On September 15, 2013, Judge Martin Glenn of the United States Bankruptcy Court for the Southern District of New York issued an opinion in the Residential Capital (“ResCap”) bankruptcy that will provide greater certainty to creditors of distressed entities that agree to fair value debt-for-debt exchanges. In addition to other issues he addressed, Judge Glenn found that original issue discount (“OID”) created in a fair value debt-for-debt exchange for tax purposes will not be disallowed as unmatured interest for bankruptcy purposes. Judge Glenn’s findings on the treatment of exchange-related debt fill in a gap in the case law left by the Second Circuit’s Chateaugay decision, and may positively impact the market for distressed debt as well as the ability of distressed borrowers to refinance their debt going forward.

If you have any questions regarding the matters covered in this publication, please reach out to any of the lawyers listed below or your usual Davis Polk contact.

This communication, which we believe may be of interest to our clients and friends of the firm, is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. This may be considered attorney advertising in some jurisdictions. Please refer to the firm's privacy notice for further details.

Related materials

Read the full update
Copy link to share post