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Third Circuit Reverses Hertz Postpetition Interest, Make Whole Decisions; Holds Noteholders Entitled to Contractual Interest, Redemption Premiums Under Absolute Priority Rule in Solvent Cases

Relevant Document: Opinion A divided three-judge panel of the U.S. Court of Appeals for the Third Circuit issued an opinion today affirming in part and reversing in part Judge Mary Walrath’s decisions denying Hertz noteholders’ claims for postpetition interest at the contract rate and make whole premiums. The majority opinion, written by Circuit Judge Thomas L. Ambro, holds the noteholders have a right to contractual postpetition interest and redemption premiums on Hertz 2026/2028 notes “because Hertz was solvent.” The decision follows similar rulings from the Fifth Circuit in Ultra Petroleum and the Ninth Circuit in PG&E, reinforcing the pre-Bankruptcy Code solvent-debtor exception to the general prohibition on unmatured interest. As a result of the ruling, Hertz must pay the noteholders more than $270 million in postpetition interest and premiums unless overturned. The U.S. Supreme Court declined to review the Ultra and PG&E decisions in May 2023. Judge Mary Walrath certified her December 2021 and November 2022 opinions disallowing the noteholders’ claims for contractual postpetition interest and make whole premiums for direct appeal to the Third Circuit in December 2022. In her December 2021 decision, the bankruptcy judge concluded that the noteholders could be classified as unimpaired under Hertz’s plan if[...]