Bankruptcy Law Insights : Kelley Drye & Warren LLP Bankruptcy and Restructuring Practice Group

Last week’s Chapter 11 filing by NewPage Corporation, a company with assets and liabilities in the billions of dollars, stands as a relative rarity in the current restructuring environment. Running contrary to the “new normal” in larger restructurings, NewPage filed for bankruptcy protection without a pre-arranged or pre-negotiated exit solution, such as a back-stopped rights offering or a stalking horse bidder for a sale of the enterprise as a going concern. The company instead will take advantage of the protections offered by Chapter 11 while it seeks to work out a solution with its creditors. It promises to be an interesting case to watch. 

NewPage at first glance appears to have viable core operations and an extremely top heavy balance sheet. A deleveraged enterprise that successfully uses Chapter 11 to shed unprofitable or less profitable business lines, reject burdensome contracts, sell unneeded assets, and streamline operations would likely have substantial long term value. 

The primary focus in this case therefore will be the simple question: where’s the fulcrum? In other words, which level of debt in the capital structure will be entitled to receive the majority of the equity when the company emerges from Chapter 11? So far, it looks to be shaping up to be a battle of NewPage's First Lien Noteholders versus its Second Lien Noteholders. Unsurprisingly, both groups are controlled by aggressive hedge funds that specialize in buying distressed debt at prices below par.   

The First Lien Noteholders are almost certainly looking to push NewPage to move forward quickly with a plan predicated on a low valuation that would cram down most or all junior creditors and deliver to themselves the equity in the reorganized enterprise. The Second Lien Noteholders will vociferously oppose any such valuation, and may be looking for the opportunity to backstop a rights offering that would cash out the First Lien Noteholders.

NewPage itself very much looks to be seeking to tee things up so that the Second Lien Noteholders will have such an opportunity to step up with new capital, rather than have this case come down to a complex and lengthy valuation fight. As part of its debtor in possession financing, NewPage sought authorization to reimburse the Second Lien Noteholders for professional fees and expenses, “subject to the Court’s ultimate determination as to whether the Second Lien Lenders make a substantial contribution” to the bankruptcy case. Under the “substantial contribution” standard, a creditor that acts for the benefit all parties, and not only its own narrow interests, can be reimbursed its costs and expenses. NewPage states, “[T]his reorganization may well depend on the Prepetition Second Lien Noteholders’ ability to refinance all or a portion of the first lien debt . . . The Debtors believe that such authority . . . will incentivize and expedite the administration of these cases and will prevent unwarranted litigation and benefit the estates and the reorganization.”  

Alliances between and among the First and Second Lien Noteholders and various other parties will be made and broken over the next several months. These will include holders of NewPage’s subordinated 12% Senior Unsecured Notes and the company’s trade creditors. One or more rivals may make an unsolicited purchase offer. Finnish paper manufacturer Stora Enso, which sold certain assets to the Debtors in 2007 and took back equity and structurally subordinated notes, may look to make a strategic acquisition here. Enlivening the mix will likely be the company’s labor unions (particularly if NewPage seeks to modify collective bargaining agreements or retiree benefits), the EPA, the PBGC, and Cerberus Capital Management, the Debtors’ primary equity sponsor. 

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The Chapter 11 filing of the Los Angeles Dodgers is a desperate move by Frank McCourt to try to maintain his ownership of the team.  At least McCourt, whatever his shortcomings as a major league franchise owner, chose wisely in selecting bankruptcy lawyers.  Partners Bruce Bennett and Martin Bienenstock of proposed debtor's counsel Dewey LeBeouf would be high selections on any legal fantasy team.  Even, the best, however, will likely not be enough here.   

Bennett and Bienenstock will probably be able to stave off a quick takeover of the Dodgers by Major League Baseball, and to turn aside the demands that the case be dismissed or that a trustee be appointed to run the team.  They should also succeed in buying McCourt enough time to negotiate a sale of the team on favorable terms.  But McCourt’s true goal here – to use the Chapter 11 process to keep permanent control of the team – appears to be beyond the reach of any lawyer. The Major League Baseball Constitution, pursuant to which McCourt acquired and holds the Dodgers’ franchise rights, in the end vests too much power in Commissioner Bud Selig and the other owners. Even assuming that McCourt can come up with a plan to pay off the Dodgers’ creditors, the Dodgers’ bankruptcy will almost certainly only delay the inevitable exercise of power by Major League Baseball to terminate McCourt’s right to operate the franchise. 

