Executive Summary

• We have periodically published on the legal status of make-wholes in bankruptcy by offering a high-level overview of the evolving state of the law in this area.
• Since we published our last primer in 2024, several important developments have occurred; we have had many discussions with clients about these developments over the last couple of years, and we are therefore publishing this updated primer.
• This primer is organized in a Q&A format and begins by defining make-wholes and discussing how courts have interpreted them in bankruptcy cases.
• We then examine how many enforceability issues surrounding make-wholes in bankruptcy can be addressed through careful legal drafting, while also highlighting the recent trend of federal courts is to disallow make-wholes as “unmatured interest” for unsecured or undersecured creditors.
• The note further analyzes the additional rights that oversecured creditors may have to make-wholes in bankruptcy and we briefly explore scenarios where unsecured creditors may nevertheless receive some form of postpetition compensation if the debtor is solvent.
• We discuss at least one case where a make-whole was not required when the secured debt was reinstated through a plan of reorganization.
• Finally, we discuss pending litigation challenging OID issued as part of a pre-bankruptcy exchange offer and whether that must be disallowed as “unmatured interest” in the same way as make-wholes.