Delaware Bankruptcy Court Continues Trend Narrowly Construing Make-Whole Premiums

On October 28, 2015, Judge Christopher Sontchi of the U.S. Bankruptcy Court for the District of Delaware issued an opinion denying the make-whole claims of the EFIH Second Lien Trustee in the Energy Future Holdings bankruptcy case. The opinion is the second such opinion in the EFH bankruptcy, with Judge Sontchi having previously denied the First Lien Trustee’s make-whole claims in April. The rejection of the Second Lien Trustee’s argument for a make-whole is significant in that Judge Sontchi explicitly adopted the holding of Judge Drain in the S.D.N.Y Momentive case with respect to “premium, if any” language contained in the indenture.

The Opinion builds on a growing body of bankruptcy opinions denying make-whole payments absent explicit and unambiguous language providing for the payment of a make-whole after a bankruptcy filing. The Delaware Court’s adoption of Judge Drain’s Momentive holding regarding “premium, if any” language provides consistency across the New York and Delaware bankruptcy courts regarding payment of make-whole premiums. To avoid disallowance of make-whole premiums in bankruptcy, lenders should ensure that the negotiated indenture includes language specifically addressing treatment of the make-whole premium after a bankruptcy filing.