American court hearing recordings and interviews - Intrum chapter 11 bankruptcy ruling, read by the bankruptcy judge on the record 12-31-2024, appealed by creditors via notice of appeal filed 1-13-2025

Episode Date: January 15, 2025

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Okay, good morning, everyone. This is Judge Lopez. Today is December 31st. I'm going to call case number 24-90575, which is interim AB and interim AB of Texas here in connection with an oral ruling on joint motion to dismiss and the plan confirmation. Before I begin, Mr. LeBlanc, I just want to make sure, if you can just raise your hand, if you can hear me, just want to make sure that you can. Okay. And I guess before we get started, you can also give me a hand in the air if things are still where they are and require me to rule. Okay. All right, here we go. I want to, before I begin, I want to thank all the attorneys and everyone who participated in the hearings that we had recently in December. I really thought a lot about the issues that are before the court in connection with the motion to dismiss and in connection with plain confirmation.

And I kind of took a couple of extra days to really think about the issues and go through the evidence. It's a big issue for many people, obviously, and I wanted to make sure that I was able to at least articulate my thoughts, hopefully in a way that people will understand. And so here's the court's ruling. I'm just going to start reading. Interim AB and Interim AB of Texas LLC started these Chapter 11 cases seeking confirmation of a prepackaged plan of reorganization. The plan is supported by a significant number of secured and unsecured lenders. And there's strong opposition from an ad hoc group of 2025 note holders.

This ad hoc group moved to dismiss the case for lack of good faith under Section 11, via the Bankruptcy Code. They also object to plan confirmation on several grounds. The Office of the United States trustee objected to plan confirmation based on the opt-out for consensual third-party releases under the plan. They also request that a minimum language in a confirmation order assuring parties who opted out of the consensual releases, yet they're not bound by them. The U.S. trustee also objected to exculpations, but had a hearing in mid-December. the debtors in the U.S.T informed the court that they had agreed to resolve that objection. The court considered the motion to dismiss in plan confirmation and evidentiary hearings that took place

on December 17th and the 19th. Many exhibits, including declarations, were admitted in the record. The court heard live testimony from the debtor's CEO, the chair of the board of interim A.V. and an expert witness on Swedish insolvency law. The court took both matters under advisement and today provides its rulings. Note that the court has jurisdiction under 28 U.S.C. 1334B. A motion to dismiss hand-plan confirmation issues are court proceedings under 28 U.S.C. 157B.

So the court has constitutional authority to enter final orders and judgments, accordance with Supreme Court's holding in Stern v. Marshall, 564 U.S. 462, 2011 case, then U.S. proper in this district under 28 U.S.C. 1408 and 1409. I'll start with some background and then turn to the rulings. Intram A.B., who I'll refer to as interim is one of Europe's largest debt collection companies. Intram is a Swedish company that operates.

in 22 countries, and in addition to debt collection services, provides credit management services to clients, interim, together with its debtor and non-debtor subsidiaries, employees about 10,000 people. Intram's capital structure included a revolving credit facility, term loan facility, and nine unsecured note issuances. The notes are made up of senior unsecured notes, medium-term notes, and private placement notes. The revolver matures in 2026. The senior unsecured notes mature in 2020-25, 2027, and 28. These notes are governed by New York law. The medium-turned notes mature in 25 and in 26, and they're governed by

Swedish law. The private placement notes mature in 2025, and they're also governed by New York law. Before the start of these Chapter 11 cases, interim began experiencing financial challenges. It was facing high inflation rates, high interest rates, slow growth, and a high cost of borrowing. To increase liquidity, interim publicly announced in January, 2024, that it would sell a major portfolio of assets and use those proceeds to reduce debt. Markets reacted negatively, and interim share price dropped significantly. credit agencies downgraded interim and its affiliates and interim's outstanding debt instruments began trading at a discount. According to interim CEO, Mr. Rubio, who testified in court some series of debt was trading as low as into the 50s. Following the market reaction,

