In re American Roads LLC, et al., 496 B.R. 727 (S.D.N.Y. 2013


An ad hoc committee of bondholders who executed an agreement with a monoline insurer securing claims under an insured unitranche containing a “no action” clause, bargained away their right to appear in the debtor’s bankruptcy case and, therefore, lacked standing to object to the debtor’s chapter 11 plan.


The bondholders, who held $162.5 million of senior secured bonds, were participants in a financing structure known as an “insured unitranche.” Essentially, all of the creditors’ claims were secured by  the same lien, through the same trustee and collateral agent, on terms set forth in pre-petition contracts. Those contracts curtailed the rights and interests of the creditors, and at issue here, the “no action” clauses in the agreements with the monoline insurer contained provisions appointing the monoline insurer as “sole holder” and “sole representative” for all purposes, and granted the monoline insurer exclusive rights to enforce the financing documents and institute proceedings  thereunder.


Applying New York law, the court held that the bondholders bargained away their right to appear in the debtor’s bankruptcy case. In so holding, the court noted   that “no action” clauses are enforceable under New York law and must be strictly construed. Analyzing the provisions of the agreements between the bondholders and the monoline insurer, the court noted that although the “no action” provisions at issue in this case did not specifically reference bankruptcy rights of the creditors, the waiver of the ability to enforce individual rights, remedies and actions encompasses the ability to appear in a bankruptcy case. Accordingly, the court found that the right to appear was prohibited by the express and enforceable terms of the agreements. In addition, the court noted that bankruptcy courts have upheld pre-petition intercreditor agreements waiving a creditor’s rights to appear in a bankruptcy case where the creditors are sophisticated parties aware of the implications of such a waiver. Finding that all parties to the relevant agreements were sophisticated parties who acknowledged as much on the record before the court, the court held that the bondholders lacked standing to appear in the debtor’s bankruptcy case and object to confirmation of the debtor’s plan of reorganization.


Creditors should be cognizant that, at least under New York law, broad “no action” provisions will be strictly construed and enforced, and may preclude the creditor from appearing in the event of a bankruptcy of the debtor. If the creditor entering into an intercreditor agreement wishes to retain such rights, the rights should be expressly reserved in the agreement.