Ultra Petroleum Corp. Make-Whole Saga Continues

Creditors File Petition for Rehearing En Banc After Fifth Circuit Reversal and Remand of Bankruptcy Court Decision Awarding Creditors Make-Whole and Post-Petition Interest in Accordance with the Terms of the Underlying Agreement.

On January 17, 2019, a three-judge panel (the “Panel”) of the United States Court of Appeals for the Fifth Circuit reversed, in part, and vacated, in part, a Bankruptcy Court decision in In re Ultra Petroleum Corp., Case No. 17-20793 (5th Cir. Jan. 17, 2019) (“Ultra II”). The Bankruptcy Court held that certain creditors (the “OpCo Creditors”) of a solvent debtor, Ultra Resources, Inc. (“OpCo”), were deemed unimpaired by the Ultra chapter 11 plan and, therefore, entitled to the full $201 million make-whole (the “Make-Whole Amount”) and post-petition interest at the default contract rate in the aggregate amount of $186 million. In re Ultra Petroleum Corp., 575 B.R. 361, 370–71 (Bankr. S.D. Tex. 2017). Our previous article — To Make-Whole…or Not? — provided background and summaries for both decisions. In this installment, we consider the issues raised in Appellees’ Joint Petition for Rehearing En Banc, filed on January 31, 2019.

Issue 1. The Panel erred in holding that make-wholes are the “economic equivalent of interest,” and therefore, disallowed under section 502(b)(2) of the Bankruptcy Code because:

• The Ultra II holding contravenes previous decisions issued by the Fifth Circuit (and other courts) holding that a make-whole is not the equivalent of interest;
• The issue should have been remanded because (i) the Bankruptcy Court had not decided it and (ii) if, on remand, the Bankruptcy Court determines that the Make-Whole Amount is payable under the solvent debtor exception, the issue is moot; and
• Reconsideration is necessary to avoid disruption of financial markets.

Issue 2. The Panel erred in holding that, following Congress’s repeal of section 1124(3) of the Bankruptcy Code, a creditor who is not paid its contractual interest by a solvent debtor is nonetheless unimpaired under section 1124(1) of the Bankruptcy Code because the holding misconstrues and/or conflicts with:

• Congress’s intent in repealing ssection 1124(3) of the Bankruptcy Code and
• The only other Circuit-level decision analyzing the repeal of ssection 1124(3) In re PPI Enterprises (U.S.) Inc.¹

Issue 1

Appellees, comprising an Ad Hoc Committee of Unsecured Creditors of OpCo and the holders of approximately $1.5 billion of unsecured notes issued by OpCo, assert multiple bases for their position that the Panel erred when holding that the Make-Whole Amount is unmatured interest. First, the Panel’s decision contravenes several earlier Fifth Circuit decisions considering the issue, including:

• Achee Holdings, LLC v. Silver Hill Fin., LLC, 342 F. App’x 943, 944–45 (5th Cir. 2009) (“holding that a prepayment provision also was not ‘disguised interest,’ even though ‘the interest rate on the loan was used as part of the formula for calculating the [prepayment premium], the substance of the transaction shows that it is clearly a prepayment [premium]’”);
• C.C. Port, Ltd. v. Davis-Penn Mortg. Co., 61 F.3d 288 (5th Cir. 1995) (stating that “a prepayment premium is not...