In a much awaited ruling from In re Energy Future Holdings Corp., 2016 No. 16-1351 (3d Cir. 2016), the U.S. Court of Appeals for the Third Circuit overturned decisions of both the Delaware District and Bankruptcy Courts in addressing whether refinancing debts through bankruptcy obligates payment of certain “make-whole” premiums. In ruling that such premiums were due, the court of appeals created precedent that will likely resonate in pending bankruptcy cases, future loan agreements and the minds of attorneys drafting these contracts.
Facts
In 2010, Energy Future Intermediate Holding Co. and EFIH Finance Inc. (collectively, EFIH) borrowed approximately $4 billion at a 10 percent interest rate through notes secured by a first-priority lien on their assets. The indenture governing this loan contained an “optional redemption” clause allowing for EFIH to redeem all or part of the notes before their maturity at a redemption price equal to 100 percent of the outstanding principal balance plus an “applicable premium.” The applicable premium under the indenture was a make-whole payment, designed to protect the lenders’ anticipated interest rate yield. This applicable premium was to be paid in full if redemption occurred before Dec. 1, 2015, and it decreased each year on a sliding scale until Nov. 30, 2018. The notes also contained an acceleration clause, making them “due and payable immediately” upon EFIH’s filing for bankruptcy.
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