The Great Atlantic & Pacific Tea Co. 9.375% QUIBS (GAP.GI)

[56Chevy]

Bank of America National Trust and Savings Association v. 203 North LaSalle Street Partnership, 526 U.S. 434 (1999), was a decision by the United States Supreme Court.

Pre-bankruptcy equity holders (like Yucaipa) may not, over the objection of a senior class of impaired creditors (like us and many others) in a Chapter 11 plan, contribute new capital (In this case $490MM) and receive ownership interests in a reorganized entity, when the opportunity is given only to the old equity holders under a plan adopted without consideration of alternatives. Rather, in order not to violate the absolute priority rule, a plan conferring an interest to old equity must extend an opportunity to others who may compete for the equity (e.g. at auction) or who may propose a competing reorganization plan.

Cram down is barred if a junior interest (old equity) holder under a proposed Chapter 11 plan receives or retains property “on account of” such junior interest. 11 U.S.C. 1129(b)(2)(B). The Court, considering whether the language of the statute implied a new value exception, found “on account of” not to mean “in exchange for” or “in satisfaction of” but rather should be interpreted to mean “because of.” Therefore, the absolute priority rule is triggered by a causal relationship between holding the prior claim or interest and receiving or retaining property. The Court neither decided whether the statute included a new value exception, nor decided whether the exception exists at all.

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This is exactly like MMPI. But I'm curious why the private investors comprised of The Yucaipa Companies LLC, Mount Kellett Capital Management LP and investment funds managed by Goldman Sachs Asset Management, L.P. didn't buy alot more than 15% of the QUIBS when they had the chance knowing they were going to try and get a deal done??