On the other hand, not a lot of people thought a great deal of the Dodgers’ chances in the ninth inning of Game 1 of the 1988 World Series. Two outs and down by run, Kirk Gibson, who could barely walk due to injury, was sent up to pinch hit . . . .

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I am serving this year on the Editorial Advisory Board for the Journal of Corporate Renewal, published by the Turnaround Management Association and available to all TMA members.   My guest editor's column for the June issue, "Keeping Pace With Chapter 11's 'New Normal'", is available here. 

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As discussed in previous posts on this site, back in December the Second Circuit Court of Appeals issued a summary order that reversed the bankruptcy court’s confirmation of the reorganization plan (the “Plan”) of DBSD North America, f/k/a ICO North America (“DBSD”). The Court sustained a challenge to the Plan brought by Sprint-Nextel, an unsecured creditor, against the proposed “gift” of value from second lien secured creditors down to DBSD’s equity holder, by-passing holders of unsecured claims. However, it denied the appeal brought by senior secured creditor DISH Network (“DISH”), the holder of all of DBSD’s first lien debt, against its unfavorable treatment under the Plan.  The summary order stated that an opinion would follow “in due course”. (Kelley Drye & Warren LLP represents the agent to the lenders that previously held the first lien debt purchased by DISH, but has taken no part in the litigation over the confirmation of the Plan or the appeals before the Second Circuit).   

The opinion has now come out and has appropriately garnered wide attention. The decision to prohibit the long-standing practice of “gifting” value to a junior class of creditors or interests over the objection of a non-consenting intermediate class will certainly shape the contours of plan negotiations in chapter 11 cases going forward. The determination to uphold the “designation” (i.e., disallowance) of DISH’s vote against the Plan, for its alleged “bad faith” in pursuing a “strategic purpose”, will also affect the purchase and sale of claims for purposes of acquiring control of companies as they emerge from bankruptcy (although this ruling was fact specific and narrowly focused). 

However, the Second Circuit’s opinion is equally important for what it did not say. The bankruptcy court had ruled that because DISH was the sole member of its Plan class and its vote against the Plan was disallowed, the Plan class should be deemed to have accepted the Plan. The bankruptcy court concluded that the Plan therefore did not have to satisfy the cramdown standards of Section 1129(b)(2)(A) of the Bankruptcy Code with respect to DISH. Nevertheless, the bankruptcy court alternatively ruled that the proposed Plan treatment of DISH’s first lien did in fact meet the cramdown standard of Section 1129(b)(2)(A)(iii), by providing DISH with the “indubitable equivalent” of its claim. The Second Circuit, in upholding the bankruptcy court’s decision ruling regarding vote designation, specifically stated that it would not address the bankruptcy court’s alternate ruling that DISH could be crammed down.   

The “indubitable equivalent” standard under Section 1129(b)(2)(A)(iii) allows a debtor to confirm a plan over a secured creditor’s objection so long as it gives the creditor the present value of its secured claim and provides substitute collateral that is of equal value and of no greater risk than its existing collateral.  The first lien debt purchased by DISH was a one year note that paid cash interest, and was secured by all of DBSD’s operating assets plus its only liquid assets -- a portfolio of auction rate securities (the “Securities”). The Plan proposed to provide a new note with a four year maturity, non-cash (i.e., payment in kind (“PIK”)) interest, and liens on all of reorganized DBSD’s operating assets -- but not on the Securities, which are to be used to help fund ongoing operations. In addition to appealing the designation of its Plan vote, DISH argued to the Second Circuit that it could not be forced to accept the heightened risk of a four year note and a diminished collateral package that deprived it of its lien on the Securities with no substitution. 

A ruling by the Second Circuit affirming the cramdown judgment by the bankruptcy court -- a determination that a one year loan facility secured by liquid assets could be replaced under the “indubitable equivalent” standard by a four year PIK facility with non-liquid collateral -- would have had a huge impact in future cases, altering the relative leverage among secured creditors, debtors and junior creditors. The decisions on gifting and designation make DBSD a significant opinion. A ruling on cramdown would have made it a seminal one.

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The Second Circuit Court of Appeals issued a summary order this week upholding the aggressively unfavorable treatment of a senior secured creditor under the reorganization plan (the “Plan”) of DBSD North America, f/k/a ICO North America (“DBSD”). (The Second Circuit upheld a separate challenge to the plan brought by an unsecured creditor). The summary order states that “[a]n opinion will follow in due course.”   

