Jim Millar has written “Does Allowing Postpetition Interest on an Unpaid Make-Whole Amount Result in an Impermissible Double Recovery?” published in the New York Law Journal.
In a pending bankruptcy appeal in Ultra Petroleum, the Fifth Circuit will consider whether noteholders of a solvent debtor may recover a make-whole amount plus postpetition default interest until payment in full. That issue has arisen because of two bankruptcy court decisions that linked — incorrectly, in some people’s view — the right to receive a make-whole with the acceleration-upon-default provision.
The bottom line is that the Fifth Circuit will likely have to resolve whether a claim for a make-whole amount calculated as of the acceleration date plus a claim for contractual default interest from acceleration until payment does — or does not — violate New York law for unenforceable penalties. That ruling will have sweeping effect given that, as a circuit-level pronouncement of New York law, it will have application beyond bankruptcy. If it is upheld, make-wholes plus additional contractual default interest may well become the damage formula for any and all defaults by the borrower. This all arises because of a couple questionable decisions from bankruptcy courts trying to prevent noteholders from recovering make-wholes in bankruptcy cases.