Update on Taberna Involuntary Trial

In September 2017, as described in an earlier Newsletter, SFIG submitted an amicus brief to the U.S. Bankruptcy Court for the Southern District of New York (the Court). In this brief, SFIG highlighted that the attempt by senior note holders to put Taberna Preferred Funding IV, Ltd (Taberna) in bankruptcy is an abuse of the reorganization process. As stated in the brief, to jettison the already agreed liquidation procedures under the Taberna indenture in favor of bankruptcy for the personal and pecuniary aims of some creditors to the detriment of others would result in a significant jolt to investor confidence in the non-recourse and bankruptcy-remote nature of securitization vehicles.

On November 28th, the evidentiary hearing began. According to Reorg-Research, during the first day of the trial, counsel for petitioning creditors argued that the case rests on questions of intent and valuation. Counsel to the objecting creditors argued that the indenture bars the noteholders from filing an involuntary petition and that the notes were purchased with the intention to force a liquidation in one or two years. Additionally, Judge Mary Kay Vyskocil pointed to her opinion denying the petitioning creditors' motion for partial summary judgment, holding that the creditors failed to demonstrate, "as a matter of law, that they hold undersecured claims against Taberna." Of particular interest to SFIG members, counsel for the opposing noteholders said that the outcome of this case has "broad implications" for the market and for who can commence involuntary bankruptcies, noting that every stakeholder is in opposition, along with amicus Structured Finance Industry Group. The hearing is now focused on the cross-examination of petitioning creditors' witnesses. SFIG will keep our members updated as the trial progresses.

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