As previously described on this site, the bankruptcy court took the highly unusual step of “designating” (i.e., disallowing) the vote rejecting the Plan of the senior secured creditor (also a competitor of DBSD). The bankruptcy court’s finding that the vote was “not in good faith” because the senior secured creditor was acting with a “strategic purpose”, rather than merely seeking to further its interest as a creditor looking to be repaid, raised eyebrows throughout the bankruptcy community (and particularly among investment firms that regularly acquire debt with such a strategic purpose). But it was the bankruptcy court’s decision to approve the unfavorable proposed treatment of the senior secured creditor that is likely to have the most potential long term impact. 

The bankruptcy court determined that the Plan met the applicable Bankruptcy Code standards, and could be confirmed over senior secured creditor’s objection (colloquially known as a “cram down”) by providing it the with the “indubitable equivalent” of its secured claim. In an expansive interpretation of the statutory language, the bankruptcy court found such “indubitable equivalence” notwithstanding that the Plan effects the replacement of a one year loan facility secured by all of DBSD’s assets – including liquid securities – with a four year “payment in kind” facility under the same rate of interest, with a reduced collateral package that lacks such securities.   

The bankruptcy court’s determinations both to designate the vote and to approve the “cram down” treatment were alternative bases for approving the Plan. The Second Circuit’s summary order refers only to the vote designation Accordingly, it won’t be known until the Second Circuit issues its opinion whether it has ruled on both aspects of the decision. 

The unusual facts regarding the vote designation make it probable that the impact of the Second Circuit’s ruling as it relates to this issue will be relatively narrow. However, if the Second Circuit expressly affirms the “cram down” aspect of the bankruptcy court’s decision, it will have a profound impact in Chapter 11 cases. The door will be open to all manner of creative and forceful attempts to confirm reorganization plans over the objections of secured lenders.

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Some legal commentators have lamented the extent to which lenders have been able to use debtor in possession (“DIP”) financing arrangements to gain control over an entire Chapter 11 case. DIP lenders have usually been able to justify aggressive provisions, and courts have approved them, on the basis that they may provide the only realistic chance for debtors to reorganize or sell themselves as a going concern. However, recent events in Trico Marine Services show that there are limits on judges’ willingness to accept overreaching financing proposals and overly aggressive actions by DIP lenders to enforce their rights. 

Liquidity is the life blood of Chapter 11 cases; even solvent companies can founder if their assets cannot be readily monetized. The Bankruptcy Code contains strong protections to encourage lenders to extend new financing to debtors and to consent to a debtor’s use of “cash collateral”, i.e., the cash proceeds of existing collateral. 

Secured lenders have never been shy about using the leverage that they hold at the outset of a Chapter 11 case to extract significant concessions and benefits in exchange for offering new loans to DIPs and permitting the use of encumbered cash. Certain of the 2005 amendments to the Bankruptcy Code, such as the requirement of deposits for utilities, increased a debtor’s cash needs and exacerbated this trend. In many recent cases, lenders have used the debtor’s extreme need for post-petition cash to “roll-up” their existing loans into a new facility.  In this situation, a portion of the money loaned to the debtor goes immediately to pay off the lender’s pre-petition loans, thus effectively providing the pre-petition loans with the enhanced benefits of post-petition loans, such as security interests that cannot be attacked (because they are granted pursuant to an order of the bankruptcy court), and a “super-priority” claim over all other creditors.     

In Trico Marine Services, the debtors’ pre-petition lender sought to roll-up $25 million of pre-petition debt as a condition to providing $10 million of new financing and permitting the use of cash collateral. What made the lender’s position here particularly egregious was that it was plainly stated that the $10 million provided was not “expected to provide the liquidity necessary to accomplish a complete restructuring of the estates through confirmation of a Plan.” Judge Brendan Shannon of the U.S. Bankruptcy Court for the District of Delaware permitted Trico Marine Services to borrow the $10 million of new money at the outset of the case on an emergency basis, but ultimately declined to approve the roll-up. 

This created an event of default under the DIP lending facility, and after further negotiations failed the lender gave the required five days notice of its intent to enforce its remedies. However, Trico Marine Services filed an emergency motion to prevent the lender’s enforcement, and requested permission to continue to use cash collateral. Judge Shannon granted the motion, noting that the lender would be protected because Trico Marine Services had sales of several of its ships pending that would generate proceeds sufficient to repay the lender in full.

