Freescale: novel bond restructuring litigation

Author: | Published: 1 May 2009

Senior bondholders are challenging Freescale's debt restructuring, making an unprecedented challenge to the material adverse effect (MAE) clause in the creditor agreement. Unfortunately, the creditor agreement is covenant-lite.

In a case brought in New York State Supreme Court, ING claimed US company Freescale violated an MAE clause in its creditor agreement by restructuring loans with lower-level bondholders.

"I haven't seen this type of argument before," said Alan Goudiss of Sherman & Sterling. "And neither has anyone else."

The restructuring allowed $5 billion of junior notes to rise to ING's senior...