Evolution in both market practice and legal jurisprudence has added complexity to calculating and asserting bondholder claims against issuers in bankruptcy. Pursuing a bondholder claim for principal and interest against a bankrupt issuer may seem simple, but complications can arise in identifying what “principal” is owing, what “interest” is a valid part of the claim, and what other amounts may be included in the claim. In part, the complexity may be a function of nomenclature and definition—for example, “make-whole premiums,” “call protection,” and “acceleration indemnification” are terms that, at least on the margins, may lack clear meaning and may overlap.
The complexity may also be driven by the difficulty in reconciling bankruptcy law and policy with the terms of financial instruments. For example, the bankruptcy claims process may require an understanding of the relationship between the financial term “original issue discount” and the bankruptcy law term “unmatured interest.” Finally, the complexity may be promoted by a competitive marketplace in which investors seek to maximize the value of their financial instruments. This article identifies several possible components of bondholder claims, beyond basic principal and interest, and summarizes issues regarding the inclusion of those components in claims asserted in issuer bankruptcies.
Post-Petition Interest
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