The lender in Trico Marine Services was not willing to commit sufficient new money either to fund a reorganization, or at least to fund the Chapter 11 case for a commercially reasonable period of time. Judge Shannon’s rulings strongly suggest that judges are less willing to countenance overreaching by DIP lenders where, as here, the DIP lender is unwilling to pay the “full freight” necessary to get the case to a final resolution.

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The chapter 11 case of DBSD North America, Inc. (“DBSD”), f/k/a ICO North America, has been marked by aggressive tactics and extreme positions from its commencement.  DBSD, a non-operating satellite communications company, and its second lien noteholders made clear their intent to cram down a plan of reorganization (the “Plan”) on DBSD’s first lien lenders.  A competitor of DBSD (the “Competitor”) bought the first lien debt and then found itself sanctioned for seeking to use its acquired position to effect a takeover of DBSD.  The Competitor appealed the Plan confirmation order, (pdf) and this week the Second Circuit, on the eve of the Plan becoming effective, issued a stay “to preserve the status quo pending the outcome of this appeal.”   

Prepetition, DBSD had a first lien loan of $40 million (the “Senior Debt”) and second lien secured notes of approximately $750 million (the “Junior Debt”).  The Senior Debt was secured by all of DBSD’s operating assets plus its only liquid assets -- a portfolio of auction rate securities (the “Securities”).  The noteholders agreed to exchange the Junior Debt for equity in reorganized DBSD.  The Plan proposed to provide the Senior Debt with a new note that extended the maturity of the Senior Debt from one year to four years, provided payment in kind (“PIK”) interest, and liens on all of reorganized DBSD’s operating assets -- but not on the Securities, which were to be used to help fund ongoing operations.  The original first lien lenders sold 100% of the Senior Debt at par value to the Competitor, which then voted to reject the Plan. 

The bankruptcy court (the “Court”) took the highly unusual step of designating (i.e., disallowing) the Competitor’s rejecting Plan vote as “not in good faith” under Section 1126(e) of the Bankruptcy Code.  The Court determined that “good faith” was lacking because the Competitor was acting with a “strategic purpose”, rather than merely seeking to further its interest as a creditor looking to be repaid.  The Court based its ruling, among other things, on the Competitor’s payment of par value for the Senior Debt at a point when the disclosure statement for the Plan had already been approved.  This decision has caused great concern among distressed investment funds that routinely buy up debt at a discount as a means acquiring companies out of chapter 11 cases.   

The next part of the Court’s decision further raised eyebrows throughout the bankruptcy community.  The Court determined that because the Competitor was the sole member of its Plan class, the Plan class should be deemed to have accepted the Plan.  As a result, the Court held that the Plan did not have to satisfy the cramdown standards of Section 1129(b)(2)(A) of the Bankruptcy Code with respect to the Competitor. 

These events have justifiably drawn attention.  Less noticed, however, has been the next part of the Court’s ruling.  After candidly noting that the issue of treating the designated rejecting vote of a single creditor class as an accepting vote is “one of first impression” and “[a]s against the possibility that a higher court in this Circuit might adopt the contrary view,” the Court went on and determined that the proposed Plan treatment of the Senior Debt did in fact meet the cramdown standard of Section 1129(b)(2)(A)(iii), by providing the Competitor with the “indubitable equivalent” of its claim. 

The “indubitable equivalent” standard under Section 1129(b)(2)(A)(iii) has generally been viewed as allowing a debtor to cram down a plan on an objecting secured creditor so long as it gives the creditor the present value of its secured claim and provides substitute collateral that is of equal value and of no greater risk than its existing collateral.  In addition to appealing the designation of its Plan vote, the Competitor has argued to the Second Circuit that it cannot be forced to accept a diminished collateral package that deprives it of its lien on the Securities with no substitution. 

It is this aspect of DBSD that, if affirmed by the Second Circuit, will likely a have greater impact in future cases on the relative leverage between secured creditors, and debtors and junior creditors.  The Court’s decision to designate the Competitor’s vote, while of understandable concern to distressed investment funds, was very fact specific and narrowly focused.  On the other hand, the Court’s determination that a one year loan facility secured by all of DBSD’s assets – including the Securities -- could be replaced under the “indubitable equivalent” standard by a four year PIK facility under the same rate of interest, with a reduced collateral package that lacks such Securities, could have a broad impact by opening the door to all manner of creative and aggressive attempts to cram down (or perhaps more precisely, “cram up”) secured lenders.  