Rubio testified interim believe it needed to restructure its debt to meet all of its long-term obligations. With cash on hand, it could likely satisfy an early 2025 maturity. The debt held by the objecting ad hoc group here, but without significant market access, it was not going to meet maturity in 2026 and after. The company wanted to amend and extend its debt, but its debt rate its single C and its debt trading at meaningful discounts and equity having come down significantly, Rubio said the company effectively had no market access. The company hired restructuring professionals to engage,

its lenders. Two groups formed. The first group was the ad hoc group who holds 2025 debt. A second group who now supports the plan before the court holds some of the 2025 and most of all of the 26, 7, 27, and 28 debt. The 2025 ad hoc group's proposal was for interim to take its outstanding unsecured debt and 100 cents on the dollar, agree to an up-tier transaction, you have them security interests, and extend maturities on better terms. An up tier is a transaction where borrowers access new capital by amending their existing debt documents to permit what is often senior or super priority debt. This proposal presumes that after the up tier, the remaining unsecured debt would trade further down. An interim could then get financing from the ad hoc group, third parties, or later

repurchase its long-term debt at a discount. count, this court and this district have expensive experience with up tears and the potential litigation that comes along with them, especially those that aren't done on a pro rata basis. The second group offered what is essentially the plan before the court, taking all the unsecure creditors, the 25, 26, 27, 28 notes, putting them in a single class in the plan, exchanging the debt for notes that mature in 27, 28, 29, and 30, essentially pushing out two years at a 10% discount. In return, interim would issue 10% of its equity to the note holders,

along with improved interest rates, tighter covenants, and clearer enforcement. The proposal would also provide interim new money to go into the market and repurchase any notes trading out a discount to further enhance de-leveraging. Rubio and Interim's board chair, Mr. Lindquist, said interim eventually chose the second option. Rubio testified it provided near-term de-leveraging and right-sized the company's overall projected debt maturity problem. Interim eventually entered into a lock-up agreement with note holders from the proposed group Intram accepted. Intram amended the lock-up agreement in August of 2024 after reaching agreement with a group of lenders holding the majority of the revolver debt.

In October of 2024, interim AB of Texas LLC, a wholly owned subsidiary of interim was created under Texas law. The lockup agreement established the debtors' restructuring. The lockup agreement in the debtor's Chapter 11 plan proposes to extend the revolver maturity date to 2028, reducing the revolver to about $1.16 billion reinstate's repayment of the senior secured loan exchanges, all existing unsecured notes into second lien exchange notes at a 10% discount to face value with new maturity dates proportionally from 27 to 2030, over 550 million in new money coming in as a 1.5 lien

for discounted buybacks, payment in full of all general unsecured claims, and two classes were entitled to vote on the plan. The revolver claims and the note claims. The plan treatment for all notes is the same under the plan. Many difference in the payment on the ultimate claims amount is based on the terms of a particular debt instrument. The plan also contemplates that following confirmation of the plan, the debtors would start a proceeding in January that will allow for implementation of the plan about interim in Sweden through a Swedish company reorganization under the Swedish Company Reorganization Act. Swedish court would determine its own date for interim and the affected parties and any voting on a Swedish reorganization plan.

In October of 2024, interim announced that in November 2024 there would be a meeting. It would amend the terms of the notes and add interim Texas as a guarant tour for the relevant notes. It was also announced that interim would seek to start a Chapter 11 bankruptcy case in Texas. This meeting occurred in November, and before the cases started, interim Texas was added as a guarantor. The pre-petitioned solicitation of votes on the Chapter 11 plan yielded great support. Lenders holding 100% by amount of voting claims under the revolver and holders of about 82% by amount of voting claims under the notes voted to accept the plan. So the plan enjoys the overwhelming support of every voting class. in addition to the secured term lenders and its largest unsecured creditor.

Around this time, the ad hoc 2025 note holder group whose proposal was not accepted by interim started litigation in Sweden, seeking a declaratory judgment that amendments adding interim Texas as a guarantor were invalid. November 2024, the debtors started these Chapter 11 cases. As of the petition date, Intram, Texas is a guarantor under the revolver of the senior debt and the senior unsecured notes. As of the petition date, the principal balance is owed by Intram under debt instruments were a little over a billion under the revolver, 95 million under the senior secured term loan, about 3.45 billion under the unsecured notes. That brings interim's total indebtedness up to about $4.6 billion. And $3.3 billion of that debt was scheduled to mature in 2025 and 2016.

The court held combined hearings about the adequacy of the disclosure statement, plan confirmation, and the motion to dismiss on December 17th and December 19th. I'm going to start with the motion to dismiss. The ad hoc group seeks dismissal. for three primary reasons. First, it argues the debtors are not suffering apparent financial distress, let an own immediate financial distress that would support the finding of good faith. The ad hoc groups focus on the financial distress requirement primarily comes from the 23 Third Circuit decision in LTO management, 64F4-84 Third Circuit 2023 case. In that case, the Third Circuit held that a debtor who

does not suffer from a parent immediate financial distress, cannot demonstrate its Chapter 11 petition serves a valid bankruptcy purpose supporting good faith. The ad hoc group relies also on a series of insolvency reports interim had prepared to comply with Swedish law. These reports show that interim could pay debts. You've finally broken loose from work. Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly. how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call, because real protection means showing up, even when things are in the rough.

