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Lowenstein Sandler LLP

Nicole Fulfree

Nicole Fulfree

Associate

Lowenstein Sandler LLP
New Jersey, U.S.A.

tel: 973.597.2502
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Profile

Nicole represents debtors, creditors' committees, trustees, individual creditors, and institutional shareholders and investors in a variety of complex bankruptcy matters. Her extensive experience, earned in part by working on three major coal industry bankruptcies, translates into a clear understanding of the right strategies for clients seeking to restructure. From litigating adversary proceedings and other contested matters to representing class action plaintiffs within both the Chapter 11 and Chapter 7 contexts, Nicole brings strategic judgment to bear in developing optimal solutions.

Nicole maintains a focus on clients’ objectives while addressing their concerns and incorporating their specific goals into the problem-solving process. Clients appreciate her responsiveness, approachability, and listening skills, and they value her role as an efficient communicator who responds to their needs immediately. Level-headed, practical, and hardworking, Nicole is notably calm under pressure and dedicated to striking the right balance between advocating aggressively for her clients and realizing the right result on their behalf.

An enthusiastic pro bono participant, Nicole has assisted with three Chapter 7 cases as well as an out-of-court restructuring for a nonprofit organization. Prior to joining the firm, Nicole clerked for the Hon. Donald H. Steckroth of the U.S. Bankruptcy Court for the District of New Jersey. Previously, she served as an intern for the Hon. Anne M. Patterson of the Supreme Court of New Jersey.

Bar Admissions

    New York
    New Jersey

Education

Rutgers Law School (J.D. 2013), cum laude; managing editor, Rutgers Law Review
The College of New Jersey (B.A. 2010), Political Science
Areas of Practice
Professional Career

Significant Accomplishments

Mountain Creek Resort, Inc., District of New Jersey: Counsel to the Debtors

Draw Another Circle LLC d/b/a Hastings Entertainment Inc., District of Delaware: Counsel to the Official Committee of Unsecured Creditors

Patriot Coal Corporation, Eastern District of Virginia: Counsel to the United Mine Workers of America

Alpha Natural Resources, Eastern District of Virginia: Counsel to the United Mine Workers of America

Walter Energy Inc., Northern District of Alabama: Counsel to the United Mine Workers of America


Blogs

Capital Markets Litigation
Lowenstein Sandler LLP 

Litigation News for the Global Financial Community

Articles

Fisker Decision Further Demonstrates that Section 510(b) Subordination of Investor Claims Is Not Absolute
Lowenstein Sandler LLP, May 2017

When a company files for bankruptcy protection, it is often the case that insufficient value is realized to satisfy all claims against the company. Because the creditors of a bankrupt company generally must be paid in full before its equity holders recover at all, shareholders typically receive no distribution on account of their equity interests in the bankrupt company...

Additional Articles

In its March 2017 decision in Czyzewski v. Jevic Holding Corp., the Supreme Court of the United States (the "Supreme Court") held that case-ending structured dismissals which circumvent the absolute priority rule and do not have a significant Bankruptcy Code related justification are impermissible. Because creditors' committees rely heavily on structured dismissals and related gifting provisions to obtain a recovery for holders of general unsecured claims ("GUCs") where a recovery would not otherwise be possible, practitioners and commentators have expressed concern over the long term implications of the Jevic decision.

The U.S. Bankruptcy Code provides a complex set of rules governing the rights and obligations of landlords and tenants upon the commencement of a Chapter 11 case.


While issues related to commercial real estate leases are increasingly common in Chapter 11 cases due to the uptick in filings by national retailers with significant leasehold interests, there remains a considerable lack of clarity regarding the interpretation of certain bankruptcy code provisions on commercial leases. Additionally, as a result of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) amendments1—which imposed more stringent statutory limitations on the time a debtor has to retain or reject its commercial leases—debtors have far less time to make key strategic decisions that will substantially impact their liquidity, their balance sheet, and their ultimate success as a Chapter 11 debtor.


