Reinstatement of Secured Debt in Chapter 11 Reorganizations after Charter Communications and Young Broadcasting

Dislocations and other trends in the global credit markets have made reinstatement of pre-bankruptcy debt an increasingly attractive proposition for borrowers looking to take advantage of loans extended at interest rates, principal amounts, and on “covenant-lite” terms which quickly vanished in the financial downturn. Rather than looking to secure financing at the current market rates and on the economic and legal terms presently available, borrowers may consider restructuring so as to capture the value of these “legacy loans” by means of reinstatement. From a lender perspective, the prospect of being compelled to reinstate below-market loans in a vastly altered marketplace to a borrower whose circumstances may very well have changed significantly constitutes a significantly disadvantageous event. This article seeks to unpack the relevant statutory framework and case law as they pertain to reinstatement by delving into the interrelated issues of impairment, cure, historical and prospective default, acceleration, change of control, and cramup. It further surveys lessons provided in the recent decisions of Charter Communications and Young Broadcasting in an attempt to highlight outstanding unsettled questions of law which remain in the area of reinstatement.