SDNY Decision Holds that the Termination of Parent Guarantee Violates Section 316(b) of the Trust Indenture Act
On June 23, 2015, the District Court (the “Court”) for the Southern District of New York (the “SDNY”) held that an out-of-court restructuring that involved the elimination of a parent guarantee and a significant asset transfer was impermissible under Section 316(b) of the Trust Indenture Act of 1939, as amended (“TIA”). The Court held that the elimination of the guarantee and asset transfer impaired the nonconsenting noteholders’ right to receive payment, which was protected by the TIA. This decision, Marblegate Asset Management et al. v. Education Management Corp. et al., No. 14 Civ. 8584, 2015 WL 3867643 (S.D.N.Y. June 23, 2015) (“Marblegate II”) follows an earlier decision of the Court, Marblegate Asset Management et al. v. Education Management Corp., et al., -- F. Supp. 3d --, No. 14 Civ. 8584, 2014 WL 7399041 (S.D.N.Y. Dec. 30, 2014) (“Marblegate I”), in which the Court denied a request for a preliminary injunction to prevent consummation of the contemplated out-of-court restructuring.