The Second Circuit’s issuance of a stay this week suggests that it may very well recognize the ramifications of the Court’s decision.  

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The U.S. Court of Appeals for the Third Circuit has ruled in Visteon that retiree medical benefits cannot be terminated by a debtor during the pendency of a Chapter 11 case – even if the benefit plan reserved the debtor’s right to terminate such benefits at any time -- unless the debtor complies with the requirements of Section 1114 of the Bankruptcy Code.  In so determining, the Third Circuit, as it did in the recent Philadelphia Newspapers case, has utilized the so-called “plain meaning” mode of statutory interpretation to reach a result that runs contrary to long standing commercial practice and expectations.  The Third Circuit’s obtuse devotion to the “plain meaning” rule is particularly ill-suited to the Bankruptcy Code, a comprehensive statutory scheme deeply rooted in centuries of commercial law.    

Visteon sought, and obtained, approval to terminate its obligations to pay retiree benefits in its Chapter 11 case from the U.S. Bankruptcy Court for the District of Delaware.  Section 1114 limits a debtor’s ability to modify or terminate such benefits, which are defined under Section 1114 of the Bankruptcy Code as payments for medical or related benefits “under any plan, fund or program . . . maintained . . . by the debtor.”  The retirement plans specifically provided Visteon with the right to modify or terminate the plans at any time.  Visteon accordingly argued that it did not need to comply with the procedural steps mandated under Section 1114 which, among other things, require a debtor, before seeking court approval to terminate benefits, to make a modification proposal to “the authorized representative of the retirees”, and “to confer in good faith” with the representative in order to try and reach a settlement.  Visteon asserted that Section 1114 could not provide the retirees with greater substantive rights in the Chapter 11 case than they would have had outside of bankruptcy, a position supported by most courts that have considered the issue.  After the decision was affirmed by the District Court, the retirees’ union appealed to the Third Circuit, which reversed. 

In the Third Circuit’s view, “Section 1114 could hardly be clearer.  It restricts a debtor’s ability to modify any payments to any entity or person under any plan, fund, or program in existence when the debtor files for Chapter 11 . . . .” (emphasis in original).  Congress, it stated, “did not limit § 1114’s otherwise broad scope based on whether or not the debtor reserved a right to terminate in its plan.” 

The problem with the Third Circuit’s approach is that the meaning of Section 1114, as with numerous other provisions of the Bankruptcy Code, is “plain” only if one chooses to read the words in a particular fashion.  An equally natural reading (and thus “plain meaning”) of the statute is to read the words “any payment” as modified by the words “under any plan, fund or program”, thus suggesting that the right to receive such payments is limited by and subject to the express language of such plan, fund or program. 

Logic would suggest that when more than one natural reading of statutory words is evident, a court should look to underlying statutory principles and long standing practice in order to best understand legislative intent.  Indeed, the Supreme Court has long held that contractual and property rights in bankruptcy are defined by reference to applicable state or other non-bankruptcy law.  However, as it did in Philadelphia Newspapers, the Third Circuit refused to recognize any ambiguity whatsoever, notwithstanding the contrary conclusions reached by other courts. (“[T]he reasoning in In re Delphi Corp. is unpersuasive because the court’s analysis is not faithful to the plain language rule that it purports to, and must, apply.”) 

Going forward, in cases in Delaware and other Third Circuit districts, any plausible interpretation of a section of the Bankruptcy Code, regardless of how divorced from established practice and precedent such interpretation may be, can and will be claimed to be “unambiguous”.  The parties asserting such positions will have every incentive not to settle until taking their arguments up on appeal and seeing if they can get a majority of a Third Circuit panel to agree.  Ironically, by furthering the notion that there exists only one true interpretation of broad statutory language, the Third Circuit is achieving precisely the opposite of what it is purporting to do – it is creating uncertainty in the law where none should exist.

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Another member of the Delaware Bankruptcy Court has weighed in on the appropriate scope of Bankruptcy Rule 2019 (see previous post).  Judge Brendan Shannon signed an order a few days ago that directs the Ad Hoc Committee of Noteholders in the chapter 11 case of Accuride Corporation to comply with the rule's disclosure requirements.  No written opinion has been issued and the hearing transcript is not yet available, so Judge Shannon's reasoning, and whether he ruled broadly or narrowly, is not yet known.  The Official Equity Committee in that case, which had moved for the disclosure, argued in its papers that the facts were similar to those faced by Judge Walrath in Washington Mutual and distinguishable from those presented to Judge Sontchi in Six Flags, in that the Noteholders allegedly were purporting to act on behalf of a larger constituency. 

