance with TIA Section 316(b) can only be determined
as of the date on which payment is required, will or should alter customary
opinion practice. The determination whether a transaction or series of
transactions constitutes a debt restructuring that impairs the issuer’s ability to
make all future payments of principal and interest to non-consenting noteholders
when due must, of necessity, be based solely on the facts in existence on the
date of the opinion. Accordingly, the opinion in Caesars II should not prevent
opinion givers from providing, or opinion recipients from accepting, opinions that,
per customary practice, speak only as of their date.
C. LEGAL OPINIONS TO INDENTURE TRUSTEES
Set forth below is a non-exclusive list of situations in which the general principles
stated above should permit law firms to render legal opinions to trustees in
respect of indenture amendments. All of the following situations assume that
either (a) the opinion givers have reason to believe that the Related Transactions,
taken together, do not constitute a debt restructuring or (b) if the opinion givers
have reason to believe that the Related Transactions, taken together do
constitute a debt restructuring, the opinion givers have received evidence
satisfactory to them that the issuer will likely be able to make all future payments
of principal and interest to non-consenting noteholders when due after giving
effect to the Related Transactions.
1. Absent unusual circumstances, a law firm should be able to render an unqualified
opinion to a trustee in respect of an amendment to an indenture that releases
guarantees or collateral when such amendment is allowed by the terms of the
indenture with less than a unanimous vote of noteholders.
2. Absent unusual circumstances, a law firm should be able to render an unqualified
opinion to a trustee in respect of a waiver of a change of control offer or an
amendment to the definition of “Change of Control” when such waiver or
amendment is allowed by the terms of the indenture with less than a unanimous
vote of noteholders.
3. Absent unusual circumstances, a law firm should be able to render an unqualified
opinion to a trustee in respect of an exit consent for a customary covenant strip
or other indenture amendments to non-core terms in connection with a
refinancing of outstanding notes implemented by way of a cash tender offer or
exchange offer.
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• The analysis does not change whether the transaction is financed with
cash on hand or the proceeds of, or through the issuance of, new equity or
new debt (whether such new debt is pari passu with or structurally,
contractually or effectively senior to the refinanced debt or matures prior to
the stated maturity of the refinanced debt).
4. Absent unusual circumstances, a law firm should be able to render an unqualified
opinion to a trustee in respect of one or more amendments to non-core terms of
an indenture to facilitate, or in connection with, a leveraged buyout even where
that transaction results in an increase in the amount of the issuer’s total
indebtedness, or in the amount of the issuer’s indebtedness that is structurally,
contractually or effectively senior to, or that matures prior to the stated maturity
of, the notes issued under the indenture.
5. Absent unusual circumstances, a law firm should be able to render an unqualified
opinion to a trustee in respect of an indenture amendment to permit an internal
reorganization involving asset transfers among the issuer and its subsidiaries.
D. CLOSING OPINIONS
The following additional general principles should be used to determine the
appropriateness of customary closing opinions.
1. Absent unusual circumstances, a customary opinion provided to a financing
source or underwriter/initial purchaser upon the closing of a new money
financing, to a dealer manager in connection with an exchange offer (each, a
“Financial Intermediary”), or to a trustee under the indenture for newly issued
notes, should still be appropriate notwithstanding the recent TIA Section 316(b)
cases. For example:
• Routine opinions with respect to the enforceability of an indenture that is
qualified under the TIA (and thus incorporates TIA Section 316(b)) or
contains a contractual provision substantially similar to TIA Section 316(b).
These opinions only address whether the agreement is enforceable in
accordance with its terms, not how it will be enforced.
• Routine “no conflicts” opinions that a new money financing, debt exchange
or other transaction does not violate an existing indenture, or that a new
indenture does not violate another financing agreement. These opinions
are given on the basis of the facts as they exist on the date of the opinion
and should not be impacted by a future contingency such as a
hypothetical future amendment or transaction.
2. However, in circumstances where the opinion givers both (a) have reason to
believe that the Related Transactions, taken together, constitute a debt
restructuring and (b) have not received evidence satisfactory to them that the
issuer will likely be able to make all future payments of principal and interest to
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non-consenting noteholders when due after giving effect to the Related
Transactions, opinion givers delivering “no conflicts” and/or enforceability
opinions to Financial Intermediaries may determine that an unqualified opinion is
inappropriate or may wish to consider including a discussion of, or reference to,
the recent cases.
_______________________________________
Baker Botts LLP
Cleary Gottlieb Steen & Hamilton LLP
Chadbourne & Parke LLP
Covington & Burling LLP
Cravath, Swaine & Moore LLP
Davis Polk & Wardwell LLP
Debevoise & Plimpton LLP
Dechert LLP
Fried, Frank, Harris, Shriver & Jacobson LLP
Goodwin Procter LLP
King & Spalding LLP
Kirkland & Ellis LLP
Latham & Watkins LLP
Mayer Brown LLP
Morgan, Lewis & Bockius LLP
Morrison & Foerster LLP
O’Melveny & Myers LLP
Paul Hastings LLP
Pepper Hamilton LLP
Proskauer Rose LLP
Ropes & Gray LLP
Sidley Austin LLP
Simpson Thacher & Bartlett LLP
Shearman & Sterling LLP
Skadden, Arps, Slate, Meagher & Flom LLP
Sullivan & Cromwell LLP
Vinson & Elkins LLP
Weil, Gotshal & Manges LLP

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