January 31, 2018
"Judge puts Taberna CDO trial on hold to consider HoldCo’s standing to file"
A federal judge today put the Taberna TruPS CDO involuntary bankruptcy trial on hold, granting a request from junior noteholders and collateral manager TP Management for time to argue that the case should be dismissed because the senior bondholders that filed it hold recourse claims only to the CDO’s collateral, and not to the CDO operator itself, and so were not eligible to file their involuntary bankruptcy petition against the vehicle...
Involuntary petitioners such as the HoldCo funds must prove they have sufficient undisputed claims against the company they’re seeking to force into bankruptcy. In addition, they must show that the would-be debtor isn’t generally paying its debts as they come due, and that they are acting in good faith, according to Patrick J. Trostle, a partner with Thompson & Knight, who is not involved in the case.
The bar is high for HoldCo. If unsuccessful in proving the elements needed to support an involuntary bankruptcy as outlined in section 303 of the bankruptcy code, a petitioning creditor could be forced to pay fees, costs, and in some cases punitive damages to the company that it wasn’t able to push into bankruptcy, Trostle said.
“A lot of creditors don’t like involuntary bankruptcies because of these significant risks,” Trostle said.
Because of this, it’s not only involuntary cases involving CDOs that are rare, he said. Involuntary bankruptcies in general are broadly viewed as a risky move of last resort for a creditor, Trostle said.