In re: Wesco Aircraft Holdings Inc., et al. v. SSD Investments Ltd., et al.

Analysis Group was retained by Kobre & Kim on behalf of counterclaim plaintiffs in litigation regarding a liability management transaction performed by Wesco/Incora, an aviation supply chain company. Counterclaim plaintiffs alleged that in 2022, Wesco conducted an uptier transaction in which a group of secured lenders exchanged their existing debt for superpriority debt, and that those formerly secured lenders – including counterclaim plaintiffs – who did not participate in the transaction were left with subordinated and unsecured debt. Wesco eventually filed for Chapter 11 bankruptcy in 2023. Counterclaim plaintiffs alleged that the transaction violated the terms of their original indentures.

An Analysis Group team led by Managing Principals Andrea Okie and Richard Starfield, and Vice President Kerri Holmsten supported a bankruptcy expert who filed a declaration and two expert reports and provided trial testimony. The expert performed a benchmarking analysis to evaluate whether the terms governing voting rights in the original agreements were typical, as well as an assessment on whether the restructuring harmed counterclaim plaintiffs. According to the expert, the voting rules “were unusual” in the level of protection afforded to noteholders compared to similar agreements executed around the same time. The expert opined that the restructuring harmed the counterclaim plaintiffs because it effectively rendered the senior secured debt unsecured, resulting in expected payoffs that would likely be lower than they would have been had the restructuring not occurred.

Judge Marvin Isgur of the US Bankruptcy Court for the Southern District of Texas ruled in favor of the counterclaim plaintiffs, finding that the transaction breached the lien protections in the original agreement. According to the Wall Street Journal, the “closely watched 2024 ruling … could influence how courts approach LMEs moving forward.”