On May 11, 2016, the U.S. Bankruptcy Court for the District of Delaware granted with prejudice a motion to dismiss brought by a group of senior secured lenders to RadioShack (the “ABL Lenders”) in an adversary proceeding concerning whether the ABL Lenders were entitled to loan payments they had received from RadioShack before it filed for bankruptcy and post-petition payments in satisfaction of their outstanding bankruptcy claims. Salus Capital Partners, LLC (“Salus”), in its capacity as agent for another group of secured lenders to RadioShack, had commenced the adversary proceeding seeking disgorgement of the $232 million in total payments the ABL Lenders had received. Davis Polk and Blank Rome LLP represented the ABL Lenders.

Salus claimed that the ABL Lenders breached an intercreditor agreement between the ABL Lenders and Salus’s lending group when the ABL Lenders restructured $535 million in lending commitments to RadioShack without Salus’s consent in October 2014, four months before RadioShack filed its Chapter 11 petition. Although the intercreditor agreement conferred lien rights on the ABL Lenders that were senior to Salus’s rights, Salus claimed that the ABL Lenders lost their senior rights with respect to all but $120 million of their commitments through their allegedly impermissible refinancing. Salus brought a number of contract and tort claims based on this alleged breach of the intercreditor agreement.

 The Court held that the intercreditor agreement unambiguously permitted the October 2014 refinancing without Salus’s consent, and without impairing the ABL Lenders’ rights to all of the payments they subsequently received. The court further found that the terms of the refinancing did not affect Salus’s own rights or economic position as the junior lender under the intercreditor agreement. 

The Davis Polk litigation team included partner Elliot Moskowitz, counsel Michael J. Russano, associates Justin Sommers, Alyssa Beaver Gomez, Peter J. Davis and William Lawrence. The insolvency and restructuring team included partner Damian S. Schaible, associates Darren S. Klein, Kevin J. Coco, Christopher Robertson, Rebecca Van Derlaske, Douglas R. Keeton and Sarah E. Levin. All members of the Davis Polk team are based in the New York office.

Copy link to share post