Debt amendment gets knocked out in heavyweight financial fight

  • Marblegate, BlackRock, T. Rowe Price opposed change to law
  • KKR, Apollo portfolio companies would have benefitted
  • Caesars, Education Management debt under scrutiny


A battle between financial heavyweights that spilled onto the marbled floor of the U.S. Capitol ended shortly before the New Year with a victory for minority bondholders in some high-profile debt disputes.

On one side, sponsors such as Apollo Global ManagementKohlberg Kravis Roberts & Co and TPG Capital looked to change the 1939 Trust Indenture Act (TIA) to make it easier for majority bondholders in disputed debt restructurings to win concessions from minority bondholders. An amendment that had been attached to the $1.15 trillion omnibus spending bill in Congress would have done just that.

On the other side, creditors that included Marblegate Asset Management, BlackRock Inc, DoubleLine Group and Oaktree Capital Management opposed the amendment and managed to get it pulled from the spending bill.

Andrew Milgram, managing partner of Marblegate, said he applauded the move by Congress to not amend the Trust Indenture Act.

“The TIA has never played a more important role than it does today when the protection of investor rights, particularly those of minority investors, is so often overlooked by larger market participants who seek to maximize their own financial gain at any cost, without regard for equanimity or legality,” Milgram said in a prepared statement.

Apollo and others reportedly lobbied Congress to change the 1939 Trust Indenture Act, which protects the rights of bondholders in out-of-court deals.

If Congress had changed the act as proposed, majority bondholders would be in a better position to win concessions from minority bondholders and possibly avoid bankruptcy proceedings.

Citing the Trust Indenture Act, creditors involved in $18 billion in unpaid debt for Caesars Entertainment Corp, which is backed by Apollo and TPG, have complained that the casino company didn’t guarantee the debt of its unit before filing for Chapter 11 bankruptcy earlier this year. Caesars’ creditors include affiliates of Centerbridge Partners, Oaktree and hedge fund Appaloosa Management, Reuters reported.

A change to the act could also have impacted creditors of KKR-backed Education Management Corp, which reached an agreement to restructure about $1.5 billion in debt in 2014 with its largest creditors, without filing a formal bankruptcy petition. Marblegate held $14 million in debt prior to the restructuring, but did not take part in the deal. Instead, it filed suit against Education Management Corp. That suit remains under appeal after a ruling that favored Marblegate.

A post-Depression law, the Trust Indenture Act is aimed at protecting minority investors from unfavorable deal terms imposed by majority investor groups in bankruptcies or distressed situations.

Word of the failed amendment came at around the same time that a group of the largest public debt securities investors weighed in against it: BlackRock, DoubleLine Group, Oaktree Capital Management, Pacific Investment Management Company, T. Rowe Price and Western Asset Management Company.

A December 14 letter from the companies to Congressional leaders urged legislative hearings and public comment prior to any change in the law.

“The Trust Indenture Act is a central component of our nation’s securities laws and ensures that fundamental bond terms cannot be altered without the holder’s consent in the absence of a court-supervised restructuring,” the letter said. The group said it’s “not aware of any substantive need to amend the Trust Indenture Act.”

Spokespeople for KKR, Apollo and Education Management Corp declined to comment.

Some prominent academics also opposed the change including Bradford Cornell, a visiting professor of financial economics at the California Institute of Technology; also Adam Levitin, professor of law at the Georgetown University Law Center, penned a December 8 letter to Congress that was co-signed by 18 other academics.

A December 10 letter signed by 20 Republicans in the House Financial Services Committee opposed changing the law without a formal process. As currently proposed, the new measure “would retroactively narrow the rights of bondholders … under the guise of providing flexibility for corporate restructures,” the letter said.

Action Item: See the letter to Congress from scholars about the Trust Indenture Act proposal:

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