Key takeaways

• A recently affirmed Bankruptcy Court ruling enjoining distressed funds from voting their purchased loans on a debtor’s Chapter 11 plan serves as an important reminder for investors in distressed debt to ensure that they are eligible transferees under the controlling loan agreement.
• Current model language from the Loan Syndications and Trading Association (LSTA) and Loan Market Association (LMA) expressly includes funds as permitted assignees, but assignment provisions can be negotiated and investors should conduct diligence on this issue prior to making a debt investment.
• In addition, the interpretation of assignment provisions by courts applying the laws of different national and state jurisdictions can differ, so similar language in agreements governed by different laws can lead to different results.