The increase in retail filings, the statutory pressure to quickly resolve lease issues, and the presence of both interand intra-circuit splits on issues and sub-issues under the commercial lease provisions of the bankruptcy code have rendered commercial leases one of the most heavily analyzed aspects of a debtor/tenant’s Chapter 11 case. As a result of this increased focus on commercial leases, debtors devote significant resources— both pre- and post-petition—to formulating a business plan that will minimize their obligations. In large part, this analysis includes determining which jurisdiction offers the debtor the most favorable outcome with respect to its commercial lease portfolio. Reciprocally, this means that by the time a Chapter 11 case is filed, most debtors will have been working for months on a strategy aimed at minimizing landlord claims.


This article was originally published in the February 2019 issue of New Jersey Lawyer magazine, a publication of the New Jersey State Bar Association, and is reprinted here with permission.

“Titanic.” We’ve all seen it and enjoyed watching the ill-fated love affair between Rose and Jack develop during the course of an over-length movie. We watched Rose grapple with the tough decisions between living up to others’ expectations and following her heart. We rooted Rose on as she decided to spurn her high-society fiancé and defy her mother to be with her true love. And, in a true Hollywood twist of fate (spoiler alert!), we watched in horror as Rose’s happiness is shattered when Jack slowly sinks to the bottom of the ocean.


However, the most compelling scene of the movie takes place at the very end, when the camera pans Rose’s room and we see that, after she survived the Titanic and lost the love of her life, Rose went on to live a full life. She married and had children, who gave her beautiful grandchildren. She learned to ride a horse even though Jack was not there to teach her. And Rose likely refined her spitting technique to be truly award worthy (and note, we did not say “like a man”). In other words, Rose experienced a number of highs and lows in her life. She faced many difficult decisions and things didn’t always work out the way she expected or wanted, but she kept moving forward.

Over the past decade, low interest rates and a  string of pro-lender bankruptcy decisions on  make-whole provisions—a type of contractual prepayment penalty that offers yield protection to a lender in the event of debtor’s early repayment—have resulted in the increasing prevalence of make-wholes in commercial loan  documents and bond indentures, particularly in the distressed lending arena. A debtor’s make-whole obligations are typically substantial and often threaten to overwhelm the claims pool in a Chapter 11 case and significantly dilute potential distributions to general unsecured creditors. With lenders (both secured and unsecured) in recent cases seeking to recover hundreds of millions of dollars in make-whole amounts, these provisions have quickly garnered multi-faceted, high-stakes challenges by creditors’ committees and other constituencies in Chapter 11 cases. The Fifth Circuit’s January 2019 decision in Ultra Petroleum,1 which strongly suggests that make-whole provisions constitute unmatured interest, is a positive development for trade creditors that may benefit from the disallowance of such claims under the Bankruptcy Code.


IN BRIEF



  • Lenders often include a prepayment premium provision—particularly in larger commercial loans with longer terms—to ensure a guaranteed return at the time they agree to provide the financing. This limits the unpredictability of a borrower’s decision to refinance or otherwise repay a loan.

  • The Fifth Circuit’s decision in Ultra Petroleum undoubtedly creates a valuable leverage point for corporate debtors, creditors’ committees, and other stakeholders seeking to avoid or reduce prepayment premium obligations in chapter 11 negotiations with prepetition lenders.

  • Although distressed lenders are, by nature, in the business of risky business, the decision’s immediate upside for corporate debtors, creditors’ committees, and other stakeholders must be measured alongside considerations of the lending market’s potential response in the longer term.



PREPAYMENT PENALTIES IN COMMERCIAL LOAN DOCUMENTS


Contractual prepayment premiums—also called make-whole provisions or prepayment penalties—offer yield protection to a lender in the event a borrower repays its loan prior to its scheduled maturity date. Such provisions are often found in higher-value loans with longer terms, including those offered to distressed companies trying to clean up their balance sheet or restructure debt in an attempt to avoid a bankruptcy filing. Some categorize prepayment premiums as a hedge against the risk of loss of future interest resulting from a borrower’s early payoff, whereas others describe the premium as the price a borrower pays for the autonomy to prepay or refinance its debt. Whichever way you put it, prepayment premiums endeavor to increase predictability for lenders.