Cincinnati Insurance, let us make your bad day better. Find an agent at CINFIN.com. For the next 18 months, which means that the ad hoc 2025 notes could be paid in full, the ANHRUP also relies on interim public statements to the market that its proposed Chapter 11 case was not associated with insolvency or liquidation, and that in October 24, interim was saying that it was not currently experiencing any liquidity constraints or breach in any financial covenants under its current debt obligations. Second, the ad hoc group emphasizes that interim A.B. It's domiciled in Sweden and has no operations, hard assets, or employees in the United States, and that it created interim Texas before the filing for the purposes of depositing funds in a U.S. bank

to, quote-unquote, manufacture U.S. venue and jurisdiction. That interim Texas itself has no hard assets, employees, or operations to reorganize. The Adha Group believes this alone proves these Chapter 11 cases further no valid bankruptcy purpose and should be dismissed. Third, international comedy considerations may warrant favor of dismissal according to the 2025 Adhawk Group. For this argument, the Adhout Group focuses on cases like In re-Ucos Oil Co, 321 BR-396, a bankruptcy Southern District of Texas, 2005 case. which was actually decided in this very courtroom, where a bankruptcy judge in this district considered concepts of international comedy

and determining that cause existed for dismissal under Section 1112. The Adha Group also claims that interim's plan could not be confirmed under Swedish law and that a condition preceding to the plan going effective as a Swedish court approving the Swedish reorganization plan on a final basis.

The Adha Group believes that this court is being asked to provide an advisory opinion on a restructuring that must be approved in Sweden, which has no international agreement to honor any order of this court. The debtors and its... The debtors vigorously disagree, and the supporting lender groups voted in favor of the plan also disagree that this case should be dismissed and believe these cases were filed in good faith. Interpreting the bankruptcy code,

interpreting the bankruptcy code begins with analyzing the text. Whitlock v. Low, 945, F3, 943, Pinsight 947, Fifth Circuit, 2019, in which it said in manners of statutory interpretation, text is always the alpha. Bedrock, LTD, LLC versus United States, 541, U.S. S-176, Pinsight 183, 2004, quote, the preeminent canon of statutory interpretation requires the court to presume that the legislature says in a statute what it means and means in a statute what it says there. Section 1112B requires a bankruptcy court to convert a Chapter 11 case to one under Chapter 7 or to dismiss the case, whichever is in the best interest of creditors and the estate for cause,

unless the court determines that appointment of a trustee or an examiner under 1104A is in the best interest of creditors and the estate. The bankruptcy code provides a non-exclusive list of about 16 examples that constitute cause in 1112B4. Section 102 of the bankruptcy court confirms, however, that the word includes in 1112B4 is not to be construed as limiting. While the examples of cause are in the 1112B are non-exclusive, we do learn something from them. They all refer to post-petition acts, failures to act, or events that occur after an estate is created by the filing of a bankruptcy petition. Here are a few examples. Substantial loss to or diminution of the estate, gross mismanagement of the estate, value to maintain insurance that poses a risk to the estate, unauthorized use of cash collateral,

failure to comply with an order of the court, unexcused failure to timely pay, or timely, excuse me, unexcused failure to satisfy timely any filing or reporting requirement established by Title 11 or any bankruptcy rule, failure to attend the 341 meeting of creditors, failure to pay taxes owed after the petition date,

pre-petition bad acts, bad actors, or poor managers, are expressly addressed in a different part of Section 1112, where the court can order the appointment of a trustee with oversight over the estate, convert the case, or appoint an examiner to investigate pre-petition acts that may have harmed the estate. All of this makes sense when considered as a whole, because the court can only dismiss a case for cause if it's in the best interest of the estate and creditors.

Fitz Circuit also provides guidance. Little Creek, 779 F. 2nd, 1068, 1072, Pinsight, 1073 of Fifth Circuit, 1986 case, provides guidance. That decision says the term cause affords flexibility to bankruptcy courts to find that the debtor's filing for relief was not in good faith. This point was also reiterated in In re Humble Place Joint Venture, 936, F. 2nd, 814, Fitz Circuit, 1991 case. Little Creek also instructs that considering the good faith of a filing requires a quote, on-the-spot evaluation of the debtor's financial condition, motives, and the local financial realities. Little Creek was a single asset real estate, so all the specific factors listed in that case don't exactly fit every fact pattern. I mean, I don't think one should focus too much on Little Creek as a single asset real estate case.

