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The settlement Incora reached earlier this week with the UCC and Carlyle, holder of an uptiered 1.25 lien tranche, aims to pave the runway to a bankruptcy exit by resolving disputes over the aerospace company’s 2022 LME transaction. But there is still a good deal of creditor conflict around the pre-petition LME dealings that remains up in the air.

Impact of the new settlement is limited since it doesn’t address an adversary case brought by individual unsecured creditor Langur Maize and a group of 2024 and 2026 unsecured noteholders. The outcome of that litigation, which has been stayed by the bankruptcy court, is subject to Southern District of Texas Judge Marvin Isgur’s upcoming ruling on the debtor’s motion for summary judgment.

Yesterday in court, Judge Isgur said he’s already made his decision on the adversary, and his 40-page decision will be issued “in the coming weeks.” Judge Isgur also asked, specifically to the adversary litigant Langur Maize, if his delay in issuing the ruling will impact agreements with the debtor regarding confirmation of the plan and a potential settlement.

Jones Day, counsel for Langur Maize, said it would not be a disruption because the issues raised in the adversary proceeding were independent of its ability to agree to a restructuring settlement.

Judge Isgur also declined to issue an immediate ruling on the Carlyle/UCC settlement, instead instructing the debtor to amend the disclosure statement to reflect the terms. This procedural instruction circumvented arguments from the Kobre Kim group of 2024/2026 noteholders over the merits.

The controversary at the heart of the adversary proceeding is the 2022 uptiering transaction. A group of secured noteholders, including Silver Point and PIMCO, exchanged $1 billion of their holdings into new priming 7.5% cash/3% PIK notes due 2026.

A group of unsecured bondholders, consisting primarily of Carlyle and PE sponsor Platinum, then uptiered $446 million unsecured notes into a secured 1.25-lien position. The remaining 2024 and 2026 unsecured notes that did not participate and are subordinated by the new 1.25 position are represented by Jones Day in a state court litigation and the ongoing adversary proceeding.

In the recently announced settlement, Carlyle has agreed to waive its claim to recovery in the restructuring, an agreement ostensibly benefiting unsecured creditors such as the Kobre Kim group. The group stands to recover 3.5% of reorganized common equity along with a pro rata share of a $7.5 million cash pool. Despite this, the Kobre Kim group remains in opposition.

The ruling from Judge Isgur is eagerly anticipated, as it could validate or nullify the disputed uptiering transaction. Should the court side with the challenging creditors, it would mark a contrast with earlier decisions by the now-removed Judge Jones and could prompt a reassessment of similar financial maneuvers in future bankruptcy cases.


Jennifer Lappe, J.D.
LevFin Insights


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