Until such time as the Rules Committee, as discussed in the previous post, promulgates a formal amendment to Bankruptcy Rule 2019, this is certain to remain a highly contentious issue.  Purchasers of distressed debt that seek to act as a group in order to further their interests are invariably going to be challenged in other cases to make disclosures that could include sensitive or proprietary pricing and timing information.   

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Last month, many distressed investors and chapter 11 professionals viewed Judge Mary Walrath's decision on Bankruptcy Rule 2019 as a possible tipping point in the ongoing debate regarding the reach of Rule 2019’s disclosure requirements  with respect to so-called ad hoc committees.  These typically are groups of holders of a particular tranche of a debtor's public bonds or bank debt that band together to gain negotiating strength and to defray legal expenses, but otherwise do not purport to speak for any larger constituency.  Judge Walrath, writing in the Washington Mutual case, determined that an ad hoc committee was subject to the requirements of Rule 2019, which mandates certain disclosures with respect to claims held, including “the amounts paid therefor”,  by "every entity or committee representing more than one creditor or equity security holder[.]" 

This ruling, from a respected judge on one of the two most influential bankruptcy courts in the country, looked as though it could be determinative in resolving the highly controversial issue of whether Bankruptcy Rule 2019 can be used to require members of ad hoc committees in Chapter 11 cases to disclose the amount that they paid to acquire their claims.  For distressed traders, such information can be tantamount to disclosing a proprietary trading strategy.  Unquestionably, some debtors and other interested parties are requesting such disclosures as a way to seek to neutralize aggressive tactics by distressed investors.

Last week, however, Judge Christopher Sontchi of the same court reached the opposite conclusion in the Six Flags cases.  Judge Sontchi declined to read the language of Rule 2019 as requiring disclosure by ad hoc committees based on his view that the term "committee" as used in the rule denotes a subset of a larger group that is expressly authorized to act on the larger group's behalf.   

This continues an ongoing judicial debate that began in 2007 in the Northwest Airlines case.  SDNY Judge Alan Gropper held that a group of hedge fund equity holders represented by common counsel constituted a "committee" for purposes of Rule 2019. The equity holders were therefore required to provide information setting forth "the amount of claims or interests owned by the members of the committee, the times acquired, the amounts paid therefor, and any sales or dispositions thereof[.]"  Not long afterwards, however, Judge Richard Schmidt in the Pacific Lumber Chapter 11 case reached the opposite conclusion on this question, and refused to require an ad hoc group of bondholders to disclose details of their trades of Pacific Lumber debt securities. 

The recent Delaware decisions come against the backdrop of the consideration by the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States ("Rules Committee") of an amendment to Rule 2019.  Evidently acting in response to a letter sent by SDNY Judge Robert Gerber, the Rules Committee is weighing language that would expressly expand the scope of Rule 2019 to apply to every "entity, group or committee" that represents or consists of more than one creditor. 

Rule 2019 unquestionably plays an important role in furthering transparency, which is a key underpinning of the chapter 11 process.  As Judge Gerber noted in his letter to the Rules Committee, a party that seeks "to influence the outcome of the case" should at least be required to reveal its claims against the debtor.  Judge Gerber also appears to be focused on getting disclosure of derivative positions, which are not claims against the debtor but which can be determinative of the motives of a particular creditor or creditor group.  

However, requiring disclosure of the price paid by a purchaser that bought for less than par does not seem to offer any of the same systemic benefit to the chapter 11 process.  A bona fide purchaser of a debt instrument may enforce it against a debtor for its full face value, regardless of the price for which it was bought.  Judge Gerber fully noted in his letter to the Rules Committee that "disclosure of what investors paid for their claims or for the bonds they hold is rarely relevant . . . ."  Requiring disclosure that could amount to revealing proprietary information appears to serve no purpose except to provide other constituents with a weapon to use against distressed investors.  Courts (and, if it acts, the Rules Committee) weighing arguments regarding the scope of Rule 2019 should find the type of common sense middle ground that Judge Gerber appears to be advocating, between promoting transparency in chapter 11 cases while not discouraging or prejudicing parties that are legitimately acting to protect their rights and further their interests.   

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