Although these provisions are increasingly common in commercial loan agreements and bond indentures, and even more so where the borrower is distressed, that is not to say they are uncontroversial. In many cases, make-whole provisions compensate commercial lenders and bondholders in an amount significantly exceeding that which the name would imply, contemplating returns that often exceed the current fair value of the debt. In addition, because they are more common in larger loans, make-whole amounts are typically quite significant. Indeed, in In re Ultra Petroleum, 913 F.3d 533 (5th Cir. 2019), the value of the make-whole amount and postpetition interest at stake exceeded $380 million.


THE ULTRA PETROLEUM DECISION


To be clear, the Ultra Petroleum decision is not the first to create uncertainty in the analysis of make-whole provisions under the Bankruptcy Code, and it is true that objectors seeking to avoid make-whole claims enjoyed their choice of several grounds of attack far before the Fifth Circuit’s ruling. For example, make-whole claims had been disallowed as unenforceable under applicable nonbankruptcy law (including based on arguments that the claims were a penalty as opposed to a reasonable and enforceable liquidated damages provision), as unreasonable under section 506(b) of the Bankruptcy Code (with respect to secured claims), or in a handful of cases, as unmatured interest under section 502(b)(2). In fact, prior to Ultra Petroleum, the Second Circuit in In re MPM Silicones, LLC, 874 F.3d 787 (2d Cir. 2017) and the Third Circuit in In re Energy Future Holdings Corporation, 842 F.3d 247 (3d Cir. 2016), had issued completely conflicting opinions on whether the automatic acceleration of debt caused by a bankruptcy filing triggers payment of a make whole.


In the January 2019 decision, the Fifth Circuit, albeit in dicta, sided with the small minority of bankruptcy courts that held that make-whole claims constitute unmatured interest because, in substance, they seek to compensate a lender for future interest payments due to early repayment of debt. Thus, the Ultra Petroleum ruling, which strongly suggests that section 502(b)(2) disallows any claim that is the economic equivalent of unmatured interest, bolsters arguments for the across-the-board disallowance of make-whole claims under the Bankruptcy Code.


THE POST-ULTRA PETROLEUM STATE OF THE LAW


Although the successful recovery of make-whole amounts from a chapter 11 debtor was far from a foregone conclusion even pre-Ultra Petroleum, the decision unquestionably alters what had been at least a somewhat navigable legal landscape, and raises questions about the lending market’s response in the longer term.


The pre-Ultra Petroleum state of the law was marked by specific guidelines set forth in various cases that provided a playbook by which sophisticated bankruptcy counsel could surgically craft loan documents to avoid the pitfalls of make-whole provisions by including carefully bargained-for provisions on choice of law, yield maintenance formulas estimating the damages to lenders resulting from prepayment, and clearly defined conditions to payment, including explicit language indicating the make whole is payable on acceleration. Thus, notwithstanding the existing circuit split, lenders could draft to hedge against these risks and exert their control over borrowers to push for a favorable jurisdiction in the event of bankruptcy.


The ruling will undoubtedly have considerable impact on the allowability of a lender’s make-whole claim in courts within the Fifth Circuit. However, unless and until the Supreme Court offers guidance on how courts should approach the issue, the new, even less predictable landscape of make-whole claims in bankruptcy means significantly more uncertainty for lenders relying on make-whole recoveries. In a realm where lenders already exercise a great deal of control, the uncertainty caused by the ruling, coupled with the typically significant value of the make-whole claims at stake, may result in increased rigidity and tension in chapter 11 negotiations. To compensate for this risk, lenders may also resort to charging higher interest rates and fees on distressed deals, or even opting not to lend to distressed borrowers. Although the ultimate impact of Ultra Petroleum remains to be seen, the line between risky and too risky can be a thin (and expensive) one to tread.



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