Fifth Circuit's guidance was to conduct it on-the-spot evaluation. Heeding that guidance, a court should rule based upon all the circumstances before it and determine whether a debtor filed to pursue a valid bankruptcy purpose. I use bankruptcy purpose and not reorganization purpose intentionally because not every Chapter 11 debtor rehabilitates. Many liquidate. Chapter 11 expressly permits a debtor to file a liquidating plan. The Fifth Circuit and Little Creek noted that every bankruptcy statute since 1898 has incorporated, or by judicial interpretation, a standard of good faith for the commencement prosecution and confirmation of bankruptcy proceedings.

And historically, that's true. For example, before the enactment of the bankruptcy code, Section 141 of the Bankruptcy Act, required a judge to enter an order approving a petition if the judge was satisfied, the case was filed. in good faith, or to dismiss the case, if not so satisfied. Thus, early approval by a judge was needed to even administer in a state. A judge didn't even have to hold a hearing. Section 146 of the Act provided a non-limiting list of examples of what were deemed not-good faith filings. For example, that it was unreasonable to expect that a plan of reorganization could be

affected was deemed a not good faith filing. Section 1112 of the bankruptcy code changed the timing in how the challenge to a lack of good faith filing can be raised. It's no longer an initial judicial assessment in order to administer the estate. A chapter 11 petition filing is all Congress says it takes to create and enjoy the protection of the automatic stay. And because an estate has created, the bankruptcy code says a judge can only dismiss for cause upon consideration of the estate and creditors. There are steps and findings required before dismissal. Bankruptcy judges, however, continue to play an important role. Bankruptcy courts retained authority to dismiss cases under Section 1112. Does the fact that Section 1112B4's examples of cause are all

post-petition mean that a court should not consider pre-petition acts in a cause analysis at all? Of course not. The opposite is true. The Fifth Circuit recognized that the good faith standards prevent abuse by debtors, quote, whose overriding motive is to delay creditors without benefiting them in any way or to achieve reprehensible purposes, end quote, and determine that a lack of good faith constitutes cause under Section 1112B. That's the Pinsides around 1071.

Little Creek also says a good faith standard protects the jurisdictional integrity of the bankruptcy courts by rendering their powerful equitable weapons available only to those debtors and creditors with, quote, clean hands. So many analysis of good faith requires an on-the-spot analysis to consider the reasons for filing and the actions taken in the case. for example, a company that files a Chapter 11 only to avoid paying creditors and there's no prospects of proposing a viable Chapter 11 plan is a prime candidate for potential dismissal. Pre-petition acts must be considered along with post-petition acts. Again, the focus is on the interest of the estate and creditors, and an on-the-spotting analysis also allows an potentially unpopular debtor in the marketplace who, for example, may have had to close many of its locations, a chance to prove its motives a right to right size of business or maximize value for its creditors. I should also note that the U.S. Supreme Court has said that, quote, preserving going concerns and maximizing property available to satisfy creditors are valid bankruptcy purposes.

That's the famous 203-Northa-Lassal decision 526 U.S. 434, Pinsight 453 in 1999 case. I agree with other courts that a good faith debtor who tries to preserve or create some value using the tools of bankruptcy is a good faith debtor. And it's not bad faith to use the tools of bankruptcy afforded by Congress in bankruptcy. The ad hoc group wants the court to dismiss the case because there's no financial distress. In an LTL, the Third Circuit dismissed the first Chapter 11 case of LTL management LLC. The Third Circuit relying on prior Third Circuit cases said the theme is clear, absent financial distress, there's no reason for Chapter 11 and no valid bankruptcy purpose. As stated earlier, the Adhaw Group relies on the solvency analysis interim had prepared to show that it could pay its stats for 18 months, and that means it could have paid off the 2025 notes in full and theoretically remained solvent. The ad hoc group also points to contemporaneous statements made by interim that it was insolvent.

These facts, while all true, don't justify dismissing these cases. A few points here. First is that insolvency is not a requirement to be a debtor under the bankruptcy code. LTL in many cases around the country note that. But here's some additional textual and historical analysis to confirm it. Before the enactment of the bankruptcy code, an essential part of what was every Chapter X or Chapter 10 petition, which was the reorganization for corporate entities. There was a Chapter 11 as well,

but I'm going to focus on Chapter 10 here, was that the corporation was, quote, insolvent or unable to pay its debts as they mature. Section 130 of the Act required every chapter expedition to state that. Corporation was insolvent or unable to pay its debts as they mature. Section 1, subsection 19 of the Act,

