Ultra Petroleum Refuels Grounds for Challenging Make-Whole Amounts, Postpetition Interest, and Other Fees

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.