The scope of section 316(b) after Marblegate

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Section 316(b) of the Trust Indenture Act provides that right of any to receive payment of the principal and interest may not be impaired or affected without the holder’s consent. This article analyzes the recent case law on whether corporate restructurings that impair the practical ability of bondholders to obtain payment on their bonds violate Section 316(b) of the Trust Indenture Act. After concluding that the Court of Appeals for the Second Circuit was correct in confining the scope of Section 316(b) to formal amendments to core payment terms, the article turns to an issue left open by Marblegate: whether formal amendments that release a guarantor or that expand the conditions in which a guarantor is automatically released are within the scope of Section 316(b) and thus require the consent of each affected holder. Based both on the literal wording of Section 316(b) and, as far as parent-guarantors are concerned, on its economic function, Section 316(b) should be held to require the consent of each affected holder for an amendment releasing a guarantor from its obligations under the guarantee. By contrast, applying Section 316(b) to subsidiary guarantors does neither much harm nor much good since indentures leave companies with significant scope to eviscerate the economic benefit of subsidiary guarantees.