defined insolvency. A person was deemed insolvent within the provisions of the title whenever the aggregate of property shall not at a fair valuation be sufficient in an amount to pay debts. The insolvency or unable to pay debts in the ordinary course requirement was not included in the enactment of the Bankruptcy Code. The current bankruptcy petition asks no such questions anymore. There's no language requiring insolvency in Section 109 of the Bankruptcy Code. I would also note that even the most recent edition of Subchapter 5 didn't require insolvency. It instead requires senators to be engaged in commercial or business activities. Second, the Express Financial Distress Standard in LTL is not binding on this court,

but I think it could be a factor as part of the Little Creek on-the-spot evaluation. And I do consider the solvency analyses, the company's statements, and that it could have paid the 2025 notes on time. But I also consider the CEO's statements about the financial condition interim was in after the downgrades. The company believed it needed to restructure all of its debt to meet all of its long-term obligations. With cash on hand, it could likely silence by an early 2025 maturity, dead held by the ad hoc group, but that without any significant... You've finally broken loose from work.

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Market access, it was not going to meet all of its maturities in 2026 and after. the company wanted to amend and extend its capital structure, but with single, excuse me, with debt rated single C, debt trading at meaningful discounts, and equity having come down 80%, Rubio said the company effectively had no market access. That's the company's motive in filing was not to harm to 2025 note holders or some other bad faith motive. I also note that a company doesn't need to become insolvent or enter the zone of insolven, by paying off some debt after considering the effect of what that would mean.

Would it be better for a company to wait to the last minute, even ensure more financial problems before engaging with lenders, wait to the last minute and not pay and then file, or wait until debt is accelerated and then file Chapter 11, and then have to worry about contested use of cash collateral or financing for its case? if the runway of financial trouble is clear, and it's not bad faith or cause to dismiss these cases. The CEO's testimony was credible

that while the company may have been solvent, paying the 2025 notes would not have solved its other problems in 2026 and beyond. It was already struggling to gain access to the credit market, and also cannot look that there were billions coming due in 2026. The 2026 maturity was significant. It was over $2 billion. The company had every right to consider its long-term viability and employees. And we're not talking about debt that's coming online in five to 10 years.

We're talking 2026. Financial distress isn't an absolute gatekeeper. Even still, LTL is different than this case. The LTL court found that it's violent. LTL didn't have any lie. likely need in the present or the neat term or even in the long term to exhaust its funding rights to pay claimants. The Third Circuit also said if it would be unwise to attempt a tidy definition of financial distress justifying in all cases. It's not also overlooked that these

cases have massive creditor support. Over two billion of noteholder claims voted to accept the plan coupled with the RCF claims. that's over 3.5 billion voting to accept. That's not even getting to the court to consider the likelihood of a plan being confirmed before dismissal if it's in the best interest of the estate and creditors. Remember, the focus of Section 1112 is on the estate and creditors. In these cases, I do find there was current financial distress in the market and further distress, and it was foreseeable on the horizon.

The company faced choosing an up tier and potentially upsetting most debt holders or seeker restructuring that amends and extends all its maturities by several years, which I find is another important point. They didn't try to stretch anyone out 10 to 15 years unnecessarily, for example. The debtors have also acted in good faith in their requirements as Chapter 11 debtors during these cases and have not sought delay in these cases. The debtors have not acted throughout these cases with any improper motives based upon the record before me as it relates to the company trying to reorganize in Chapter 11 or to restructure for bad faith reasons. There were valid bankruptcy purposes in filing these cases. The next argument is that interim should not be a U.S. Chapter 11 debtor. The out-out group points to these facts. Intram may be as a Swedish company with no hard assets or including.

employees in the United States. Intram Texas was formed shortly before the case was filed as a limited liability company. Intram Texas guaranteed the interim debt before the filing. Intram Texas had an office that no one had gone to and no employees. Intram Texas deposited a about $50,000 into a Texas account to help bolster jurisdiction. The ad hoc group also argues that no immediate financial distress coupled with little to no U.S. ties makes this case different than other cases where foreign entities have started bankruptcy cases with an intent to file a foreign case later. Again, and I'll start with the text of the code. Section 109A of the Bankruptcy Code says who may be a Chapter 11 debtor. It says a person who resides or has a domicile or place of business or property in the

