Wilmington Trust, N.A., as 1.5 Lien Trustee v. Momentive Performance Materials, Inc., et al.

The parties’ long-term bonds addressed the risk of changing interest rates. A fixed coupon rate protected respondent against increasing rates. A “make-whole” clause requiring compensation to noteholders for an optional redemption protected noteholders against falling interest rates. Under an acceleration clause, the bonds became immediately due if respondent filed for bankruptcy. But both parties could reinstate the original term: respondent could reinstate the original maturity under 11 U.S.C. 1124, and noteholders had a contractual right to rescind acceleration. After interest rates fell, respondent filed for bankruptcy and refinanced its debt by issuing replacement bonds at lower interest rates. The court of appeals held, in conflict with other circuits, that: (a) because of the acceleration, respondent’s action was not an optional redemption; and (b) although noteholders would be entitled to the make-whole if they rescinded acceleration, the bankruptcy stay barred giving notice of rescission, and noteholders had no claim for the rights they would have had but for the stay. The questions presented by the petition are:

1. Whether a debtor effects an “optional redemption” of bonds when the debtor chooses to refinance those bonds in bankruptcy prior to their stated maturity date instead of reinstating the bonds’ original maturity pursuant to 11 U.S.C. 1124.

2. If the Bankruptcy Code’s automatic stay prevents a party from taking an action that is a prerequisite to a contractual right, such as sending a notice rescinding acceleration of bonds’ maturity, whether that party loses its contingent claim for the contractual right it would have had but for the imposition of the automatic stay. (I)