BOKF, N.A., as First Loan Trustee v. Momentive Performance Materials, Inc., et al.

This case presents two important questions that have divided the courts of appeals concerning the effect of the Bankruptcy Code on secured creditors’ state-law rights. Before it filed for Chapter 11 reorganization, respondent Momentive Performance Materials borrowed $1.1 billion by issuing long-term secured notes paying a fixed rate of interest. The loan agreement provided that, if Momentive chose to redeem the notes before a specified date several years out, it would be required to pay the noteholders a “make-whole” to compensate them for the lost return on their investment. The agreement also provided that if Momentive filed for bankruptcy, the notes would accelerate and come due, but it gave the noteholders the right to rescind that acceleration. And, in any event, Chapter 11 overrides any contractual acceleration of debt on account of a bankruptcy filing, permitting the debtor to choose either to repay the debt upon its emergence from bankruptcy or to reinstate the debt’s original maturity date. 11 U.S.C. §1124(2). After filing for bankruptcy, Momentive chose to repay the notes by refinancing them at a lower interest rate. The Second Circuit concluded that Momentive was nevertheless not obligated to pay the make-whole. First, the court held, notwithstanding §1124(2), that Momentive’s bankruptcy filing had accelerated the notes’ maturity, leaving the debtor no option but to repay the notes, and that the repayment was thus not an optional redemption, as required to trigger the makewhole. Second, although the court recognized that the noteholders had a contractual right to rescind acceleration and that doing so would have preserved the note(i)