United States may be a debtor. The term person is defined to include corporate entities like Intram, Texas, which no one contest as a validly formed Texas entity. As a Texas entity, its domicile is Texas. And as a result, they can file anywhere in the state. Bankruptcy courts across the state are in uniformity on this point. So Intram, Texas had the right to see Chapter 11 relief in the United States and in this district. It also owns a bank account with about $50,000. The office is really more like a place to receive mail and serve documents. Interim Texas on the petition date is also a guarantee on billions of debt. Intram A.B. also owns cash in a Texas bank account, has retainers that were not fully expired before

the petition date with Texas Council. And as the subsidiaries have about $1.8 million, $1.8 million. million in accounts receivable that flow to it from subsidiaries in the United States. Some of the debt is also governed by U.S. law, which some courts have said meets their property requirements for 109 purposes. A seat genity on its own satisfies section in 109 for bankruptcy purposes and interim Texas allows them to file in this district. These cases resemble another case recently filed in this district where a Swedish company seeks to reorganize under U.S. law and then start a case under Swedish restructuring law. Outside of this district, these are also similar cases to ones like SAS,

Philippine Airlines, and our capital bank, to name a few. I also stress and disagree with the ad hoc group 2025 note holders, based on the on-the-spot analysis and consideration of the debtors' motives, I do find that there was current financial distress and current need to file. per Chapter 11 bankruptcy, and that there's nothing wrong with reaching agreement with the majority of its lenders. And I do find that the board carefully considered two proposals,

and I see nothing in the record before me that they chose a proposal that satisfied all of its long-term debts and mitigated litigation risk. Now, based on the record before me, bad motive for trying to save a company through restructuring in late 2024 going into 2025 and dealing with looming maturities to try to avoid. And nothing here was intended, based upon the record before me, to defraud or to intentionally design to harm a particular creditor group. This was a good faith filing. If interim had filed alone with no support, no real reason

to be here. I think you look at the case differently, but that's not the case that we have here. It's hard to imagine a prepack case with billions of dollars of secure and unsecured debt saying we support your decision to file and where you will file

and the timing of the filing and agree to provide funding and everyone will be treated equally on account of their claims and general insecure creditors will be paid in full and have that constitute cause as a bad faith filing. Then you in this still

district is not at issue. It is being in the U.S. The debt is filing their Chapter 11 plan, supported by about $3.6 billion of about a little over $4 billion of debt holders, all of which want to be into the United States is a valid bankruptcy purpose for this case. Finally, arguments about comedy are rejected for the reasons I said earlier, based on the spot analysis. interest. In terms can I have to start a Swedish proceeding, and a Swedish court will exercise its judgment on any important matters before it. The ad-out group cited to Ucos. In this case is not like Ucos. U-Cose. U-Cose's main asset was oil and gas that was actually still in Russia. U-Cose, like in the ground. U-Cos had disputes with the Russian Federation, filed a Chapter 11 petition,

asking the bankruptcy court to halt the Russian government's tax collection actions and to obtain loans superior to the Russian government's claims. Ucos also wanted to serve Russian creditors by email and to compel the Russian government to submit to international arbitration. All of that raised obvious questions about a bankruptcy court's jurisdiction to force participation of the Russian government, and there were natural international comedy considerations. But comedy is a consideration, though. One cannot overlook that interim is a Swedish company. Just like the court found in Avianca, I didn't think it's warranted here to have interim, you know, pause these proceedings and have interim start a Swedish proceeding before seeking release here or suspending these cases, especially on the record before this court and the positions taken by the overwhelming creditor support.

I do note it is a condition proceeding of the effective date of this chapter, of a Chapter 11 plan here for the Swedish reorganization plan to be confirmed. It's not uncommon in these kind of cases. A Swedish court will make its own determinations in the future. I have nothing to say about that. The effect of any confirmation order that I would enter is limited to its words and will have the effect of law that it has. So let me turn now to disclosure statement. disclosure statement and plan confirmation issues. No party really disputed the disclosure statement,

but I think, of course, still has an independent duty to determine that the disclosure statement satisfies the applicable requirements of the bankruptcy code. I'm going to note that the disclosure statement and the related exhibits contain sufficient information of the kind necessary to satisfy the disclosure statement requirements. It contains adequate information, as such term is defined in Section 1125 of the code. I'm going to find that the filing of the disclosure statement

satisfied bankruptcy rule 3016 and the injunction release and the exculpation provisions in the plan. And in the disclosure statement, were described in bold font with specific and conspicuous language. In all acts to be enjoined and identity of entities that would be subject to an injunction by this court were in bold font and with conspicuous language, so bankruptcy rule 3016C was satisfying. I know the U.S. tree objects to language in one ballot that could be read to bind someone who opted on the releases. To avoid any such confusion, the confirmation order will need to say that any party who

opted out of the third party releases and the plan is not bound by such releases. The ad hoc group of 2025 note holders objected to plan confirmation. They argue that the plan doesn't comply with 1129A1 and A2 because the plan was not proposed in good faith, provides for the payment of original issued discount disallowed under Section 502B and impairs parties as due process rights by enjoining challenges to the anticipated Swedish restructuring. note that the bankruptcy code does require that the plan be filed in good faith and not by any means forbidden by law the circuit has held that good faith should be evaluated in light of the totality of the circumstances surrounding establishment of the plan mindfulness of the purposes underlying the code and generally

