Cramdown of Subordination Rights After In re Tribune: The Interplay Between 11 U.S.C. 510(a) and 1129(b)(1)

Tribune reminded debtors and creditors alike that Bankruptcy Code Section 1129 does not require strict compliance with a debt subordination agreement between similarly situated creditors if the plan does not "discriminate unfairly" against the senior creditor.

The test for determining whether a plan "unfairly" discriminates is not mechanical. Counsel must evaluate what creditors are entitled to receive under different circumstances, yet what factors to compare is a question of court discretion under the facts of the case. Bankruptcy counsel must know what the court will consider, the burden of proof, and the standard of review on appeal. If the creditors are entitled to different priorities, an entirely different standard applies.

The ability to deviate from the strict enforcement of a subordination agreement will give debtors some leverage in pre-bankruptcy negotiations. But senior lenders may have non-bankruptcy remedies against the subordinated creditors that eclipse any benefit of cramming down the plan.

Listen as this experienced panel of bankruptcy counsel discusses the rationale of Tribune, the critical facts that may make it distinguishable from future cases, and how Sections 510(a) and 1129(b)(1) may change the way some Chapter 11 plans are negotiated and confirmed.