Make Wholes: Have Bankruptcy Courts Identified the Yellow Brick Road Language that Leads to Creditor Oz?

Abstract

This article analyzes recent trends in "make whole" law. Second and Third Circuit courts have largely allowed debtors to alter the terms of make wholes. These decisions create winners and losers. The debtors are obvious winners. The decisions also help current suppliers and creditors, who desire more competitive and stable contract counterparties, and junior creditors, managers, and equity holders, who appreciate a larger stake in the reorganized entity. On the other hand, bondholders and debt purchasers may be deprived of their bargained-for premium. On a more global basis, the debt markets may adjust interest rates and terms for healthy and unhealthy companies alike to account for increased risk if make-wholes are routinely canceled or modified in bankruptcy cases.