where a plan is proposed with a legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirement is satisfied. That's the famous Village at Camp Bowie, Decision 710 F3, 239, Pinsight 247, 5th Circuit 2013. The Good Faith analysis here is about filing the plan, which is different than the 1112B, good faith analysis, but you can see that the considerations, kind of the on-the-spot evaluation, looking at all the circumstances that surround either the filing of the case under 1112B and the consideration of how the plan was filed, the considerations that went into filing, the Fifth Circuit is consistent in how it considers analyses for good faith,

and gives bankruptcy courts and instructs bankruptcy courts to kind of consider everything in light of in a case. the plan addressed in terms financial issues, which were significant. Let's be honest about it. The debtors had about $4.6 billion of funded debt obligations as of the petition date. Again, over $3 billion was set to mature over the course of 2025 and 2026. The plan maximizes the value for all stakeholders through the de-leveraging of the balance sheet and a reorganization of their capital structure, allows debtors' pay their debts when they become due and is a step towards renewed access to the capital

markets. And again, all note holders are being treated under the plan on a pari-passu basis. So based upon the entire record before the court, there's little doubt that this plan was proposed in good faith for an honest purpose to reorganize and as a reasonable hope of success. The original issue discount objection is not really a bar to confirmation. 1129A1 and A2 of the code provide respectively that a plan and the plan proponent must comply with the applicable provisions of the code and applicable law. Section 502 of the code governs allowances of claims and interests. And I need to determine whether certain amounts of the notes claims are allegedly arising

from OID should be disallowed or allowed today. That's because no holder of notes is receiving more than the allow amount of its claim. All holders of its allowable claim, I should say. That's because no holder of notes is receiving more than its allowable claim. They're receiving about 90% of the value of their claims. The ad hoc group objects to OID. But interestingly, not to the agreed inclusion of the post-petition interest. That's part of the allowed claim that benefits.

It's that group. But the real reason is that all of it works is because this plan approves a global settlement. It's really just about getting to the number, and that number is below the full value of the potential debt claims. The other group objects, but it's benefiting from the economics of the settlement. It will receive interest on its notes, and it's got one of the higher interest rates. So based upon the record, this is really undisputed, the settlement was necessary to implement the debtors as restructuring and to maximize the value for all stakeholders. And bankruptcy rule 99B provides further court authorization of the settlement, and the settlement can be, and the bankruptcy code allows settlements to be part of the plan. There's also no violation of Section 1123A4.

That requires a plan to provide the same treatment for each claim or interest of a particular class unless the holder of a particular claim agrees to less favorable treatment. Now, the equality addressed by 1123A4 extends only to the treatment of the members of the same class of claims, not to the plan's overall treatment of the creditors holding those claims. Creditors shouldn't confuse similar treatment of claims with equal treatment of claims. Parties can receive the same distribution in a class, but then a subset of those creditors can receive other forms of compensation for matters unrelated to their clan, assuming there's a justification for it, right?

Or there may be differences in the debt instruments within the proper class of claimants, like you have here, different issuances of notes. So allowances of what could be considered OID and the payment of certain fees to supporting credit doesn't violate the equal treatment principles set forth in 1123A4, that one set of note holders has different contractual entitlements to another. It doesn't render a plan unconfirmable. To the extent that there is OID, it's also allowable under the plan as part of the global settlement, right? The lockup agreement is also assumed. So the consent fees, which were offered and available to the ad hoc group pre-petition, you know, can be approved and paid on those terms.

These fees are not being paid on account of the claim. There's other consideration going on there. I would say that it appeared to the court that certain, at least the ad hoc group believe that they may be entitled to assume no idea. And I think if they think they should, then I think I can review note agreement language and determine if they're entitled to it. But I don't think that's a bar to plan confirmation. under the plan, again, all notes claims are subject to the same treatment.

And any disparity based on a payment is based on the debt term documents. It's not caused by the plan. Finally, the injunction provisions, I think, are customary and appropriate. I don't think they preclude parties from raising issues of Swedish law. The confirmation does contain a number of findings and provisions authorizing the debtors to implement the plan. plan, the injunction really just reiterates kind of keeping everything in place until the effective date of the plan. And again, that's really largely dependent upon factors that are outside of this court. And nothing in the plan prevents the ad hoc group or others from, they need to have rights under Swedish law.

