A deal that would greatly increase the payout to bondholders, was announced Tuesday by the bond trustee in the Archdiocese of New Orleans bankruptcy.
Bondholders would restructure the outstanding $38 million in par value bonds into $28.7 million in par value bonds, the trustee, Argent Institutional Trust Company, said in a posting to the Municipal Securities Rulemaking Board's EMMA website Tuesday. The archdiocese in August had
If the bankruptcy court approves the proposal, the bonds would only pay the 4.25% interest on the securities for 12 years and then pay the principal in a bullet maturity.
The deal assumes the restructuring would take place no later than June 30. The archdiocese would pay an unspecified portion of the fees of the trustee and its professionals.
The amended bonds would be callable without premium or penalty.
The plan of reorganization "remains subject to certain contingencies beyond the control of the trustee," the trustee reported in its EMMA posting. Argent said it would continue to provide updates.
"The settlement averts a ruling that could have set a precedent that the 'fair and equitable' standard doesn't apply to nonprofit bankruptcies," said Lisa Washburn, managing director at Municipal Market Analytics. "Had the court gone in that direction, it could have reasonably undermined recovery expectations on the nearly $500 billion of municipal nonprofit debt outstanding and made future borrowings materially more expensive. That said, investors may still demand wider spreads when investing in nonprofit debt, particularly for lower-rated borrowers, to compensate for the uncertainty that was exposed through the bankruptcy case."
The deal comes as the archdiocese proceeds with Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of Louisiana.
The archdiocese had argued, "because it is a nonprofit and has no equity holders, the fair and equitable cram-down test is not applicable," Municipal Market Analytics said in its Weekly Outlook on Sept. 22. The archdiocese had said "the debtor only needs to satisfy the 'best interests of creditors' test, meaning bondholders would receive no less than what they would in a hypothetical chapter 7 liquidation," MMA said.
Lawyers for the archdiocese said 99.6% of the non-bondholding creditors voted against the proposed plan in October. More than 75% of the bond parties voted against it.
The bankruptcy hearings are scheduled to continue next week.
