Firm Successfully Protects Junior Noteholders’ Payment Rights in CDOS

The Firm successfully represented certain junior noteholders in two related lawsuits involving collateralized debt obligations (“CDOs”). Senior noteholders in both CDOs attempted to cut off all payments to junior noteholders (i) by declaring an acceleration of the senior notes, and (ii) by invoking the subordination provision of the Indentures which, if applicable, required that the senior notes be paid in full before junior noteholders received any distributions. The Firm prevailed in its argument that the Trustee was required under the Indentures to “rescind and annul” the senior noteholders’ declaration of acceleration, and thus that the subordination provision contained in the Indentures was not applicable. As a result of the court’s decision, the Trustee is required to distribute tens of millions of dollars to the junior noteholders that had been withheld by the Trustee pending the resolution of the dispute, as well as make future distributions to the junior noteholders in accordance with the standard waterfall provisions contained in the Indentures. The actions are captioned In the Matter of the Trusteeship Created by LNR CDO IV, Ltd., and LNR CDO IV, CORPORATION, Relating to the Issuance of Notes in the Original Aggregate Principal Amount of $1,279,038,000, No. 13-cv-2239 (JSR) (S.D.N.Y.); and In the matter of the Trusteeship Created by JER CRE CDO 2005-1, Limited, and JER CRE CDO 2005-1, LLC, Relating to the Issuance of Notes in the Original Aggregate Principal Amount of $300,575,000, No. 13-cv-2232 (JSR) (S.D.N.Y.).

A copy of the District Court’s Memorandum Order is available here.