Let me finally turn to the Office of the United States Trustees' objection on releases. It's a common objection now here in the office of the United States trustee for around the country. Based upon the Supreme Court's recent decision in the Purdue Pharma case that resolved a circuit split about non-consensual third-party releases in Chapter 11 plans, the Supreme Court held that the Bankruptcy Code didn't authorize a release and injunction that as part of a plan of reorganization under Chapter 11 effectively sought to discharge. claims against a non-debtor without the consent of affected claimants. This, obviously, United States trustee is a party that has statutory rights to appear and be heard on any matter. In this case, they can continue to raise this objection. I've got no issues with it.

I think we have, frankly, some of the best United States trustees in the United States. are some of the hardest working ones too. A lot of cases get filed in this district, which requires that the office of the United States trustee works late. They work on weekends. And they have every right to fulfill what they believe is their duty to continue to raise these objections.

I'm just going to disagree with them on this one. I do note, and I reiterate, and I've said this in the Diamond Sports confirmation hearing, and I also ruled in Robert Shaw. Purdue decision was about non-consensual third-party releases. Justice Gorsuch also clarified that nothing should cast doubt on consensual ones, and nothing is construed to question consensual third-party releases there. And I read those words literally, the Supreme Court. I'm not here to expand or narrow the scope of the Supreme Court's holding.

And I do find that the consensual releases in the plan satisfy applicable law and the procedure for complex cases in the Southern District of Texas. Parties were provided detailed notice about the plan, the deadline to object to the plan confirmation, the voting deadline, the opportunity to opt out of the releases. They were made in conspicuous language. The disclosure statement included a detailed description about the third party releases. the court consensual and the opt-out.

The ballots allowed parties to carefully review those terms. Intram also caused third-party release language to be published. So based upon the record, they released a specific enough to put releasing parties about notice about the types of claims released and that the opt-out worked. There's no evidence in the record of coercion or confusion by parties. They also think that their consensual third-party releases were now, tailored to this case. They really related to, among other things, the debtors in their Chapter 11 cases, their estates.

And there's a carve-out for actual fraud, woeful misconduct, or gross negligence. So, you know, any bad acts are not being released here. And I do know, and I think it's an important one, one that you don't often see, and see it because it's a pre-pack. General and secure creditors are paid in full, and they're not subject to the consensual third-party releases here. So concerns about the opt-out and potential obfuscitated parties receiving it really not an issue here. The ad hoc group of 2025 note holders is led by some of the best lawyers in America. They have the opportunity to opt-down, and based upon the voting record, it appears they did just that.

I would also note that there's unrefuted evidence that the third-party release was an integral part of the plan in a condition of the settlement set forth in the plan, and they were core consideration among the parties to the agreements and the lock-up and instrumental in development of that, and they were instrumental in facilitating and gaining support for the plan and the Chapter 11 cases. I'd note that the plan satisfies every other applicable code section under 1123 and 1129 and every other applicable plan confirmation related section under the code. And also note that the debtors, the professionals that have appeared before me, the actions of the board based upon the record before me,

and every party who's appeared before me. And I also include the ad hoc group, nearer of 2025 note holders, those the unsecured creditors and the noteholder groups who supported the plan as well. that I'm thinking about and looking out and seeing a couple of them here today

everybody acted in good faith throughout the case and they're entitled to those findings for me and also find it based upon the record before me that the parties involved in the solicitation of the plan are entitled to the protections under Section 1125E of the bankruptcy code. So I'm going to affirm

and confirm the Chapter 11 plan of interim. I'm going to overrule the and deny the motion to dismiss. I'm going to overrule all the plan confirmation objections. I'm just going to to the proposed confirmation order that was on file. I'm going to add a sentence. I did it at Robert Schult.

too that kind of added kind of for the reasons as well stated today on the record and then also kind of the language that I know that the office of the United States trustee was looking for it's a sentence that we added in the Robert Shaw confirmation order that just confirmed and notwithstanding anything to the contrary anybody who opted out is not bound by any such releases and I'll get that on file and on the docket Shortly, I'll get in orders on file. I know it's December 31st and different times everywhere else.

I wish everyone a happy new year, and I thank everyone for the excellence that was just throughout the entire process. I, you know, I had told parties I try to get them something by the, before then. I really wanted to take the weekend to really kind of help crystallize and articulate some of the analysis and I wanted to go back and do some additional studying and read cases and not Russia. It's an important case to many people for different reasons and I wanted to make sure that

if I wanted to take the time to read and think more that I took every liberty to do so and I'm comfortable with court's decision. So I think everyone, um, have a good day. We're adjourned.